-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MWnGjhfmVuP2ty5e5nahcPdTz+/lAHIBWZEbvLdvwHrn2PreFgAoQ3dOdax0S2ZX 1+idqQtfkctXg0ZqXzOldA== 0000927016-97-003242.txt : 19971127 0000927016-97-003242.hdr.sgml : 19971127 ACCESSION NUMBER: 0000927016-97-003242 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19971126 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DETAILS INC CENTRAL INDEX KEY: 0001050117 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 330779123 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-41211 FILM NUMBER: 97729790 BUSINESS ADDRESS: STREET 1: 1231 SIMON CIRCLE CITY: ANAHEIM STATE: CA ZIP: 92806 BUSINESS PHONE: 7146304077 MAIL ADDRESS: STREET 1: 1231 SIMON CIRCLE CITY: ANAHEIM STATE: CA ZIP: 92806 S-4 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 26, 1997 REGISTRATION NO. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- DETAILS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 3672 33-0779123 (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER) (I.R.S. EMPLOYER (STATE OR OTHER IDENTIFICATION NUMBER) JURISDICTION OF INCORPORATION OR ORGANIZATION) ---------------- 1231 SIMON CIRCLE ANAHEIM, CALIFORNIA 92806 (714) 630-4077 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ---------------- BRUCE D. MCMASTER DETAILS, INC. 1231 SIMON CIRCLE ANAHEIM, CALIFORNIA 92806 (714) 630-4077 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- COPY TO: LAUREN I. NORTON, ESQ. ROPES & GRAY ONE INTERNATIONAL PLACE BOSTON, MASSACHUSETTS 02110 (617) 951-7000 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [_] - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
PROPOSED MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT REGISTRATION FEE - --------------------------------------------------------------------------------------------- 10% Senior Subordinated Notes due 2005.... $100,000,000 100% $30,303 - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +THIS PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO + +COMPLETION OR AMENDMENT. UNDER NO CIRCUMSTANCES SHALL THIS PROSPECTUS + +CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED NOVEMBER 26, 1997 PROSPECTUS DETAILS, INC. OFFER TO EXCHANGE SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2005 WHICH HAVE BEEN REGISTERED UNDER THE LOGO SECURITIES ACT OF 1933, AS AMENDED, FOR AN EQUAL PRINCIPAL AMOUNT OF ITS SENIOR SUBORDINATED NOTES DUE NOVEMBER 15, 2005, WHICH HAVE NOT BEEN SO REGISTERED ----------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS THEREUNDER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED ----------- Details, Inc., a California corporation (the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Prospectus and the accompanying Letter of Transmittal (which together constitute the "Exchange Offer"), to exchange an aggregate principal amount of up to $100,000,000 of its new Senior Subordinated Notes due 2005 (the "Exchange Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its outstanding Senior Subordinated Notes due 2005 (the "Original Notes" and, together with the Exchange Notes, the "Notes") from the holders (the "Holders") thereof. The terms of the Exchange Notes are identical in all material respects to the Original Notes, except for certain transfer restrictions and registration rights relating to the Original Notes. The Company will accept for exchange any and all Original Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless extended (as so extended, the "Expiration Date"). Tenders of Original Notes may be withdrawn at any time prior to the Expiration Date. The Exchange Offer is not conditioned upon any minimum principal amount of Original Notes being tendered for exchange pursuant to the Exchange Offer. Pursuant to the terms of the Registration Rights Agreement (as defined herein), the Exchange Offer will remain open for not less than 30 days (or longer, if required by applicable law) after the date of which notice of the Exchange Offer is mailed to Holders of the Original Notes. The Exchange Offer is subject to certain other customary conditions. See "The Exchange Offer." Interest on the Exchange Notes is payable semi-annually on May 15 and November 15 of each year, commencing on May 15, 1998. Except as described below, the Company may not redeem the Exchange Notes prior to November 15, 2001. On or after such date, the Company may redeem the Exchange Notes, in whole or in part, at the redemption prices set forth herein together with accrued and unpaid interest, if any, to the redemption date. In addition, at any time on or prior to November 15, 2000, the Company may, at its option, redeem up to 40% of the original principal amount of the Exchange Notes at a redemption price of 110% of the principal amount thereof, together with accrued and unpaid interest thereon to the applicable redemption date, with the net proceeds of one or more Equity Offerings (as defined), received by, or invested in, the Company so long as there is a Public Market (as defined) at the time of such redemption; provided that at least 60% of the original aggregate principal amount of the Exchange Notes remain outstanding immediately after the occurrence of such redemption. The Exchange Notes will not be subject to any sinking fund requirement. Upon the occurrence of a Change of Control (as defined), (i) the Company will have the option, at any time prior to November 15, 2001, to redeem the Exchange Notes, in whole but not in part, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium (as defined), together with accrued and unpaid interest, if any, to the date of redemption, and (ii) if the Company does not so redeem the Exchange Notes or if the Change of Control occurs after November 15, 2001, each Holder will have the right to require the Company to make an offer to repurchase all of the outstanding Exchange Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. See "Description of Exchange Notes." The Exchange Notes will be unsecured obligations of the Company, subordinated in right of payment to all existing and future Senior Indebtedness (as defined) of the Company and will be effectively subordinated to all obligations of the subsidiaries of the Company. The Exchange Notes will rank pari passu with all senior subordinated indebtedness of the Company and will rank senior to all subordinated indebtedness of the Company. On a pro forma basis offer giving effect to the Transactions (as defined) and the Initial Offering (as defined) as if they had occurred on September 30, 1997, the aggregate principal amount of the Company's outstanding Senior Indebtedness was approximately $87.7 million. The Indenture under which the Exchange Notes will be issued (the "Indenture") will permit the Company to incur additional indebtedness, including Senior Indebtedness, subject to certain limitations. See "Description of Exchange Notes." The Exchange Notes are being offered hereunder in order to satisfy certain obligations of the Company contained in the Exchange and Registration Rights Agreement dated November 18, 1997, between the Company and the other signatory thereto (the "Registration Rights Agreement"). The Company believes that based on interpretations by the staff of the Securities and Exchange Commission (the "Commission"), Exchange Notes issued pursuant to the Exchange Offer in exchange for Original Notes may be offered for resale, resold and otherwise transferred by each Holder thereof (other than any Holder which is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery requirements of the Securities Act, provided that such Exchange Notes are acquired in the ordinary course of such Holder's business and such Holder has no arrangement with any person to participate in the distribution of such Exchange Notes. Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The Company will not receive any proceeds from the Exchange Offer and will pay all expenses incident to the Exchange Offer. -------------------------------------- SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE EXCHANGE NOTES. -------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------- The date of this Prospectus is , 1998. The Exchange Offer is not being made to, nor will the Company accept surrenders for exchange from, Holders of Original Notes in any jurisdiction in which such Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. The Exchange Notes will be available initially only in book-entry form. The Company expects that the Exchange Notes issued pursuant to this Exchange Offer will be issued in the form of a Global Note (as defined herein), which will be deposited with, or on behalf of, The Depository Trust Company (the "Depositary") and registered in its name or in the name of Cede & Co., its nominee. Beneficial interests in the Global Note representing the Exchange Notes will be shown on, and transfers thereof will be effected through, records maintained by the Depositary and its participants. After the initial issuance of the Global Note, Exchange Notes in certificated form will be issued in exchange for interests in the Global Note only on the terms set forth in the Indenture (the "Indenture") between the Company and State Street Bank and Trust Company, as trustee (the "Trustee"), dated as of November 18, 1997. See "Description of Exchange Notes--Book-Entry Transfer." Prior to this Exchange Offer, there has been no public market for the Original Notes. To the extent that Original Notes are tendered and accepted in the Exchange Offer, a Holder's ability to sell untendered Original Notes could be adversely affected. If a market for the Exchange Notes should develop, the Exchange Notes could trade at a discount from their face value. The Company does not currently intend to list the Exchange Notes on any securities exchange or to seek approval for quotation through any automated quotation system. Neither the Company nor any of its subsidiaries will receive any cash proceeds from the issuance of the Exchange Notes offered hereby. No dealer- manager is being used in connection with this Exchange Offer. See "Use of Proceeds" and "Plan of Distribution." THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION. HOLDERS OF ORIGINAL NOTES ARE URGED TO READ THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR ORIGINAL NOTES PURSUANT TO THE EXCHANGE OFFER. DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER "SUMMARY," "THE TRANSACTIONS," "UNAUDITED PRO FORMA FINANCIAL DATA," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING THE COMPANY'S FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. ALL OF THESE FORWARD-LOOKING STATEMENTS ARE BASED ON ESTIMATES AND ASSUMPTIONS MADE BY MANAGEMENT OF THE COMPANY, WHICH ALTHOUGH BELIEVED TO BE REASONABLE, ARE INHERENTLY UNCERTAIN. THEREFORE, UNDUE RELIANCE SHOULD NOT BE PLACED ON SUCH ESTIMATES AND STATEMENTS. NO ASSURANCE CAN BE GIVEN THAT ANY OF SUCH ESTIMATES OR i STATEMENTS WILL BE REALIZED AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE: (1) INCREASED COMPETITION; (2) INCREASED COSTS; (3) INABILITY TO CONSUMMATE ACQUISITIONS ON ATTRACTIVE TERMS; (4) LOSS OR RETIREMENT OF KEY MEMBERS OF MANAGEMENT; (5) INCREASES IN THE COMPANY'S COST OF BORROWINGS OR UNAVAILABILITY OF ADDITIONAL DEBT OR EQUITY CAPITAL ON TERMS CONSIDERED REASONABLE BY MANAGEMENT; (6) ADVERSE STATE, FEDERAL OR FOREIGN LEGISLATION OR REGULATION OR ADVERSE DETERMINATIONS BY REGULATORS; (7) CHANGES IN GENERAL ECONOMIC CONDITIONS IN THE MARKETS IN WHICH THE COMPANY MAY COMPETE AND FLUCTUATIONS IN DEMAND IN THE ELECTRONICS INDUSTRY; AND (8) ABILITY TO SUSTAIN HISTORICAL MARGINS AS THE INDUSTRY DEVELOPS. MANY OF SUCH FACTORS WILL BE BEYOND THE CONTROL OF THE COMPANY AND ITS MANAGEMENT. FOR FURTHER INFORMATION OR OTHER FACTORS WHICH COULD AFFECT THE FINANCIAL RESULTS OF THE COMPANY AND SUCH FORWARD-LOOKING STATEMENTS, SEE "RISK FACTORS." INDUSTRY DATA AND FINANCIAL INFORMATION The Company relies on and refers to information it has received from various industry analysts regarding the markets for its principal products, printed circuit boards, which the Company believes to be reliable but the accuracy and completeness of such information is not guaranteed and the Company has not independently verified this market data. Similarly, internal Company surveys, while believed by the Company to be reliable, have not been verified by independent sources. AVAILABLE INFORMATION The Company has filed a registration statement on Form S-4 (herein referred to, together with all exhibits and schedules thereto and any amendments thereto, as the "Exchange Offer Registration Statement") under the Securities Act with respect to the Exchange Notes offered hereby. This Prospectus, which forms a part of the Exchange Offer Registration Statement, does not contain all of the information set forth in the Exchange Offer Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Exchange Notes offered hereby, reference is made to the Exchange Offer Registration Statement. Statements made in this Prospectus as to the contents of certain documents are not necessarily complete and, in each instance, reference is made to the copy of the document filed as an exhibit to the Exchange Offer Registration Statement. The Company is not currently subject to the periodic reporting and other informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Pursuant to the Indenture, the Company has agreed that, whether or not it is required to do so by the rules and regulations of the Commission, for so long as any of the Notes remain outstanding, the Company will furnish to the holders of the Notes and will, if permitted, file with the Commission (i) all quarterly and annual financial information that would be required to be contained in a filing with the Commission on Forms 10-Q and 10- K if the Company was required to file such forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report thereon by the Company's certified independent accountants and (ii) all reports that would be required to be filed with the Commission on Form 8-K if the Company were required to file such reports. In addition, for so long as any of the Original Notes remain outstanding, the Company has agreed to make available to any prospective purchaser of the Original Notes or beneficial owner of the Original Notes in connection with any sale thereof the information required by Rule 144A(d)(4) under the Securities Act. ii Any reports or documents filed by the Company with the Commission (including the Exchange Offer Registration Statement) may be inspected and copied at the Public Reference Section of the Commission's office at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices in New York (7 World Trade Center, 13th Floor, New York, New York 10048) and Chicago (Citicorp Center, 14th Floor, 500 West Madison Street, Chicago, Illinois 60661). Copies of such reports or other documents may be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a Web site that contains reports and other information that is filed through the Commission's Electronic Data Gathering Analysis and Retrieval System. The Web site can be accessed at http://www.sec.gov. iii SUMMARY Unless otherwise stated in this Prospectus or unless the context otherwise requires, references to the "Company," "Details, Inc.," "Details" or the "Issuer" means Details, Inc., a California corporation and a direct wholly- owned subsidiary of Details Capital Corp. ("Details Capital"). Details Capital is a direct wholly-owned subsidiary of Details Holdings Corp. (f/k/a Details, Inc.) ("Holdings"), a California corporation. On November 3, 1997, Holdings organized the Issuer and contributed substantially all of its assets, subject to certain liabilities (other than the Holdings Facility (as defined)) to the Issuer. References to the "Company," and the financial statements and other financial data herein are, for the periods prior to such transfer, references to Holdings or the financial statements and other financial data of Holdings, as predecessor to the Issuer and Details Capital. On November 19, 1997 Holdings organized Details Capital and on December , 1997, Holdings contributed substantially all of its assets, subject to certain liabilities, including the Discount Notes (as defined) to Details Capital. The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial data, including the "Unaudited Pro Forma Financial Data," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited financial statements included elsewhere in this Prospectus. Unless otherwise specified, "pro forma basis" as used in this Summary means pro forma for the Transactions (as defined) and the Initial Offering (as defined). Unless otherwise specified, "year-to-date" refers to the nine months ended September 30, 1997. THE COMPANY Details is a leading manufacturer and marketer of complex printed circuit boards ("PCBs") for the time critical or "quick-turn" segment of the domestic PCB industry. Printed circuit boards are the basic platforms used to interconnect microprocessors, integrated circuits, and other components essential to the functioning of virtually all electronic products. Quick-turn PCBs, which are defined as printed circuit boards manufactured within 10 days (and as little as 24 hours) in prototype and pre-production quantities, are used in the design, test and launch phases of new electronic products. The quick-turn market is characterized by higher margins, faster growth and greater customer diversity than the long-lead market. Approximately 70% of the Company's year-to-date sales are quick-turn PCBs. Complex PCBs are those employing difficult to manufacture specifications such as high layer counts, dense circuitry designs, and exotic materials. Such boards command escalating pricing premiums the greater the complexity. The Company's advanced engineering capability enables it to produce boards with up to 40 layers employing leading- edge fabrication technologies. The Company supplies over 300 customers in a wide range of end-use markets including the telecommunications, computer, contract manufacturing, industrial instrumentation, and consumer electronics industries. On a pro forma basis for the twelve months ended September 30, 1997, the Company's net sales and adjusted EBITDA would have been $73.9 million and $31.6 million, respectively. Since the installation of a new management team in 1992, the Company has successfully increased its sales and profitability and diversified its customer base by strategically focusing on the quick-turn PCB market. Because of its superior ability to deliver complex boards in short time frames with a high degree of reliability, management believes that the Company plays a uniquely mission critical role in facilitating its customers' "time-to-market" efforts. Such efforts have become increasingly important in light of the electronic industry's trends toward shortened product lifecycles and increased competitiveness. As a result of this strategic shift, the Company has grown net sales at a compound annual growth rate ("CAGR") of 25% from $25.8 million in the fiscal year ended December 31, 1992 to $73.9 million for the twelve months ended September 30, 1997. In the same time frame, the Company has grown adjusted pro forma EBITDA at a 27% CAGR from $10.0 million to $31.6 million. As a result of the Recapitalization (as defined), management owns stock and options for approximately 27.5% of the fully-diluted capital stock of Holdings. Such equity ownership represents a significant economic commitment to, and participation in, the Company. 1 The Company's principal executive offices are located at 1231 Simon Circle, Anaheim, California 92806, and its telephone number is (714) 630-4077. INDUSTRY OVERVIEW The Company primarily operates in the domestic market for quick-turn printed circuit boards. The Company believes that the industry has the following characteristics: Large and Rapidly Growing Industry. In 1996, the worldwide market for printed circuit boards was $30.4 billion, of which the U.S. represented 27%, or $8.3 billion. Approximately 87% of the domestic market, or $7.2 billion, was supplied by merchant (i.e., non-captive) fabricators. Of this amount, quick- turn PCBs accounted for 21%, or approximately $1.5 billion. The quick-turn segment has experienced rapid growth, increasing at a 24% CAGR since 1992, twice the rate for the overall domestic PCB industry. The Company believes that the growing demand for quick-turn PCBs is due to a number of favorable trends, including: (i) increasing importance to OEMs of being first to market in the face of shortened product lifecycles; (ii) greater complexity of electronic products which require increased prototyping and testing; (iii) general growth in the number of products containing electronic components; and (iv) ongoing outsourcing by OEMs of PCB design and fabrication. Multiple Value-Added Segments. The customary evolution of an electronic product results in several phases of PCB procurement: initially, in the design and development stage, customers order small lot sizes (1-25 boards) and demand quick-turn delivery ("prototype boards"); in the test-marketing and product introduction stages, they order low to medium quantities (up to 5,000 boards) which may or may not require quick-turn delivery ("pre-production boards"); and in the product roll-out stage, they tend to order large volumes with lead times in excess of three weeks ("production boards"). Prototype and pre-production boards, the segments in which the Company competes, command escalating pricing premiums the shorter the lead time and the greater the board complexity. PCB complexity is determined by layer count, the use of exotic substrates and materials, the fineness of line spaces and traces, the incorporation of buried resistors and capacitors, the use of microvias and numerous other features. By focusing on either time criticality, board complexity, or both, a PCB fabricator can realize significant pricing premiums and commensurately higher profitability per PCB than that attainable in the production segment of the market. Consolidating Industry. The domestic PCB industry is highly fragmented with approximately 600 active fabricators. Although the industry has experienced significant consolidation in the last four years, declining 37% from the approximately 950 manufacturers in 1992, the top eight manufacturers still only accounted for approximately 25% of industry sales in 1996. Consolidation in the industry is being driven by (i) growing demand by electronic OEMs for both increasingly complex PCBs and shortened delivery cycles which mandates sophisticated design, engineering and manufacturing capabilities on the part of PCB fabricators; (ii) ongoing outsourcing by electronic OEMs; and (iii) increasing desire by OEMs to use fewer suppliers. COMPETITIVE STRENGTHS The Company believes that it has several competitive advantages in the PCB industry, including: Quick-Turn Market Leader. The Company is one of the largest manufacturers of quick-turn PCBs in the United States, with approximately 70% of its year-to- date sales derived from quick-turn products. The Company believes it is among a select few manufacturers that can routinely complete complex orders in less than 24 hours. The Company believes that its superior engineering expertise, ability to produce highly complex PCBs, and consistent record of reliable service, product quality and on-time performance give it a competitive advantage in the quick-turn market. 2 Leading Technological Capabilities. The Company believes that it is an industry leader in the engineering of advanced PCB materials and technologies that maximize performance and board density. Customers utilize the technological expertise of Details' 66 front-end engineers throughout the product development effort to achieve an integrated cost-effective manufacturing solution. The Company has the ability to produce boards with up to 40 layers, and approximately 40% of its sales year-to-date included boards with layer counts of 8 or more. The Company consistently delivers dependable, high quality products with an on-time delivery record of approximately 97%. The Company believes its ability to improve customer board designs for enhanced manufacturing efficiency differentiates it from its competition. Diverse and Loyal Customer Base. The Company believes that it has one of the broadest customer bases in the industry, with more than 300 customers serving a wide range of end-use markets. Year-to-date, the Company's largest customer accounted for less than 11% of revenue. In addition, the Company has been successful at retaining customers. For example, the Company has maintained a relationship with its top three year-to-date customers--Motorola, Intel and IBM--since at least 1993. The Company believes that its ability to rapidly respond to changes in demand for new or modified board designs with consistent high quality is a major factor in its success at creating customer partnerships. The Company's customer list includes leading manufacturers of telecommunications equipment, such as Motorola and Qualcomm; computer workstations and servers, such as IBM and Silicon Graphics; semi-conductor fabrication such as Intel; industrial products, such as Caterpillar and Delco; computer assemblers, such as Dell and Compaq; and contract manufacturing firms such as SCI and Jabil. Experienced Management Team with Significant Equity Ownership. The Company's President, Bruce McMaster, has a total of 16 years of experience in the PCB industry. Mr. McMaster, together with the other members of his senior management team--Lee Muse (Vice President of Sales and Marketing), Joseph Gisch (Chief Financial Officer), Terry Wright (Vice President of Engineering), and Michael Moisan (Vice President of Operations)--have over 70 years of industry experience and approximately 30 years with the Company. Since 1992, management has successfully developed and implemented manufacturing and marketing strategies which have resulted in a compound annual growth rate in net sales of 25% from the fiscal year ended December 31, 1992 to the twelve months ended September 30, 1997. As a result of the Recapitalization, management owns stock and options for approximately 27.5% of the fully-diluted capital stock of Holdings. Such equity ownership represents a significant economic commitment to, and participation in, the Company. BUSINESS STRATEGY The Company's goal is to maintain its growth rate in sales and profitability by leveraging its quick-turnaround capability, its market leading technology, and its large customer base to increase its penetration of value-added market segments. In order to accomplish its goal, the Company intends to: Increase Technical Leadership in Quick-Turn Segment. The Company intends to extend its leadership in the quick-turn segment by continuing to provide consistent, rapid delivery through leading-edge processes and technology. Currently, the Company is capable of delivering 12-layer boards in as little as 24 hours which it believes is among the fastest of any current industry participant. Moreover, the Company had a less than 1% product return rate for the nine months ended September 30, 1997, which it believes is among the lowest in the quick-turn segment. Such performance is largely due to the technology and processes employed by the Company coupled with its engineering expertise and customized design and development services. The Company intends to maintain its focus on improving quality and delivery times by incorporating emerging technologies and by continuously improving its manufacturing processes. 3 Cross-Sell Pre-Production to Quick-Turn Customers. The Company believes there are substantial opportunities to leverage its strong customer relations in the quick-turn segment by cross-selling 10 to 20 day pre-production volume to its existing customers. Recognizing OEMs' desire to simplify their supplier chain, the Company aims to offer customers a more efficient production solution which will (i) reduce customers' tooling costs, (ii) eliminate supplier switching risk, and (iii) shorten customers' "time-to-market." In furtherance of this initiative, the Company continues to make investments in capital equipment, engineering capability and systems infrastructure. Achieve International Presence. The Company believes there are substantial opportunities to satisfy international demand for time-critical, complex PCBs. Year-to-date, approximately 94% of the Company's revenues were generated domestically despite the fact that the U.S. accounts for only 27% of the worldwide market. In particular, the Company has established a sales office in the United Kingdom to service existing European customers' needs and to broaden the Company's European presence. The Company is currently developing a manufacturers' representative arrangement in Singapore as an entry into the Asian market. Pursue Selective Acquisitions. The Company is currently pursuing selective acquisitions to complement its organic growth. Due to the high degree of fragmentation in the PCB industry, the Company believes substantial consolidation opportunities exist. Consequently, the Company is actively seeking acquisitions which will: (i) increase its 10 to 20 day pre-production capacity, (ii) expand its international geographic coverage, (iii) strengthen its position in existing markets, (iv) provide significant profit improvement opportunities through the application of the Company's superior operating capabilities, and (v) enhance its technology base. The Company is currently in discussions with several potential acquisition candidates but has not entered into any agreements or understandings with any third parties. THE TRANSACTIONS On or about October 4, 1997, Holdings and Holdings' stockholders entered into a recapitalization agreement (as amended to date, the "Recapitalization Agreement") with DI Acquisition Corp. ("DIA") which provided for the recapitalization (the "Recapitalization") by means of a merger (the "Merger") of DIA with and into Holdings. On October 28, 1997, the Merger was consummated. In connection with the Recapitalization, (i) certain stockholders and optionholders of Holdings received an aggregate amount of cash equal to approximately $184.3 million, (ii) Chase Manhattan Capital, L.P. ("CMC"), an affiliate of the Initial Purchaser (as defined), retained a portion of its investment in Holdings representing approximately 7.7%, and certain other stockholders of Holdings retained a portion of their investments in Holdings representing approximately 2.8%, of the fully-diluted equity of Holdings (in each case after giving effect to the Recapitalization and related transactions) (collectively, the "Existing Owner Rollover"), and (iii) management retained certain shares representing approximately 11.3%, and certain options to acquire shares of common stock of Holdings representing approximately 5.8%, of the fully-diluted equity of Holdings (after giving effect to the Recapitalization and related transactions) (collectively the "Management Rollover Equity"). In addition, in connection with the Recapitalization, management acquired additional shares and options to acquire additional shares representing 10.4% of the fully-diluted equity of Holdings (after giving effect to the Recapitalization and related transactions). After the Recapitalization, management held shares and options representing approximately 27.5% of the fully diluted equity of Holdings. Financing for the Recapitalization, and the related fees and expenses, consisted of (i) $46.3 million of equity capital provided by investment funds associated with Bain Capital, Inc. (the "Bain Capital Funds"); (ii) $11.2 million of equity capital provided by an affiliate of CMC; (iii) $4.9 million of equity capital provided by certain other investors (the "Other Investors"); (iv) the $16.1 million 4 Management Rollover Equity; (v) the $10.5 million Existing Owner Rollover; (v) a senior subordinated loan facility of $85 million (the "Senior Subordinated Facility"); (vi) a senior unsecured credit facility of $55 million of Holdings (the "Holdings Facility"); and (vii) a syndicated senior secured Tranche A term loan facility of $41.4 million as of the Recapitalization closing date (the "Tranche A Facility"), a syndicated senior secured Tranche B term loan facility of $50 million (the "Tranche B Facility" and, together with the Tranche A Facility, the "Term Loan Facilities") and a senior secured revolving credit facility of up to $30 million (the "Revolving Credit Facility" and, together with the Term Loan Facilities, the "Senior Credit Facilities"). The Recapitalization, the Merger, the Senior Subordinated Facility, the Holdings Facility and the Senior Credit Facilities are referred to herein as the "Transactions." The following table sets forth the sources and uses of funds in connection with the Recapitalization as of October 28, 1997:
DOLLARS IN MILLIONS ----------- SOURCES: Senior Credit Facilities: Revolving Credit Facility(1)................................... $ -- Term Loan Facilities(2)........................................ 91.4 Senior Subordinated Facility..................................... 85.0 Holdings Facility................................................ 55.0 Equity Investment(3)............................................. 62.4 Existing Owner Rollover.......................................... 10.5 Management Rollover Equity....................................... 16.1 ------ Total Sources................................................ $320.4 ====== USES: Redemption of stock and distribution to shareholders............. $184.3 Repayment of Existing Indebtedness(4)............................ 96.4 Management Rollover Equity....................................... 16.1 Existing Owner Rollover.......................................... 10.5 Transaction Fees and Expenses(5)................................. 13.1 ------ Total Uses................................................... $320.4 ======
- -------- (1) Under the Revolving Credit Facility the Company had, as of October 28, 1997, availability of $30 million. See "Description of Senior Credit Facilities." (2) Following the Recapitalization, there was an additional $25 million available for borrowing under the Term Loan Facilities for future acquisitions, subject to certain conditions and restrictions. See "Description of Senior Credit Facilities." (3) Represents $46.3 million provided by Bain Capital Funds, $11.2 million provided by an affiliate of CMC and $4.9 million provided by Other Investors. (4) Includes the repayment of bank indebtedness as well as other obligations of the Company paid in connection with the Recapitalization. See "Management." (5) Includes underwriting fees, financial advisory fees, and legal, accounting and other professional fees. See "Certain Relationships and Related Transactions." On November 3, 1997, Holdings formed the Company, as a new wholly-owned subsidiary, and contributed substantially all of its assets, subject to certain liabilities (other than the Holdings Facility) to the Company. On November 18, 1997, the Company consummated the sale of the Original Notes in a transaction exempt from the registration requirements of the Securities Act (the "Initial Offering"). Concurrently with the Initial Offering, Holdings conducted the offering (the "Discount Note Offering") of its 12 1/2% Senior Discount Notes due 2007 (the "Discount Notes") with an aggregate discount value of approximately $60.1 million. The Company used the net proceeds (after deduction of related fees and expenses) from the Initial Offering of approximately $96.4 million to repay (i) the $85.0 million of indebtedness represented by the Senior Subordinated Facility, plus accrued interest and related fees and expenses, (ii) a portion of the Holdings Facility, and (iii) indebtedness under the Term Loan Facilities of approximately $10.3 million. In connection with the Initial Offering, the Company entered into the Registration Rights Agreement pursuant to which it agreed to register the Exchange Notes under the Securities Act and offer them in exchange for the Original Notes. The proceeds of the Discount Note Offering were used to repay the Holdings Facility, plus accrued interest and related fees and expenses. On November 19, 1997, Holdings formed Details Capital and on December , 1997 Holdings contributed substantially all of its assets, subject to certain liabilities, including the Discount Notes, to Details Capital. 5 THE EXCHANGE OFFER The Exchange Offer............ Up to $100,000,000 aggregate principal amount of Exchange Notes are being offered in exchange for a like aggregate principal amount of Original Notes. The Company is making the Exchange Offer in order to satisfy its obligations under the Registration Rights Agreement relating to the Original Notes. For a description of the procedures for tendering Original Notes, see "The Exchange Offer-- Procedures for Tendering." Expiration Date............... 5:00 p.m., New York City time, on , 1998, unless the Exchange Offer is extended by the Company in its sole discretion (in which case the Expiration Date will be the latest date and time to which the Exchange Offer is extended). See "The Exchange Offer--Terms of the Exchange Offer." Conditions to the Exchange Offer........................ The Exchange Offer is subject to the condition that the Exchange Offer does not violate applicable law or SEC staff interpretation. If the Company determines that the Exchange Offer is not permitted by applicable federal law, it may terminate the Exchange Offer. The Exchange Offer is not conditioned upon any minimum principal amount of Original Notes being tendered. See "The Exchange Offer--Conditions of the Exchange Offer." Resale of the Exchange Notes.. Based on an interpretation by the staff of the Commission set forth in no-action letters issued to third parties, the Company believes that Exchange Notes issued pursuant to the Exchange Offer in exchange for Original Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than (i) a broker-dealer who purchased such Original Notes directly from the Company for resale pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that the Holder is acquiring the Exchange Notes in its ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Original Notes wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. In the event that the Company's belief is inaccurate, Holders of Exchange Notes who transfer Exchange Notes in violation of the prospectus delivery provisions of the Securities Act and without an exemption from registration thereunder may incur liability under the Securities Act. The Company does not assume or indemnify Holders against such liability, although the 6 Company does not believe that any such liability should exist. A broker-dealer that receives Exchange Notes in exchange for Original Notes held for its own account, as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. Although such broker-dealer may be an "underwriter" within the meaning of the Securities Act, the Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. See "Plan of Distribution." The Exchange Offer is not being made to, nor will the Company accept surrenders for exchange from, Holders of Original Notes in any jurisdiction in which the Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. Procedures for Tendering Notes......................... Each Holder of Original Notes wishing to accept the Exchange Offer must complete, sign and date the accompanying Letter of Transmittal, as the case may be, or a facsimile thereof, in accordance with the instructions contained herein and therein, and mail or otherwise deliver such Letter of Transmittal, or such facsimile, together with the Original Notes and any other required documentation to the Exchange Agent (as defined herein) at the address set forth herein. By executing a Letter of Transmittal, each Holder will represent to the Company conducting the Exchange Offer that, among other things, (i) the Exchange Notes acquired pursuant to such Exchange Offer are being obtained in the ordinary course of business of the person receiving such Exchange Notes, whether or not such person is the Holder, (ii) neither the Holder nor any such other person has any arrangement or understanding with any person to participate in the distribution of such Exchange Notes and that such Holder is not engaged in, and does not intend to engage in, a distribution of Exchange Notes, and (iii) that neither the Holder nor any such other person is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company. See "The Exchange Offer--Procedures for Tendering." Special Procedures for Beneficial Owners............. Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact such registered Holder promptly and instruct 7 such registered Holder to tender on such beneficial owner's behalf. See "The Exchange Offer--Procedures for Tendering." Guaranteed Delivery Procedures................... Holders of Original Notes who wish to tender their Original Notes and whose Original Notes are not immediately available or who cannot deliver their Original Notes, the Letter of Transmittal, as the case may be, or any other documents required by such Letter of Transmittal to the Exchange Agent (as defined herein) (or comply with the procedures for book-entry transfer) prior to the Expiration Date must tender their Original Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures." Untendered Notes.............. Following the consummation of the Exchange Offer, Holders of Original Notes eligible to participate but who do not tender their Original Notes will not have any further exchange rights and such Original Notes will continue to be subject to certain restrictions on transfer. Accordingly, the liquidity of the market for such Original Notes could be adversely affected by the Exchange Offer. Consequences of Failure to Exchange..................... The Original Notes that are not exchanged pursuant to the Exchange Offer will remain restricted securities. Accordingly, such Original Notes may be resold only (i) to the Company, (ii) pursuant to Rule 144A or Rule 144 under the Securities Act or pursuant to some other exemption under the Securities Act, (iii) outside the United States to a foreign person pursuant to the requirements of Rule 904 under the Securities Act, or (iv) pursuant to an effective registration statement under the Securities Act. See "The Exchange Offer-- Consequences of Failure to Exchange." Shelf Registration Statement.. If (i) because of any change in law or applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect the Exchange Offer as contemplated hereby, (ii) any Securities (as defined) validly tendered pursuant to the Exchange Offer are not exchanged for Exchange Securities (as defined) within 210 days after the Issue Date (as defined), (iii) Chase Securities Inc. (the "Initial Purchaser") so requests with respect to Original Notes not eligible to be exchanged for Exchange Notes in the Exchange Offer, (iv) any applicable law or interpretations do not permit any holder of Original Notes to participate in the Exchange Offer, (v) any Holder of Original Notes that participates in the Exchange Offer does not receive freely transferable Exchange Notes in exchange for tendered Original Notes, or (vi) the Company so elects, the Company has agreed pursuant to the Registration Rights Agreement to register the Original Notes issued by it on a 8 shelf registration statement (the "Shelf Registration Statement") and use its best efforts to cause it to be declared effective by the Commission, as promptly as practicable after the filing thereof, and if applicable, use its reasonable best efforts to keep the Shelf Registration Statement effective for a period of two years from the Issue Date. Withdrawal Rights............. Tenders may be withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration Date. Acceptance of Original Notes and Delivery of Exchange Notes........................ The Company will accept for exchange any and all Original Notes which are properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date. The Exchange Notes issued pursuant to the Exchange Offer will be delivered promptly following the Expiration Date. See "The Exchange Offer--Terms of the Exchange Offer." Federal Income Tax Consequences.................. The exchange pursuant to the Exchange Offer will generally not be a taxable event for federal income tax purposes. See "Certain Federal Income Tax Consequences." Use of Proceeds............... There will be no cash proceeds to the Company from the exchange pursuant to the Exchange Offer. Exchange Agent................ State Street Bank and Trust Company. THE EXCHANGE NOTES Issuer........................ Details, Inc. Securities Offered............ $100,000,000 aggregate principal amount of 10% Senior Subordinated Notes due 2005. Maturity Date................. November 15, 2005. Interest Payment Dates........ May 15 and November 15, commencing May 15, 1998. Sinking Fund.................. None. Optional Redemption........... Except as described below, the Company may not redeem the Exchange Notes prior to November 15, 2001. On or after such date, the Company may redeem the Exchange Notes, in whole or in part, at the redemption prices set forth herein together with accrued and unpaid interest, if any, to the date of redemption. In addition, at any time prior to November 15, 2000, the Company may, at its option, redeem up to 40% of the original aggregate principal 9 amount of the Exchange Notes with the net proceeds of one or more Equity Offerings (as defined), received by, or invested in, the Company so long as there is a Public Market (as defined) at the time of such redemption, at a redemption price equal to 110% of the principal amount to be redeemed, together with accrued and unpaid interest, if any, to the date of redemption; provided that at least 60% of the original aggregate principal amount of the Exchange Notes remains outstanding immediately after each such redemption. See "Description of Exchange Notes--Optional Redemption." Upon a Change of Control (as defined), (i) the Company will have the option, at any time prior Change of Control............. to November 15, 2001, to redeem the Exchange Notes, in whole but not in part, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium (as defined), together with accrued and unpaid interest, if any, to the date of redemption, and (ii) if the Company does not so redeem the Exchange Notes or if the Change of Control occurs after November 15, 2001, each Holder will have the right to require the Company to make an offer to repurchase the Exchange Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of repurchase. See "Description of Exchange Notes--Change of Control." The Indenture will provide that any Subsidiary Guarantor (as defined) which guarantees the Future Guarantees............. Company's Indebtedness under the Senior Credit Facilities will guarantee the Exchange Notes on an unsecured, senior subordinated basis. See "Description of Exchange Notes --Certain Covenants--Future Subsidiary Guarantors." The Exchange Notes will be unsecured and will Ranking....................... be subordinated in right of payment to all existing and future Senior Indebtedness of the Company and will be effectively subordinated to all obligations of the subsidiaries of the Company. The Exchange Notes will rank pari passu with any future senior subordinated indebtedness of the Company and will rank senior to all other subordinated indebtedness of the Company. On November 25, 1997, (i) the aggregate amount of the outstanding Senior Indebtedness of the Company would have been approximately $87.6 million, (ii) there would have been no indebtedness outstanding at the Company's subsidiaries, and (iii) the Company would have had no senior subordinated indebtedness outstanding other than 10 the Notes and no indebtedness that is subordinate or junior in right of repayment to the indebtedness represented by the Exchange Notes. See "Description of Exchange Notes-- Ranking and Subordination." Restrictive Covenants......... The Indenture limits: (i) the incurrence of additional indebtedness by the Company and its Restricted Subsidiaries, (ii) the layering of indebtedness, (iii) the payment of dividends on, and redemption of, capital stock of the Company and its Restricted Subsidiaries and the redemption of certain subordinated obligations of the Company and its Restricted Subsidiaries, (iv) investments, (v) sales of assets and Subsidiary stock, (vi) certain transactions with affiliates, (vii) the creation and existence of liens, (viii) the types of businesses that the Company and its Restricted Subsidiaries may operate, and (ix) consolidations, mergers and transfers of all or substantially all the Company's assets. The Indenture also prohibits certain restrictions on distributions from Restricted Subsidiaries. However, all of these limitations and prohibitions are subject to a number of important qualifications and exceptions. See "Description of Exchange Notes--Certain Covenants." RISK FACTORS See "Risk Factors" for a discussion of certain factors that should be considered in evaluating an investment in the Exchange Notes. 11 SUMMARY UNAUDITED ADJUSTED PRO FORMA FINANCIAL DATA The following summary unaudited adjusted pro forma financial data of the Company set forth below give effect in the manner described under "Unaudited Pro Forma Financial Data" and the notes thereto to the Transactions, the Initial Offering and other supplemental adjustments as if they had occurred on January 1, 1996 in the case of the adjusted pro forma statements of income data, and as of September 30, 1997 in the case of the unaudited pro forma balance sheet data. The unaudited pro forma consolidated statements of income do not purport to represent what the Company's results of operations would have been if the Transactions, the Initial Offering and other supplemental adjustments had occurred as of the date indicated or what such results will be for future periods. The information contained in this table should be read in conjunction with "Unaudited Pro Forma Financial Data," "Selected Historical Consolidated Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and the accompanying notes thereto included elsewhere in this Prospectus.
NINE MONTHS LATEST ENDED TWELVE MONTHS YEAR ENDED SEPTEMBER 30, ENDED DECEMBER 31, ------------------ SEPTEMBER 30, 1996(1) 1996(1) 1997(1) 1997(2) ------------ -------- -------- ------------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DATA: Net sales...................... $ 67,515 $ 49,086 $ 55,421 $ 73,850 Cost of goods sold............. 30,505 21,899 27,019 35,625 -------- -------- -------- -------- Gross profit................. 37,010 27,187 28,402 38,225 Operating expenses: General and administration... 1,929 1,377 1,625 2,177 Sales and marketing.......... 5,989 4,503 5,338 6,824 -------- -------- -------- -------- Operating income............... 29,092 21,307 21,439 29,224 Interest expense............... (19,082) (14,343) (14,332) (19,071) Interest income................ 102 71 56 87 -------- -------- -------- -------- Income before provision for income taxes.................. 10,112 7,035 7,163 10,240 Provision for income taxes..... 4,146 2,884 2,937 4,199 -------- -------- -------- -------- Net income..................... $ 5,966 $ 4,151 $ 4,226 $ 6,041 ======== ======== ======== ======== OTHER FINANCIAL DATA: Adjusted EBITDA (3)............ $ 31,139 $ 22,802 $ 23,268 $ 31,605 Adjusted EBITDA margin (4)..... 46% 46% 42% 43% Depreciation................... 2,047 1,495 1,829 2,381 Capital expenditures........... 3,666 2,720 3,267 4,213 Cash interest expense.......... 17,995 13,528 13,517 17,984 Ratio of adjusted EBITDA to cash interest expense......... 1.7x 1.7x 1.7x 1.8x Ratio of earnings to fixed charges (5)................... 1.5x 1.5x 1.5x 1.5x
PRO FORMA SEPTEMBER 30, 1997 ------------------ BALANCE SHEET DATA (END OF PERIOD): Cash....................................................... $ 4,992 Working capital............................................ 9,376 Total assets............................................... 55,496 Total debt................................................. 187,656 Equity (net capital deficiency)............................ (150,497)
- -------- (1) See "Unaudited Pro Forma Financial Data." (2) Information for the twelve months ended September 30, 1997 represents the summation of the adjusted pro forma year ended December 31, 1996 and the adjusted pro forma nine months ended September 30, 1997 information, less the adjusted pro forma nine months ended September 30, 1996. (3) "Adjusted EBITDA" is defined herein as EBITDA as adjusted for other supplemental adjustments. Other supplemental adjustments for 1997 total $5.3 million, consisting of the non-cash compensation expense of $2.9 million related to the vesting of options under the Company's 1996 Stock Option Plan, coupled with the cash expense of $2.4 million related to the bonuses payable to employees to cover employee taxes upon their exercise of these options in conjunction with the Recapitalization. "EBITDA" is defined herein as income before provision for income taxes, depreciation, amortization and net interest expense. EBITDA is presented because the Company believes its is frequently used by security analysts in the evaluation of companies. However, EBITDA should not be considered as an alternative to net income as a measure of operating results or to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. (4) Represents adjusted EBITDA as a percentage of net sales. (5) For purposes of computing this ratio, earnings consists of income before income taxes plus fixed charges. Fixed charges consist of interest expense and the estimated interest portion of rent expense. 12 SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA Set forth below are summary historical consolidated financial data of the Company at the dates and for the periods indicated. The summary historical consolidated statements of income data of the Company for the years ended December 31, 1994, 1995 and 1996 and the summary historical consolidated balance sheet data as of December 31, 1995 and 1996 were derived from the historical consolidated financial statements of the Company that were audited by McGladrey & Pullen, LLP, whose reports appear elsewhere in this Prospectus. The summary historical consolidated financial data of the Company for the year ended December 31, 1992 and for the nine month periods ended September 30, 1996 and 1997 are derived from unaudited consolidated financial statements of the Company which, in the opinion of management, include all adjustments necessary for a fair presentation. The summary historical consolidated financial data set forth below should be read in conjunction with, and is qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and accompanying notes thereto included elsewhere in this Prospectus.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------- ---------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------- ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DA- TA: Net sales.............. $25,759 $32,394 $44,086 $59,370 $67,515 $49,086 $55,421 Cost of goods sold..... 13,142 16,480 20,415 25,156 30,505 21,899 27,019 ------- ------- ------- ------- ------- ------- ------- Gross profit........... 12,617 15,914 23,671 34,214 37,010 27,187 28,402 Operating expenses: Compensation to CEO (1)................... 9,414 11,513 412 418 1,055 836 811 General and administra- tion ................. 690 1,136 1,385 1,789 1,929 1,377 1,625 Sales and marketing.... 2,672 3,074 3,542 5,293 5,989 4,503 5,338 Stock compensation and related bonuses (2)... -- -- -- -- -- -- 5,283 ------- ------- ------- ------- ------- ------- ------- Operating income (loss)................ (159) 191 18,332 26,714 28,037 20,471 15,345 Interest expense....... (57) (167) (181) (371) (9,518) (6,974) (7,427) Interest income........ 21 10 13 42 102 71 56 ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes.......... (195) 34 18,164 26,385 18,621 13,568 7,974 Provision for (benefit from) income taxes (3)................... (18) 221 273 396 6,265 4,270 3,400 ------- ------- ------- ------- ------- ------- ------- Net income (loss)...... $ (177) $ (187) $17,891 $25,989 $12,356 $ 9,298 $ 4,574 ======= ======= ======= ======= ======= ======= ======= OTHER FINANCIAL DATA: EBITDA (4)............. $ 567 $ 1,047 $19,214 $27,768 $30,084 $21,966 $17,174 Adjusted EBITDA (5).... 9,981 12,560 19,626 28,186 31,139 22,802 23,268 Adjusted EBITDA margin (6)................... 39% 39% 45% 47% 46% 46% 42% Depreciation........... 726 856 882 1,054 2,047 1,495 1,829 Capital expenditures... 1,428 1,254 844 2,946 3,666 2,720 3,267 Ratio of earnings to fixed charges (7)..... -- 1.1x 51.5x 46.6x 3.0x 2.9x 2.1x BALANCE SHEET DATA (END OF PERIOD): Cash................... $ 175 $ 1,592 $ 3,686 $ 472 $ 169 $ 1,856 $ 942 Working capital (defi- cit).................. 1,170 (74) (96) (2,264) (3,514) (884) (5,892) Total assets........... 6,164 9,097 12,015 13,081 27,503 26,930 31,686 Total debt............. 1,434 3,446 1,316 1,982 94,101 96,157 87,410 Equity (net capital de- ficiency) (8)......... 2,993 2,806 2,806 2,500 (72,674) (75,732) (65,177)
See Notes to Summary Historical Consolidated Financial Data. 13 NOTES TO SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA (1) Represents compensation paid to the Company's former CEO, who also was the sole shareholder since the Company's inception through the Initial Recapitalization (as defined) and whose employment terminated on October 28, 1997. (2) Represents stock compensation and related bonuses under the Company's 1996 Stock Option Plan. (3) Prior to February 1996, the Company elected to be taxed as an "S" corporation and paid income taxes at a reduced rate. On a pro forma basis, income tax expense would have been higher by the following amounts: 1994-- $7,175; 1995--$10,425; 1996--$1,295 and September 30, 1996--$1,295. (4) "EBITDA" is defined herein as income before income taxes, plus depreciation, amortization and net interest expense. EBITDA is presented because the Company believes it is frequently used by security analysts in the evaluation of companies. However, EBITDA should not be considered as an alternative to net income as a measure of operating results or to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. (5) "Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items of income which are not expected to be incurred by the Company subsequent to the Transactions. These items consist of the compensation paid to the Company's former CEO whose employment terminated on October 28, 1997 and stock compensation and related bonuses under the Company's 1996 Stock Option Plan. (6) Represents adjusted EBITDA as a percentage of net sales. (7) For purposes of computing this ratio, earnings consists of income before income taxes plus fixed charges. Fixed charges consist of interest expense and the estimated interest portion of rent expense. Earnings were not sufficient to cover fixed charges by $195 for the year ended December 31, 1992. (8) The net capital deficiency as of December 31, 1996 reflects the effects of the Initial Recapitalization of the Company that took place in January of 1996 and which reduced stockholders' equity by $86.2 million. 14 RISK FACTORS Prospective investors should carefully consider the following factors in addition to the other information set forth in this Prospectus before making an investment in the Exchange Notes offered hereby. This Prospectus contains certain forward looking statements within the meaning of Section 27A of the Securities Act. Actual results could differ materially from those projected in the forward looking statements as a result of certain factors and uncertainties set forth below and elsewhere in this Prospectus. SUBSTANTIAL LEVERAGE; STOCKHOLDER'S DEFICIT As a result of the Transactions and the Initial Offering, the Company is highly leveraged. As of September 30, 1997, after giving pro forma effect to the Transactions and the Initial Offering, the Company's indebtedness was approximately $187.7 million, of which $87.7 million was Senior Indebtedness, and there was approximately $30 million available under the Senior Credit Facilities for future borrowings for general corporate purposes and working capital needs. On the same pro forma basis, the Company's ratio of earnings to fixed charges for the fiscal year ended December 31, 1996 and for the nine months ended September 30, 1997 would have been 1.5 to 1.0 in both periods. The Company has a stockholder's deficit which, at September 30, 1997 on a pro forma basis after giving effect to the Transactions and the Initial Offering and the application of the proceeds therefrom, was approximately $150.5 million. In addition, subject to the restrictions in the Senior Credit Facilities, the Indenture and the Discount Note Indenture, the Company and its subsidiaries may incur additional indebtedness (including additional Senior Indebtedness) from time to time to finance acquisitions or capital expenditures or for other purposes. See "Capitalization" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The Company's high degree of leverage could have important consequences to holders of the Notes, including: (i) a substantial portion of the Company's cash flow from operations must be dedicated to debt service and will not be available for other purposes; (ii) the Company's ability to obtain additional debt financing in the future for working capital, capital expenditures, research and development or acquisitions may be limited; (iii) the Company's leveraged position and the covenants that will be contained in the Indenture and the Senior Credit Facilities could limit the Company's ability to compete, as well as its ability to expand, including through acquisitions, and to make capital improvements; (iv) the Company may be more leveraged than certain of its competitors, which may place the Company at a competitive disadvantage; and (v) the Company's ability to refinance the Notes in order to pay the principal of the Notes at maturity or upon a Change of Control may be adversely affected. See "Description of Senior Credit Facilities" and "Description of Notes." The Company's ability to pay principal and interest on the Notes and to satisfy its other debt obligations will depend upon its future operating performance, which will be affected by prevailing economic conditions and financial, business and other factors, certain of which are beyond its control, as well as the availability of revolving credit borrowings under the Senior Credit Facilities or successor facilities. The Company anticipates that its operating cash flow, together with borrowings under the Senior Credit Facilities, will be sufficient to meet its operating expenses and to service its debt requirements as they become due. If the Company is unable to service its indebtedness, it will be forced to take actions such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing its indebtedness (which could include the Notes), or seeking additional equity capital. There is no assurance that any of these remedies can be effected on satisfactory terms, if at all. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources" and "Description of Senior Credit Facilities." 15 RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS The Indenture restricts, among other things, the Company's ability to incur additional indebtedness, incur liens, pay dividends or make certain other restricted payments, consummate certain asset sales, enter into certain transactions with affiliates, incur indebtedness that is subordinate in right of payment to any Senior Indebtedness and senior in right of payment to the Notes, merge or consolidate with any other person or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the assets of the Company. In addition, the Senior Credit Facilities contain other and more restrictive covenants and prohibit the Company and its subsidiaries from prepaying other indebtedness (including the Notes). The Senior Credit Facilities also require the Company to maintain specified financial ratios and satisfy certain financial condition tests. The Company's ability to meet those financial ratios and tests can be affected by events beyond its control, and there can be no assurance that the Company will meet those tests. A breach of any of these covenants could result in a default under the Senior Credit Facilities and/or the Indenture. Upon the occurrence of an event of default under the Senior Credit Facilities, the lenders could elect to declare all amounts outstanding under the Senior Credit Facilities, together with accrued interest, to be immediately due and payable. If the Company were unable to repay those amounts, the lenders could proceed against the collateral granted to them to secure that indebtedness. If the Senior Indebtedness were to be accelerated, there can be no assurance that the assets of the Company would be sufficient to repay in full that indebtedness and the other indebtedness of the Company, including the Notes. Substantially all the assets of the Company and its subsidiaries are pledged as security under the Senior Credit Facilities. See "Description of Senior Credit Facilities" and "Description of Exchange Notes--Certain Covenants." SUBORDINATION The Notes will be subordinated in right of payment to all existing and future Senior Indebtedness, including the principal of (and premium, if any) and interest on and all other amounts due on or payable in connection with Senior Indebtedness. As of November 25, 1997, there was outstanding approximately $87.6 million of Senior Indebtedness, $81.1 million of which was fully secured borrowings under the Senior Credit Facilities. By reason of such subordination, in the event of the insolvency, liquidation, reorganization, dissolution or other winding-up of the Company or upon a default in payment with respect to, or the acceleration of, any Senior Indebtedness, the holders of such Senior Indebtedness and any other creditors who are holders of Senior Indebtedness, and creditors of subsidiaries must be paid in full before the holders of the Notes may be paid. If the Company incurs any additional pari passu debt, the holders of such debt would be entitled to share ratably with the holders of the Notes in any proceeds distributed in connection with any insolvency, liquidation, reorganization, dissolution or other winding-up of the Company. This may have the effect of reducing the amount of proceeds paid to holders of the Notes. In addition, certain holders of Senior Indebtedness may prevent cash payments with respect to the principal of (and premium, if any) or interest or liquidated damages, if any, on the Notes for a period of up to 179 days following a non-payment default with respect to Senior Indebtedness. In addition, the Indenture permits the subsidiaries of the Company to incur debt under certain circumstances. Any such debt incurred by a subsidiary of the Company could be structurally senior to the Notes. See "Description of Exchange Notes." In addition to being subordinated to all existing and future Senior Indebtedness of the Company, the Notes will not be secured by any assets of the Company or its subsidiaries; however, obligations under the Senior Credit Facilities are secured by a pledge of all the capital stock of the Company's subsidiaries, and the tangible and intangible assets of the Company and its subsidiaries. If the Company becomes insolvent or is liquidated, or if payment under any of the Senior Credit Facilities is accelerated, the lenders under the Senior Credit Facilities will be entitled to exercise the remedies available to a secured lender under applicable law pursuant to the Senior Credit Facilities. Accordingly, 16 such lenders will have a prior claim with respect to such assets. See "Description of Senior Credit Facilities." REPAYMENT UPON CHANGE OF CONTROL Upon the occurrence of a Change of Control, each Holder of Notes may require the Company to repurchase all or a portion of such Holder's Notes at 101% of the principal amount of the Notes together with accrued and unpaid interest, if any, to the date of repurchase. See "Description of Notes--Change of Control" for the definition of "Change of Control". The occurrence of certain of the events that would constitute a Change of Control would constitute a default under the Senior Credit Facilities. Future Senior Indebtedness of the Company and its subsidiaries may also contain prohibitions of certain events that would constitute a Change of Control. Moreover, the exercise by the Holders of their right to require the Company to repurchase the Notes could cause a default under such Senior Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company's ability to pay cash to the Holders upon a repurchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. Even if sufficient funds were otherwise available, the terms of the Senior Credit Facilities will (and other Senior Indebtedness may) prohibit the Company's prepayment of Exchange Notes prior to their scheduled maturity. Consequently, if the Company is not able to prepay the indebtedness under the Senior Credit Facilities and any other Senior Indebtedness containing similar restrictions or obtain requisite consents, as described above, the Company will be unable to fulfill its repurchase obligations if Holders of Notes exercise their repurchase rights following a Change of Control, thereby resulting in a default under the Indenture. FRAUDULENT CONVEYANCE CONSIDERATIONS If under applicable provisions of federal bankruptcy law and comparable provisions of state and federal fraudulent conveyance laws it were found that the Company had (a) incurred the indebtedness represented by the Notes with the intent of hindering, delaying or defrauding creditors or (b) had received less than reasonably equivalent value or consideration for incurring such indebtedness and (i) was insolvent or was rendered insolvent by reason of such transactions, (ii) was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital to carry on its business, or (iii) intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they matured, the obligations of the Company on the Notes could be subordinated to all other indebtedness of the Company. The measure of insolvency for purposes of determining whether a transfer is avoidable as a fraudulent transfer varies depending upon the law of the jurisdiction which is being applied. Generally, however, a debtor would be considered insolvent if the sum of all its liabilities, including contingent liabilities were greater than the fair saleable value of the debtor's assets at a fair valuation, or if the present fair saleable value of the debtor's assets were less than the amount required to repay its probable liabilities on its existing debts, including contingent liabilities, as they become absolute and matured. There can be no assurance as to what standard a court would apply in order to determine solvency. The Company believes (i) that it did not enter into the Initial Offering with fraudulent intent, (ii) that circumstances constituting constructive fraud will not have arisen with respect to the Company as a result of, and after giving effect to, the Initial Offering and (iii) that, accordingly, the property transferred to the Company as part of the Initial Offering and the obligations of the Company with respect to the Notes would not be subject to such detrimental action. These beliefs are based on the Company's operating history and analysis of internal cash flow projections and estimated values of assets and liabilities of the Company at the time of the offering of the Notes. Since each of the components of the question of whether the incurrence of the debt represented by the DIscount Notes constitutes a fraudulent conveyance is inherently fact-based are fact-specific, there can be no assurance that a court passing on such questions would agree with the Company. 17 TECHNOLOGICAL CHANGE AND PROCESS DEVELOPMENT The market for the Company's products and services is characterized by rapidly changing technology and continuing process development. The future success of the Company's business will depend in large part upon its ability to maintain and enhance its technological capabilities, develop and market products and services that meet changing customer needs, and successfully anticipate or respond to technological changes on a cost-effective and timely basis. Research and development expenses are expected to increase as manufacturers make demands for higher technology and smaller PCBs. In addition, the PCB industry could in the future encounter competition from new or revised technologies that render existing electronic interconnect technology less competitive or obsolete or technologies that may reduce the number of PCBs required in electronic components. There can be no assurance that the Company will effectively respond to the technological requirements of the changing market. To the extent the Company determines that new technologies and equipment are required to remain competitive, the development, acquisition and implementation of such technologies and equipment may require significant capital investment by the Company. There can be no assurance that capital will be available for these purposes in the future or that investments in new technologies will result in commercially viable technological processes. The loss of revenue and earnings to the Company from such a technological change or process development could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business--Technology, Development and Processes." DEPENDENCE ON A LIMITED NUMBER OF CUSTOMERS During the fiscal year ended December 31, 1996, sales to the Company's largest customer, IBM, accounted for 15.9% of the Company's net revenues. Sales to the Company's two largest customers accounted for approximately 24.6% of the Company's net revenues and sales to the Company's ten largest customers accounted for 51.8% of the Company's net revenues during the same period. During the nine months ended September 30, 1997, sales to the Company's largest customer, Motorola, accounted for 10.9% of the Company's net revenues. Sales to the Company's two largest customers accounted for approximately 20.4% of the Company's net revenues during the nine months ended September 30, 1997 and sales to the Company's ten largest customers accounted for 48.4% of the Company's net revenues during the same period. There can be no assurance that the Company will not depend upon a relatively small number of customers for a significant percentage of its net revenues in the future. There can be no assurance that present or future customers will not terminate their manufacturing arrangements with the Company or significantly change, reduce or delay the amount of manufacturing services ordered from the Company. Any such termination of a manufacturing relationship or change, reduction or delay in orders could have an adverse effect on the Company's results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Markets and Customers." DEPENDENCE ON ELECTRONIC INDUSTRY The electronics industry, which encompasses the Company's principal customers, is characterized by intense competition, relatively short product life-cycles and significant fluctuations in product demand. In addition, the electronics industry is generally subject to rapid technological change and product obsolescence. Furthermore, the electronics industry is subject to economic cycles and has in the past experienced, and is likely in the future to experience, recessionary periods. A recession or any other event leading to excess capacity or a downturn in the electronics industry would likely have a material adverse effect on the Company's business, financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," "The Industry--Technical Overview," "Business--Markets and Customers." 18 ABILITY TO IMPLEMENT THE COMPANY'S OPERATING AND ACQUISITION STRATEGY No assurances can be given that the Company or its management team will be able to implement successfully the operating strategy described herein, including the ability to identify, negotiate and consummate future acquisitions on terms management considers favorable. The Company may from time to time pursue the acquisitions of other companies, assets or product lines that complement or expand its existing business. Acquisitions involve a number of risks that could adversely affect the Company's operating results, including the diversion of management's attention, the costs of assimilating the operations and personnel of the acquired companies, and the potential loss of employees of the acquired companies. No assurance can be given that any acquisition by the Company will not materially and adversely affect the Company or that any such acquisition will enhance the Company's business. The ability of the Company to implement its operating strategy and to consummate future acquisitions may require significant additional debt and/or equity capital, and no assurance can be given as to whether, and on what terms, such additional debt and/or equity capital will be available. The Company's efforts to increase international sales may be adversely affected by, among other things, changes in foreign import restrictions and regulations, taxes, currency exchange rates, currency and monetary transfer restrictions and regulations and economic and political changes in the foreign nations to which the Company's products are exported. There can be no assurance that one or more of these factors will not have a material adverse effect on the Company's financial position or results of operations. See "Business--Business Strategy" and "--Markets and Customers." VARIABILITY OF ORDERS The level and timing of orders placed by the Company's customers vary due to a number of factors, including customer attempts to manage inventory, changes in the customer's manufacturing strategies and variation in demand for customer products due to, among other things, technological change, new product introductions, product life-cycles, competitive conditions or general economic conditions. Because the Company generally does not obtain long-term production orders or advance commitments from its customers, it must attempt to anticipate the future volume of orders based on discussions with its customers. A substantial portion of sales in a given quarter may depend on obtaining orders for products to be manufactured and shipped in the same quarter in which those orders are received. The Company relies on its estimate of anticipated future volumes when making commitments regarding the level of business that it will seek and accept, the mix of products that it intends to manufacture, the timing of production schedules and the levels and utilization of personnel and other resources. A variety of conditions, both specific to the individual customer and generally affecting the customer's industry, may cause customers to cancel, reduce or delay orders that were previously made or anticipated. The Company cannot assure the timely replacement of canceled, delayed or reduced orders. Significant or numerous cancellations, reductions or delays in orders by a group of customers could materially adversely affect the Company's business, financial condition and results of operation. INTELLECTUAL PROPERTY The Company's success depends in part on proprietary technology and manufacturing techniques. The Company has no patents for these proprietary techniques and chooses to rely primarily on trade secret protection. Litigation may be necessary to protect the Company's technology, to determine the validity and scope of the proprietary rights of others. The Company is not aware of any pending or threatened claims that affect any of the Company's intellectual property rights. If any infringement claim is asserted against the Company, the Company may seek to obtain a license of the other party's 19 intellectual property rights. There is no assurance that a license would be available on reasonable terms or at all. Litigation with respect to patents or other intellectual property matters could result in substantial costs and diversion of management and other resources and could have a material adverse effect on the Company. RISKS ASSOCIATED WITH A SINGLE MANUFACTURING FACILITY The Company produces all of its quick-turn products and most of its other products in its manufacturing facility located in Anaheim, California, other than research and development and longer term manufacturing jobs. The Company's manufacturing processes are highly complex and require sophisticated and costly equipment. As a result, any prolonged disruption in the operations of the Company's manufacturing facility, whether due to technical or labor difficulties, destruction of or damage to this facility or other reasons, including as a result of a natural disaster such as an earthquake, fire or flood, could have a material adverse effect on the Company's financial condition or results of operations. See "Business--Facilities." ENVIRONMENTAL MATTERS The Company's operations are regulated under a number of federal, state, local and foreign environmental laws and regulations, which govern, among other things, the discharge of hazardous materials into the air and water as well as the handling, storage and disposal of such materials. Compliance with these environmental laws are major considerations for all PCB manufacturers because metals and other hazardous materials are used in the manufacturing process. In addition, because the Company is a generator of hazardous wastes, the Company, along with any other person who arranges for the disposal of such wastes, may be subject to potential financial exposure for costs associated with an investigation and remediation of sites at which it has arranged for the disposal of hazardous wastes, if such sites become contaminated. This is true even if the Company fully complies with applicable environmental laws. Although the Company believes that its facilities are currently in material compliance with applicable environmental laws, and it monitors its operations to avoid violations arising from human error or equipment failures, there can be no assurances that violations will not occur. In the event of a violation of environmental laws, the Company could be held liable for damages and for the costs of remedial actions and could also be subject to revocation of its effluent discharge permits. Any such revocations could require the Company to cease or limit production at one or more of its facilities, thereby having a material adverse effect on the Company's operations. Environmental laws could also become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with any violation, which could have a material adverse effect on the Company, its results of operations, prospects or debt service ability. See "Business--Environmental Matters." COMPETITION The PCB industry is highly fragmented and characterized by intense competition. The Company principally competes with independent and captive manufacturers of complex and quick-turn PCBs. The Company's principal competitors include other independent small private companies and integrated subsidiaries of more broadly based volume producers, that also manufacture multilayer PCBs and other electronic assemblies. Some of the Company's principal competitors are less highly-leveraged than the Company and may have greater financial and operating flexibility. Moreover, the Company may face additional competitive pressures as a result of changes in technology. Competition in the complex and quick-turn PCB industry has increased due to the consolidation trend in the industry, which results in potentially better capitalized and more effective competitors. The Company's basic technology is generally not subject to significant proprietary protection, and companies with significant resources or international operations may enter the market. Increased 20 competition could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations. See "Business-- Competition." DEPENDENCE ON KEY MANAGEMENT The Company's success will continue to depend to a significant extent on its executive and other key management personnel. Although the Company has entered into employment agreements with certain of its executive officers, there can be no assurance that the Company will be able to retain its executive officers and key personnel or attract additional qualified management in the future. CONTROLLING STOCKHOLDERS The Bain Capital Funds hold approximately 49.9% of the outstanding voting stock of Holdings, the sole stockholder of the Company's parent, Details Capital. In addition, the Bain Capital Funds and all of Holdings' other stockholders have entered into a stockholders agreement regarding, among other things, the voting of such stock. By virtue of such stock ownership and these agreements, the Bain Capital Funds have the power to control all matters submitted to stockholders of Holdings, Details Capital and the Company, to elect a majority of the directors of Holdings and its subsidiaries, including the Company, and to exercise control over the business, policies and affairs of Holdings, Details Capital and the Company. The interests of the Bain Capital Funds as equity holders may differ from the interests of holders of the Exchange Notes. See "Certain Relationships and Related Transactions-- Stockholders Agreement." ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER There is currently no established market for the Exchange Notes and, although the Exchange Notes are expected to be eligible for trading in the PORTAL market, there can be no assurance as to the liquidity of any markets that may develop for the Exchange Notes, the ability of Holders of the Exchange Notes to sell their Exchange Notes or the price at which Holders would be able to sell their Exchange Notes. Future trading prices of the Exchange Notes will depend on many factors, including, among other things, prevailing interest rates, the Company's operating results and the market for similar securities. The Company does not intend to apply for listing of the Notes on any securities exchange or on any automated dealer quotation system. 21 USE OF PROCEEDS The Company will receive no proceeds from the issuance of the Exchange Notes. The Company used the net proceeds (after deduction of related fees and expenses) from the Initial Offering of approximately $96.4 million to repay (i) the $85.0 million of indebtedness represented by the Senior Subordinated Facility, plus accrued interest and related fees and expenses, (ii) a portion of the Holdings Facility and (iii) indebtedness under the Term Loan Facilities of approximately $10.3 million. The proceeds of the Senior Subordinated Facility, the Holdings Facility and the Senior Credit Facilities were used to finance, in part, the Recapitalization and related fees and expenses. See "Summary--The Transactions". 22 CAPITALIZATION The following table sets forth (i) the historical capitalization of Holdings at September 30, 1997, (ii) the capitalization of Holdings as adjusted to give effect to the Transactions, and (iii) the capitalization of Details as adjusted to give effect to the Transactions and the Initial Offering and application of the net proceeds therefrom, as if such transactions had occurred on that date. This table should be read in conjunction with the Selected Historical Consolidated Financial Data and Unaudited Pro Forma Financial Data and the audited consolidated financial statements included elsewhere in this Prospectus.
HOLDINGS DETAILS ------------------------------- -------------------- AS ADJUSTED AS ADJUSTED FOR THE TRANSACTIONS ACTUAL FOR THE TRANSACTIONS AND THE OFFERING --------- -------------------- -------------------- (DOLLARS IN THOUSANDS) Cash...................... $ 942 $ 3,891 $ 4,992 Debt: Senior Credit Facili- ties(1)................ -- 91,400 81,100 Existing Indebtedness... 87,410 6,556 6,556 Senior Subordinated Fa- cility................. -- 85,000 -- Notes................... -- -- 100,000 Holdings Facility(2).... -- 51,580 -- (5) --------- --------- --------- Total debt............ 87,410 234,536 187,656 Temporary equity(3)....... 83,350 -- -- Total stockholder's equity (deficit)(4)............. (148,527) (196,222) -- Contributed capital (defi- cit)(4)(5)............... -- -- (150,497) --------- --------- --------- Total capitalization...... $ 23,175 $ 42,205 $ 42,151 ========= ========= =========
- -------- (1) The Company's $30 million Revolving Credit Facility and $25 million acquisition facility under the Term Loan Facilities were undrawn at October 28, 1997. On a pro forma basis as of September 30, 1997, the Company would have had $55 million available under these facilities. (2) Concurrently with the Initial Offering, Holdings conducted the Discount Note Offering, the proceeds of which were used to repay the Holdings Facility. (3) Temporary equity represents the fair value at September 30, 1997 of the Company stock and warrants subject to a put at the option of the holders thereof which were issued in 1996 in connection with the Initial Recapitalization and exercised in connection with the Transactions. (4) As a result of the Initial Recapitalization and subsequent increases in temporary equity, Holdings had a stockholder's deficit. As a result of the Recapitalization, Holdings' total stockholders' deficit increased by $47.7 million. In the Recapitalization, the Bain Capital Funds, an affiliate of CMC and the Other Investors received common stock representing 62.0% of Holdings for an aggregate consideration of $62.4 million. Existing Owners and management retained 10.5% and 17.1% of Holdings, respectively, which, based on the price of the stock received by the Bain Capital Funds, an affiliate of CMC and the Other Investors, had a value of $26.6 million. The total value of the common stock purchased and retained in the Recapitalization was $89.0 million. (5) Subsequent to the Recapitalization, Holdings incorporated Details, Inc. as a wholly-owned subsidiary with a $1 capital contribution and contributed substantially all of its assets, subject to certain liabilities (other than the Holdings Facility) to Details. 23 UNAUDITED PRO FORMA FINANCIAL DATA The following Unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1997 gives effect to the Transactions and the Initial Offering as if they had occurred on such date. The following Unaudited Pro Forma Consolidated Statements of Income for the year ended December 31, 1996, the nine months ended September 30, 1996 and 1997 and the last twelve months ended September 30, 1997 give effect to the Transactions and the Initial Offering as if they had occurred on January 1, 1996. See "The Transactions." The Unaudited Pro Forma Consolidated Statements of Income do not purport to represent what the Company's results of operations would have been if the Transactions and the Initial Offering had occurred as of the dates indicated or what such results will be for any future periods. The unaudited pro forma financial data are based on the historical consolidated financial statements of the Company and the assumptions and adjustments described in the accompanying notes. The unaudited pro forma balance sheet also includes the following non- recurring charges related to the Transactions: (i) approximately $6 million from the write-off of deferred financing fees; (ii) approximately $1.2 million from the early extinguishment of the Company's long term debt; (iii) approximately $1.2 million related to the buyout of the CEO's employment contract; and (iv) approximately $30.6 million of stock compensation and related bonuses under the Company's 1996 Stock Option Plan. Such charges aggregate $39.0 million and result in a net charge to earnings of $23.0 million (net of tax benefit of $16.0 million, assuming an estimated 41% tax rate). 24 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
HOLDINGS DETAILS, INC. --------------------------------------------- -------------------------------------- SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, 1997 PRO FORMA 1997 1997 OTHER HISTORICAL ADJUSTMENTS PRO FORMA PRO FORMA* ADJUSTMENTS PRO FORMA ------------- ----------- ------------- ------------- ----------- --------- (DOLLARS IN THOUSANDS) ASSETS Current assets: Cash................... $ 942 $ 3,130 (a) $ 3,891 $ 3,892 $ 1,100 (i) $ 4,992 (1)(b) (180)(c) Trade receivables, net................... 10,148 -- 10,148 10,148 -- 10,148 Inventories............ 2,414 -- 2,414 2,414 -- 2,414 Other.................. 1,047 -- 1,047 1,047 -- 1,047 --------- -------- --------- --------- -------- --------- Total current assets... 14,551 2,949 17,500 17,501 1,100 18,601 Investment in Details, Inc. .................. -- 1 (b) 1 -- -- Property and equipment, net.................... 14,931 -- 14,931 14,931 -- 14,931 Other assets............ 662 -- 662 662 -- 662 Deferred tax assets..... -- 8,333 (a) 11,957 11,957 1,845 (j) 13,802 1,596 (e) 2,028 (f) Debt issue costs, net... 1,542 11,600 (c) 11,600 8,400 3,600 (i) 7,500 (1,542)(e) (4,500)(j) --------- -------- --------- --------- -------- --------- Total assets............ $ 31,686 $ 24,965 $ 56,651 $ 53,451 $ 2,045 $ 55,496 ========= ======== ========= ========= ======== ========= LIABILITIES AND EQUITY Current liabilities: Current portion long- term debt............. $ 10,990 $ 10,000 (a) $ 365 $ 365 $ -- $ 365 1,200 (e) 3,400 (g) (25,225)(c) Accounts payable....... 3,505 -- 3,505 3,505 -- 3,505 Accrued expenses....... 2,989 -- 2,989 2,989 -- 2,989 Accrued bonuses ....... 2,959 (593)(a) 2,366 2,366 -- 2,366 --------- -------- --------- --------- -------- --------- Total current liabilities........... 20,443 (11,218) 9,225 9,225 -- 9,225 Other long-term liabilities............ -- 9,477 (d)(g) 9,477 9,477 -- 9,477 Long-term debt.......... 76,420 (70,229)(c) 6,191 6,191 -- 6,191 Senior Credit Facilities............. -- 91,400 (c) 91,400 91,400 (10,300)(i) 81,100 Senior Subordinated Facility............... -- 85,000 (c) 85,000 85,000 (85,000)(i) -- Notes................... -- -- -- -- 100,000 (i) 100,000 Holdings Facility....... -- 51,580 (c) 51,580 Temporary equity........ 83,350 (83,350)(g) -- -- -- -- Stockholders' equity (deficit): Common stock........... 5,301 (5,301)(g) -- -- -- -- Convertible preferred stock................. 13,532 (13,532)(g) -- -- -- -- Class A Common, Class L Common................ -- 60,895 (c) 67,325 -- -- -- 5,867 (c) 563 (h) Additional paid in capital............... 2,922 14,048 (a) 8,367 -- -- -- (16,970)(g) 4,947 (f) 3,420 (c) Receivables from stockholders.......... -- (563)(h) (563) -- -- -- Retained earnings (deficit)............. (170,282) (11,992)(a) (271,351) -- -- -- (83,862)(g) (2,296)(e) (2,919)(f) --------- -------- --------- --------- -------- --------- Total stockholders' equity (deficit)...... (148,527) (47,695) (196,222) -- -- -- Contributed capital (deficit).............. -- -- -- (147,842) (2,655)(j) (150,497) --------- -------- --------- --------- -------- --------- Total liabilities and equity................. $ 31,686 $ 24,965 $ 56,651 $ 53,451 $ 2,045 $ 55,496 ========= ======== ========= ========= ======== =========
- -------- * Subsequent to the Recapitalization, Holdings incorporated Details, Inc. as a wholly-owned subsidiary with a $1 capital contribution and contributed substantially all of its assets, subject to certain liabilities (other than the Holdings Facility) to Details. See Notes to Unaudited Pro Forma Consolidated Balance Sheet 25 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1997 (DOLLARS IN THOUSANDS) (a) Reflects: (i) the compensation expense of $13,840 (recorded net of the estimated tax benefit of $5,675 assuming a 41% effective tax rate) related to the accelerated vesting of 1,437 options that were outstanding under the Company's variable stock plan at an exercise price of approximately $2,179 per share and an estimated fair market value of the Company of approximately $11,810 per share; (ii) the exercise of these options immediately prior to the Recapitalization, resulting in cash proceeds to the Company of $3,130 and an increase in additional paid in capital of $16,970; (iii) the compensation expense attributable to the bonuses payable to cover employee taxes on these options of $11,768 (recorded net of the estimated tax benefit of $4,825 assuming a 41% effective tax rate); and (iv) the increase in the Company's short-term debt in connection with paying $10,000 of these bonuses prior to the Recapitalization. The net pro forma adjustment recorded has been calculated as the total amount required to be recorded less the amount already recorded in the Company's September 30, 1997 historical financial statements, summarized as follows:
TOTAL CALCULATED RECORDED AS OF NET PRO FORMA ADJUSTMENT SEPTEMBER 30, 1997 ADJUSTMENT ---------------- ------------------ ------------- DEBIT(CREDIT) Cash...................... 3,130 -- 3,130 Deferred tax asset........ 10,500 2,167 8,333 Retained earnings......... 15,108 3,116 11,992 Additional paid-in capital ("APIC")................. (16,970) (2,922) (14,048) Accrued bonuses........... (1,768) (2,361) 593 Short-term debt........... (10,000) -- (10,000)
(b) Represents Holdings' initial capital contribution of $1 to Details, Inc. subsequent to the Recapitalization. (c) Reflects the incurrence of debt relating to the Senior Credit Facilities, the Senior Subordinated Facility, the Notes, the Holdings Facility and the uses of cash for the purposes of effecting the Recapitalization. SOURCES OF CASH: Cash............................................................. $ 180 Senior Credit Facilities......................................... 91,400 Senior Subordinated Facility..................................... 85,000 Holdings Facility(I)............................................. 55,000 Class L Common and Class A Common (net of fees and expenses of $1,500)......................................................... 60,895 Common stock and common stock equivalents(II).................... 26,605 -------- Total Sources.................................................. $319,080 ======== USES OF CASH: Payment of deferred financing fees............................... 11,600 Payment of existing indebtedness(III)............................ 96,604 Continuing equity interest(II)................................... 26,605 Redemption of stock and distribution to shareholders............. 184,271 -------- Total Uses..................................................... $319,080 ========
(I) A portion of the proceeds received from the Holdings Facility of $55,000 was allocated to the estimated fair market value of the Class L Common and Class A Common warrants of $3,420. (II) As part of the Recapitalization, $26,605 (estimated fair market value) of common stock and common stock options was exchanged in a non-cash transaction for Class L Common and Class A Common and options to acquire Class L Common and Class A Common of Holdings. These exchanges are included in the above table to highlight the common stock (exchanged 26 at carryover basis of $5,867) and options (exchanged at carryover basis of $4,689), which differs from their estimated fair market value of $26,605. (III) Includes $15,000 payment on the Company's existing subordinated debt which has a carrying value at September 30, 1997 of $13,850, the difference has been recorded as a non-recurring charge of $1,150 (see Note (e) below). (d) Represents a deferred purchase price obligation, contingent upon the Company's ability to utilize the deferred tax benefit recorded in connection with the exercise of options prior to the Recapitalization (See Note (a)). Management believes that it is probable that the Company will utilize these tax benefits in the near future. (e) Represents the balance sheet impact for the following non-recurring charges related to the Transactions. Write-off of deferred financing fees................................. $1,542 Early extinguishment of long term debt............................... 1,150 Buy out of CEO's employment contract................................. 1,200 ------ 3,892 Net deferred tax benefit (assuming 41% effective rate)........... (1,596) ------ Net charge to equity............................................. $2,296 ======
(f) Represents compensation expense of $4,947 for vested but unexercised options exchanged for new Class A options and Class L options at the same intrinsic value. The charge to equity of $2,919 is net of a tax benefit of $2,028 (assuming an estimated 41% effective tax rate). (g) Represents the net change in retained earnings (deficit) as a result of the redemption and subsequent retirement of existing common and common stock equivalents and preferred stock in conjunction with the Recapitalization. Distribution to shareholders...................................... $(184,271) Estimated fees and expenses of Recapitalization................... (3,400) Deferred purchase obligation...................................... (9,477) Retire common stock and APIC(I)................................... 16,404 Retire convertible preferred stock................................ 13,532 Retire temporary equity........................................... 83,350 --------- $ (83,862) =========
(I) Represents the carrying value of common stock of $5,301 and the carrying value of common stock issued and retired as a result of options that were exercised prior to the Recapitalization (valued at $16,970, as discussed in Note (a) above), less common stock converted into Class L Common and Class A Common at their historical carrying value ($5,867). (h) Represents the Company's issuance of restricted Class A Common (valued at $563) to management in exchange for a recourse note. (i) Reflects the incurrence of debt related to the Notes and the use of proceeds therefrom to retire the existing Senior Subordinated Facility and a portion of the Senior Credit Facilities. SOURCES OF CASH: Notes.............................................................. $100,000 ======== USES OF CASH:
Payment of Senior Subordinated Facility........................... $ 85,000 Payment of Senior Credit Facilities............................... 10,300 Payment of deferred financing fees................................ 3,600 Cash(I)........................................................... 1,100 -------- $100,000 ========
(I) A portion of the cash proceeds from the Original Notes was used to repay the accrued interest on the Holdings Facility and the Senior Subordinated Facility. (j) Reflects the write-off of deferred financing fees of $4,500 in conjunction with the retirement of the Senior Subordinated Facility. The charge to equity for the write-off of deferred financing fees of $2,655 is net of a tax benefit of $1,845 (assuming estimated 41% effective tax rate). 27 DETAILS, INC. UNAUDITED PRO FORMA STATEMENT OF INCOME (DOLLARS IN THOUSANDS)
LATEST TWELVE MONTH PERIOD ENDED SEPTEMBER 30, 1997(A) ------------------------------------------------------------ PRO FORMA SUPPLEMENTAL ADJUSTED HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS(E) PRO FORMA ---------- ----------- --------- -------------- --------- Net sales............... $73,850 $ -- $73,850 $ -- $ 73,850 Cost of goods sold...... 35,625 -- 35,625 -- 35,625 ------- ------- ------- ------- -------- Gross profit............ 38,225 -- 38,225 -- 38,225 Operating expenses: Compensation to CEO.... 1,030 (1,030)(b) -- -- -- General and administration........ 2,177 -- 2,177 -- 2,177 Sales and marketing.... 6,824 -- 6,824 -- 6,824 Stock compensation and related bonuses....... 5,283 -- 5,283 (5,283)(f) -- ------- ------- ------- ------- -------- Operating income........ 22,911 1,030 23,941 5,283 29,224 Interest expense........ (9,971) (9,100)(c) (19,071) -- (19,071) Interest income......... 87 -- 87 -- 87 ------- ------- ------- ------- -------- Income before income taxes.................. 13,027 (8,070) 4,957 5,283 10,240 Provision for (benefit from) income taxes..... 5,395 (3,362)(d) 2,033 2,166 (d) 4,199 ------- ------- ------- ------- -------- Net income.............. $ 7,632 $(4,708) $ 2,924 $ 3,117 $ 6,041 ======= ======= ======= ======= ======== OTHER DATA: Adjusted EBITDA (g)..................................................... $ 31,605 Adjusted EBITDA margin.................................................. 43% Depreciation............................................................ 2,381 Capital expenditures.................................................... 4,213
See Notes to Unaudited Pro Forma Consolidated Statement of Income 28 DETAILS, INC. UNAUDITED PRO FORMA STATEMENT OF INCOME (DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31, 1996 ------------------------------------------------------------ PRO FORMA SUPPLEMENTAL ADJUSTED HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS(E) PRO FORMA ---------- ----------- --------- -------------- --------- Net sales............... $67,515 $ -- $ 67,515 $ -- $ 67,515 Cost of goods sold...... 30,505 -- 30,505 -- 30,505 ------- ------- -------- ------- -------- Gross profit............ 37,010 -- 37,010 -- 37,010 Operating expenses: Compensation to CEO.... 1,055 (1,055)(b) -- -- -- General and administration........ 1,929 -- 1,929 -- 1,929 Sales and marketing.... 5,989 -- 5,989 -- 5,989 ------- ------- -------- ------- -------- Operating income........ 28,037 1,055 29,092 -- 29,092 Interest expense........ (9,518) (9,564)(c) (19,082) -- (19,082) Interest income......... 102 -- 102 -- 102 ------- ------- -------- ------- -------- Income before income taxes.................. 18,621 (8,509) 10,112 -- 10,112 Provision for (benefit from) income taxes..... 6,265 (2,119)(d) 4,146 -- 4,146 ------- ------- -------- ------- -------- Net income.............. $12,356 $(6,390) $ 5,966 $ -- $ 5,966 ======= ======= ======== ======= ======== OTHER DATA: Adjusted EBITDA (g)..................................................... $ 31,139 Adjusted EBITDA margin.................................................. 46% Depreciation............................................................ 2,047 Capital expenditures.................................................... 3,666
See Notes to Unaudited Pro Forma Consolidated Statement of Income 29 DETAILS, INC. UNAUDITED PRO FORMA STATEMENT OF INCOME (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1996 ------------------------------------------------------------ PRO FORMA SUPPLEMENTAL ADJUSTED HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS(A) PRO FORMA ---------- ----------- --------- -------------- --------- Net sales............... $49,086 $ -- $ 49,086 $ -- $ 49,086 Cost of goods sold...... 21,899 -- 21,899 -- 21,899 ------- ------- -------- ------ -------- Gross profit............ 27,187 -- 27,187 -- 27,187 Operating expenses: Compensation to CEO.... 836 (836)(b) -- -- -- General and administration........ 1,377 -- 1,377 -- 1,377 Sales and marketing.... 4,503 -- 4,503 -- 4,503 ------- ------- -------- ------ -------- Operating income........ 20,471 836 21,307 -- 21,307 Interest expense........ (6,974) (7,369)(c) (14,343) -- (14,343) Interest income......... 71 -- 71 -- 71 ------- ------- -------- ------ -------- Income before provision for income taxes....... 13,568 (6,533) 7,035 -- 7,035 Provision for (benefit from) income taxes.................. 4,270 (1,386)(d) 2,884 -- 2,884 ------- ------- -------- ------ -------- Net income.............. $ 9,298 $(5,147) $ 4,151 $ -- $ 4,151 ======= ======= ======== ====== ======== OTHER DATA: Adjusted EBITDA (g)..................................................... $ 22,802 Adjusted EBITDA margin.................................................. 46% Depreciation............................................................ 1,495 Capital expenditures.................................................... 2,720
See Notes to Unaudited Pro Forma Consolidated Statement of Income 30 DETAILS, INC. UNAUDITED PRO FORMA STATEMENT OF INCOME (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, 1997 ------------------------------------------------------------ ADJUSTED PRO FORMA SUPPLEMENTAL PRO HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS(E) FORMA ---------- ----------- --------- -------------- -------- Net sales............... $55,421 $ -- $ 55,421 $ -- $ 55,421 Cost of goods sold...... 27,019 -- 27,019 -- 27,019 ------- ------- -------- ------- -------- Gross profit............ 28,402 -- 28,402 -- 28,402 Operating expenses: Compensation to CEO.... 811 (811)(b) -- -- -- General and administration........ 1,625 -- 1,625 -- 1,625 Sales and marketing.... 5,338 -- 5,338 -- 5,338 Stock compensation and related bonuses....... 5,283 -- 5,283 (5,283)(f) -- ------- ------- -------- ------- -------- Operating income........ 15,345 811 16,156 5,283 21,439 Interest expense........ (7,427) (6,905)(c) (14,332) -- (14,332) Interest income......... 56 -- 56 -- 56 ------- ------- -------- ------- -------- Income before income taxes.................. 7,974 (6,094) 1,880 5,283 7,163 Provision for (benefit from) income taxes..... 3,400 (2,629)(d) 771 2,166 2,937 ------- ------- -------- ------- -------- Net income.............. $ 4,574 $(3,465) $ 1,109 $ 3,117 $ 4,226 ======= ======= ======== ======= ======== OTHER DATA: Adjusted EBITDA (g)..................................................... $ 23,268 Adjusted EBITDA margin.................................................. 42% Depreciation............................................................ 1,829 Capital expenditures.................................................... 3,267
See Notes to Unaudited Pro Forma Consolidated Statement of Income 31 NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997 (DOLLARS IN THOUSANDS) (a) Information for the latest twelve months ended September 30, 1997 represents the summation of the pro forma year ended December 31, 1996 and pro forma nine months ended September 30, 1997 information, less the pro forma nine months ended September 30, 1996. (b) Reflects cost savings as a result of the cancellation of the employment agreement with the Company's CEO as a direct result of the Recapitalization. The CEO's employment was terminated on October 28, 1997. (c) The increase to pro forma interest expense as a result of the Recapitalization is as follows:
LATEST TWELVE MONTHS YEAR ENDED NINE MONTHS NINE MONTHS SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 30, 1997 1996 1996 1997 ------------- ------------ ------------- ------------- Elimination of historical interest expense and fees....... $(9,971) $(9,518) $ (6,974) $(7,427) ------- ------- -------- ------- Senior Credit Facilities (assuming LIBOR at 5.8%) Term Loan A--LIBOR plus 2.50%........... 2,581 2,581 1,936 1,936 Term Loan B--LIBOR plus 2.75%........... 4,289 4,289 3,217 3,217 Notes................... 10,000 10,000 7,500 7,500 Other bank fees and unused commitment fee on the Revolving Credit Facility............... 150 150 113 113 Capital leases.......... 764 775 612 601 Other................... 200 200 150 150 ------- ------- -------- ------- Cash interest ex- pense.............. 17,984 17,995 13,528 13,517 Amortization of de- ferred financing fees ($7,500 over average 6.9 years)............ 1,087 1,087 815 815 ------- ------- -------- ------- Total interest from recapitalization debt requirements.. 19,071 19,082 14,343 14,332 ------- ------- -------- ------- Net increase in interest......... $ 9,100 $ 9,564 $ 7,369 $ 6,905 ======= ======= ======== =======
An increase or decrease in the assumed weighted average interest rate on the Senior Credit Facilities of 0.125% would change pro forma interest expense by $102, $102, $77, and $77 for the latest twelve months ended September 30, 1997, for the year ended December 31, 1996, and the nine months ended September 30, 1996 and 1997, respectively. (d) Represents the income tax adjustment required to result in a pro forma income tax provision based on: (i) the Company's historical tax provision using historical amounts and (ii) the direct tax effects of the pro forma adjustments described above at an estimated 41% effective tax rate. (e) Supplemental adjustments represent those adjustments which management believes are appropriate to reflect the elimination of certain expenses not expected to recur after the Recapitalization. (f) Reflects the supplemental adjustment for the exclusion of the charge recorded for stock options vested under the Company's 1996 Stock Option Plan. (g) "Adjusted EBITDA" is defined herein as income before provision for income taxes, plus depreciation, amortization and net interest expense and other supplemental adjustments for the expense recorded for stock compensation and related bonuses under the Company's 1996 Stock Option Plan. 32 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA Set forth below are selected historical consolidated financial data of the Company at the dates and for the periods indicated. The selected historical consolidated statements of income data of the Company for each of the three years ended December 31, 1996 and the selected historical consolidated balance sheet data as of December 31, 1995 and 1996 were derived from the historical consolidated financial statements of the Company that were audited by McGladrey & Pullen, LLP, whose report appears elsewhere in this Prospectus. The selected historical consolidated financial data of the Company for the year ended December 31, 1992 and the nine month periods ended September 30, 1996 and 1997 are derived from unaudited consolidated financial statements of the Company which, in the opinion of management, include all adjustments necessary for a fair presentation. The selected historical consolidated financial data set forth below should be read in conjunction with, and is qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the audited consolidated financial statements and accompanying notes thereto included elsewhere in this Prospectus.
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------------------- ------------------- 1992 1993 1994 1995 1996 1996 1997 ------- ------- -------- -------- -------- -------- --------- (DOLLARS IN THOUSANDS) STATEMENT OF INCOME DA- TA: Net sales.............. $25,759 $32,394 $ 44,086 $ 59,370 $ 67,515 $ 49,086 $ 55,421 Cost of goods sold..... 13,142 16,480 20,415 25,156 30,505 21,899 27,019 ------- ------- -------- -------- -------- -------- --------- Gross profit........... 12,617 15,914 23,671 34,214 37,010 27,187 28,402 Operating expenses: Compensation to CEO (1)................... 9,414 11,513 412 418 1,055 836 811 General and administra- tion.................. 690 1,136 1,385 1,789 1,929 1,377 1,625 Sales and marketing.... 2,672 3,074 3,542 5,293 5,989 4,503 5,338 Stock compensation and related bonuses (2)... -- -- -- -- -- -- 5,283 ------- ------- -------- -------- -------- -------- --------- Operating income (loss)................ (159) 191 18,332 26,714 28,037 20,471 15,345 Interest expense....... (57) (167) (181) (371) (9,518) (6,974) (7,427) Interest income........ 21 10 13 42 102 71 56 ------- ------- -------- -------- -------- -------- --------- Income (loss) before income taxes.......... (195) 34 18,164 26,385 18,621 13,568 7,974 Provision for (benefit from) income taxes (3)................... (18) 221 273 396 6,265 4,270 3,400 ------- ------- -------- -------- -------- -------- --------- Net income (loss)...... $ (177) $ (187) $ 17,891 $ 25,989 $ 12,356 $ 9,298 4,574 ======= ======= ======== ======== ======== ======== ========= OTHER FINANCIAL DATA: EBITDA (4)............. $ 567 $ 1,047 $ 19,214 $ 27,768 $ 30,084 $ 21,966 $ 17,174 Adjusted EBITDA (5).... 9,981 12,560 19,626 28,186 31,139 22,802 23,268 Depreciation........... 726 856 882 1,054 2,047 1,495 1,829 Cash provided by oper- ating activities...... 298 395 18,094 26,141 12,158 10,882 11,506 Cash flow (used in) in- vesting activities.... (1,273) (1,254) (844) (2,946) (3,577) (2,712) (3,267) Cash provided by (used in) financing activities............ 786 2,277 (15,156) (26,409) (8,885) (6,786) (7,466) Ratio of earnings to fixed charges (6)..... -- 1.1x 51.5x 46.6x 3.0x 2.9x 2.1x BALANCE SHEET DATA (END OF PERIOD): Working capital........ $ 1,170 $ (74) $ (96) $ (2,264) $ (3,514) $ (884) $ (5,892) Total assets........... 6,164 9,097 12,015 13,081 27,503 26,930 31,686 Total debt............. 1,434 3,446 1,316 1,982 94,101 96,157 87,410 Equity (net capital de- ficiency) (7).......... 2,993 2,806 2,806 2,500 (72,674) (75,732) (65,177)
- -------- (1) Represents compensation paid to the Company's former CEO, who also was the sole shareholder since the Company's inception through the Initial Recapitalization and whose employment terminated on October 28, 1997. (2) Represents stock compensation and related bonuses under the Company's 1996 Stock Option Plan. (3) Prior to February 1996, the Company elected to be taxed as an "S" corporation and paid income taxes at a reduced rate. On a pro forma basis, income tax expense would have been higher by the following amounts: 1994- $7,175; 1995-$10,425; 1996-$1,295 and September 30, 1996-$1,295. (4) "EBITDA" is defined herein as income before income taxes, depreciation, amortization and net interest expense. EBITDA is presented because the Company believes it is frequently used by security analysts in the evaluation of companies. However, EBITDA should not be considered as an alternative to net income as a measure of operating results or to cash flows as a measure of liquidity in accordance with generally accepted accounting principles. (5) "Adjusted EBITDA" is defined herein as EBITDA adjusted for certain items of income which are not expected to be incurred by the Company subsequent to the Transactions. These items consist of the compensation paid to the Company's former CEO whose employment terminated on October 28, 1997 and stock compensation and related bonuses under the Company's 1996 Stock Option Plan. (6) For purposes of computing this ratio, earnings consists of income before income taxes plus fixed charges. Fixed charges consist of interest expense and the estimated interest portion of rent expense. Earnings were not sufficient to cover fixed charges by $195 for the year ended December 31, 1992. (7) The net capital deficiency as of December 31, 1996 reflects the Initial Recapitalization of the Company that took place in January of 1996. 33 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the financial condition and results of operations covers periods before completion of the Transactions. In connection with the Transactions, the Company entered into financing arrangements and altered its capital structure. Accordingly, the results of operations for periods subsequent to the consummation of the Transactions will not necessarily be comparable to prior periods. See "The Transactions," "Capitalization," "Description of Senior Credit Facilities," "Selected Historical Consolidated Financial Data," "Unaudited Pro Forma Consolidated Financial Data," and the audited and unaudited consolidated financial statements and notes thereto included elsewhere in this Prospectus. OVERVIEW The Company is a leading domestic manufacturer and marketer of PCBs for the quick-turn segment of the PCB industry. The Company produces PCBs for over 300 customers across a wide range of end-use markets including the telecommunications, computer, contract manufacturing, industrial instrumentation and consumer electronics industries. For the nine months ended September 30, 1997, approximately 70% of the Company's sales were quick-turn PCBs. The Company's net sales of PCB panels, which consist of multiple individual printed circuit boards, have grown at a compound annual growth rate of 25% from $25.8 million in fiscal year ended December 31, 1992 to $73.9 million in the twelve months ended September 30, 1997. SIGNIFICANT TRANSACTIONS The Company was established in 1978 by James Swenson. In 1992, the Company installed new management, headed by Bruce McMaster, and began to focus primarily on quick-turn products. In late January 1996, CMC and its affiliates acquired approximately 40% of the outstanding stock of the Company in a recapitalization (the "Initial Recapitalization"). On October 4, 1997, Holdings and its stockholders entered into the Recapitalization Agreement pursuant to which the Merger was consummated on October 28, 1997. See "The Transactions." The Company incurred a non-recurring charge of approximately $39.0 million (net of estimated income tax benefits of $16.0 million) as a result of the following events in connection with the Transactions: (i) the write-off of deferred financing fees; (ii) the early extinguishment of the Company's long-term debt; (iii) the buyout of the CEO's employment contract; and (iv) the compensation expense attributable to the accelerated vesting of the outstanding options under the Company's variable stock plan in conjunction with the Recapitalization. Because the Merger has been accounted for as a recapitalization, the historical cost basis of the Company's assets and liabilities was not affected. RESULTS OF OPERATIONS The following table sets forth certain condensed historical financial data for the Company expressed as a percentage of net sales for the periods set forth below:
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------- ------------------ 1994 1995 1996 1996 1997 ------- ------- ------- -------- -------- Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of goods sold.............. 46.3 42.4 45.2 44.6 48.8 ------- ------- ------- -------- -------- Gross profit.................... 53.7 57.6 54.8 55.4 51.2 Operating expenses: Stock compensation and related bonuses...................... 0 0 0 0 9.5 Other operating expenses...... 12.1 12.6 13.3 13.7 14.0 ------- ------- ------- -------- -------- Operating income................ 41.6 45.0 41.5 41.7 27.7 Net interest expense............ (0.4) (0.5) (13.9) (14.1) (13.3) ------- ------- ------- -------- -------- Income before income taxes...... 41.2 44.5 27.6 27.6 14.4 Income tax expense.............. (0.6) (0.7) (9.3) (8.7) (6.1) ------- ------- ------- -------- -------- Net income...................... 40.6 43.8 18.3 18.9 8.3 ======= ======= ======= ======== ========
34 NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1996 Net Sales. Net sales for the nine months ended September 30, 1997, increased $6.3 million or 12.9% to $55.4 million from $49.1 million for the nine months ended September 30, 1996. The increase was largely due to growth in the volume of units shipped primarily attributable to increased demand from telecommunications customers. During the nine months ended September 30, 1997, the Company's largest customer accounted for 10.9% of net sales. During the nine months ended September 30, 1996, the Company's largest customer accounted for 17.5% of net sales. Gross Profit. Gross profit for the nine months ended September 30, 1997, increased $1.2 million to $28.4 million from $27.2 million for the nine months ended September 30, 1996. As a percentage of net sales, gross profit decreased 4.2% from 55.4% for the nine months ended September 30, 1996, to 51.2% for the nine months ended September 30, 1997. The decrease in gross profit as a percentage of sales was primarily attributable to increases in engineering, manufacturing and systems personnel needed to support continued growth in manufacturing capacity. Stock Compensation. During the nine months ended September 30, 1997, stock compensation and related bonuses increased $5.3 million from the nine months ended September 30, 1996, due primarily to non-cash expense for the vesting of employee stock options granted in 1996. Other Operating Expenses. Other operating expenses increased $1.1 million or 15.8% to $7.8 million for the nine months ended September 30, 1997, as compared to $6.7 million for the nine months ended September 30, 1996. As a percentage of net sales, other operating expenses increased to 14.0% for the nine months ended September 30, 1997, as compared to 13.7% for the nine months ended September 30, 1996. The increase was due to additional sales and marketing expenses attributable to increased sales coupled with the start-up costs associated with the January 1997 opening of the Company's sales office in London. The Company anticipates operating expenses will continue to increase as the Company expands. Net Interest Expense. Net interest expense for the nine months ended September 30, 1997, increased $469,000 to $7.4 million from $6.9 million for the nine months ended September 30, 1996. The increase in interest expense is primarily due to the nine months ended September 30, 1996 containing only 8 months of interest from the Initial Recapitalization which occurred in late January 1996. In connection with the Initial Recapitalization, the Company incurred approximately $95.0 million in bank indebtedness. If the Initial Recapitalization would have been entered into on January 1, 1996, interest expense for the nine months ended September 30, 1996, would have been higher by approximately $770,000 for a total of $7.6 million. At September 30, 1997, the Company's total debt is approximately $87.4 million resulting in a corresponding decrease in interest expense for the nine months ended September 30, 1997. The Company anticipates that interest expense will increase substantially upon completion of the Transactions and the Offering. Income Tax Expense. Income tax expense for the nine months ended September 30, 1997, was $3.4 million or 42.6% of income before income taxes. Income tax expense for the nine months ended September 30, 1996, was $4.3 million or 31.5% of income before income taxes. Prior to the Initial Recapitalization, the Company was taxed as an "S" corporation for income tax purposes. As an "S" corporation, the Company paid reduced income taxes and all income was passed through to the stockholder of the Company. On a pro forma basis, the Company's effective tax rate would have been 41% had the "S" corporation election not been in effect. The Company anticipates a combined tax rate of approximately 41% in the future under the current federal and state income tax rate structure. 35 Net Income. For the reasons discussed above, net income for the nine months ended September 30, 1997, decreased $4.7 million to $4.6 million from $9.3 million for the nine months ended September 30, 1996. 1996 COMPARED TO 1995 Net Sales. Net sales increased $8.1 million or 13.7% to $67.5 million in 1996 from $59.4 million in 1995. The increase was due primarily to a change in the product sales mix resulting in an increase in average panel price partially offset by a decrease in total panels shipped. The overall increase in average price per panel was a result of the Company's increased emphasis on prototype and premium products. During 1996, the Company had sales to two customers totaling $16.6 million or 24.6% of net sales. During 1995, the Company had sales to these two customers totaling $16.4 million or 27.7% of net sales. Gross Profit. Gross profit increased $2.8 million to $37.0 million in 1996 from $34.2 million for 1995. As a percentage of net sales, gross profit decreased 2.8% to 54.8% in 1996 from 57.6% in 1995. The decrease in gross profit as a percentage of sales was primarily the result of an increase in the Company's investment in engineering, manufacturing and systems personnel to support continued growth in manufacturing capacity, combined with increased manufacturing costs incurred on more complex, high density PCBs. Other Operating Expenses. Other operating expenses increased $1.5 million or 19.6% to $9.0 million in 1996 from $7.5 million in 1995. As a percentage of net sales, other operating expenses increased to 13.3% in 1996 from 12.6% in 1995. Of these totals, compensation to the CEO increased $637,000 to $1.1 million in 1996 from $418,000 in 1995. This increase was due to a new employment contract signed in January 1996 in connection with the Initial Recapitalization. In connection with the Recapitalization, the Company negotiated a termination of the CEO's current contract and anticipates an elimination of annual compensation expense to this individual of $1.1 million beginning in November 1997. Net Interest Expense. Net interest expense increased $9.1 million to $9.4 million from $329,000 in 1995. The increase in interest expense is primarily due to the debt incurred of approximately $95.0 million and $6.6 million in capital lease transactions in connection with the Initial Recapitalization. Prior to 1996, the Company had incurred only nominal amounts of debt for the purchase of equipment. Income Tax Expense. Income tax expense was $6.3 million or 33.6% of income before income taxes in 1996. Income tax expense was $396,000 or 1.5% of income before income taxes in 1995. The income tax rates were lower than the statutory income tax rate since the Company changed from an "S" corporation to a "C" corporation in late January 1996. On a pro forma basis, the income tax rate of the Company if it were taxable as a "C" corporation for all of 1996 would have been 41%. Net Income. For the reasons discussed above, net income decreased $13.6 million to $12.4 million in 1996 from $26.0 million in 1995. 1995 COMPARED TO 1994 Net Sales. Net sales increased $15.3 million or 34.7% to $59.4 million in 1995 from $44.1 million in 1994. The increase was due primarily to a change in the product sales mix resulting in an increase in the average panel price combined with an increase in total panels shipped. The overall increase in average price per panel was a result of the Company's increased emphasis on prototype and premium products. The increase in panels shipped is the result of the Company's focus on obtaining larger quantity orders for quick-turn PCB business as well as increases in prototype and premium units produced. Increased capacity utilization experienced at standard lead-time PCB 36 production houses also resulted in extended lead times for production orders and less capacity available for quick-turn services, and as a result, the Company experienced increased orders to fill this shortage of quick-turn capacity. During 1995, two customers accounted for $16.4 million or 27.7% of net sales. During 1994, two customers accounted for sales of $17.3 million or 39.3% of net sales. Gross Profit. Gross profit increased $10.5 million to $34.2 million in 1995 from $23.7 million for 1994. As a percentage of net sales, gross profit increased 3.9% to 57.6% in 1995 from 53.7% in 1994. The increase in gross profit was primarily attributable to the increase in prototype and premium units produced and sold in 1995 as compared to 1994 and a decrease in manufacturing expenses. Other Operating Expenses. Other operating expenses increased $2.2 million or 40.5% to $7.5 million in 1995 from $5.3 million in 1994. As a percentage of net sales, other operating expenses increased 0.5% to 12.6% in 1995 from 12.1% in 1994. The increase was due to a $1.7 million increase in sales and marketing expense due to higher variable costs directly attributable to increased sales. In addition, general and administrative expenses increased by $404,000 as a result of an increase in fixed costs associated with the administration of a larger organization. Net Interest Expense. Net interest expense increased $161,000 to $329,000 in 1995 from $168,000 in 1994 due to an increase in debt outstanding used in the purchase of production equipment. Income Tax Expenses. Income tax expense was $396,000 or 1.5% of income before income taxes in 1995. Income tax expense was $273,000 or 1.5% of income before income taxes in 1994. The income tax rates were lower than the statutory income tax rate since the Company was an "S" corporation for income tax purposes. Net Income. For the reasons discussed above, net income increased $8.1 million to $26.0 million in 1995 from $17.9 million in 1994. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity are cash provided by operations and borrowings under various debt instruments. The Company's principal uses of cash have been to finance capital expenditures and meet debt service requirements. The Company anticipates that it will also use cash in the future to finance possible acquisitions. Net cash provided by operating activities was $11.5 million and $10.9 million for the nine months ended September 30, 1997 and 1996, respectively. Net cash provided by operating activities was $12.2 million, $26.1 million and $18.1 million for the fiscal years ended 1996, 1995 and 1994, respectively. Fluctuations in net cash provided by operating activities is primarily attributable to increases and decreases in the Company's net income before non-cash charges. Financing activities in 1996 primarily consisted of distributions to shareholders and shareholder transactions and increased debt requirements in connection with the Initial Recapitalization. Net cash used in financing activities was $15.2 million, $26.4 million and $8.9 million for the fiscal years ended December 31, 1994, 1995 and 1996, respectively. Financing activities in 1994 and 1995 primarily consisted of distributions to shareholders. The Company's capital expenditures were $0.8 million, $2.9 million, $3.7 million and $3.3 million in 1994, 1995, 1996 and the nine months ended September 30, 1997, respectively. The Company anticipates these expenditures will increase to approximately $4 million for the full year 1997 and $6 million for 1998. 37 As of October 28, 1997, after giving effect to the Transactions, the Company incurred new indebtedness aggregating $181.4 million. As a result of the Transactions, the Company has significantly increased cash requirements for debt service relating to the Notes and Senior Credit Facilities. As of September 30, 1997, on a pro forma basis, the Company would had borrowings of approximately $187.7 million and up to $30 million available for borrowing under the Revolving Credit Facility and, following the Recapitalization, $25 million additional availability under the Term Loan Facilities. The Company's estimated minimum principal payment obligations under the Senior Credit Facilities are $2.3 million and $4.5 million for fiscal 1998 and fiscal 1999, respectively. This compares to $11.0 million and $12.5 million, which would have been required under its previous facilities. Concurrently with the Initial Offering, Holdings conducted the Discount Notes Offering, the proceeds of which it used to repay the Holdings Facility. On December , 1997, Holdings contributed substantially all of its assets, subject to certain liabilities, including the Discount Notes, to Details Capital. Concurrently with the Exchange Offer, Details Capital is conducting an exchange offer for the Discount Notes. The Discount Notes and the Exchange Discount Notes exchanged therefor are both herein referred to as the "Discount Notes". The Discount Notes require no interest payments for the first five years. Although none of the Company's assets secure the Discount Notes and the Company does not guarantee the Discount Notes, Neither Holdings nor Details Capital currently has any operations or sources of cash flow. The Company expects that, based on current operations, it will be the only source of payment for Details Capital's debt service. See "Description of Exchange Notes--Certain Covenants." The Company's ability to incur additional indebtedness is limited under the Indenture, the Discount Note Indenture and the Senior Credit Facilities. Based upon the current level of operations, the Company believes that cash generated from operations, available cash and amounts available under the Senior Credit Facilities, will be adequate to meet its debt service requirements, capital expenditures and working capital needs for the foreseeable future, although no assurance can be given in this regard. Accordingly, there can be no assurance that the Company's business will generate sufficient cash flow from operations or that future borrowings will be available under the Senior Credit Facilities to enable the Company to service its indebtedness, including the Notes, or make anticipated capital expenditures. The Company's future operating performance and ability to service or refinance the Notes and to extend or refinance the Senior Credit Facilities will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. IMPACT OF INFLATION The Company believes that its results of operations are not dependent upon moderate changes in the inflation rate. However, severe increases in inflation could affect the global and United States economy and could have an impact on the Company's profitability. COMPUTER SYSTEMS AND YEAR 2000 The Company is currently developing a plan to insure that its systems and software infrastructure are Year 2000 compliant. The scheduled implementation of all phases of the plan is February 1998. Given the relatively small size of the Company's systems and the predominately new hardware, software and operating systems, management does not anticipate any significant delays in becoming Year 2000 compliant. However, the Company is unable to control whether its customers' and suppliers' systems are Year 2000 compliant. To the extent that customers would be unable to order product or pay invoices or suppliers would be unable to manufacture and ship product, it could affect the Company's operations. CHANGES IN ACCOUNTING PRINCIPLES FASB has also issued Statement No. 131 "Disclosures about Segments of an Enterprise and Related Information." Statement No. 131 modifies the disclosure requirements for reportable segments and is effective for the Company's year ending December 31, 1998. The Company has not determined if the effect of the adoption of this Statement would require the Company to report industry segments. 38 THE INDUSTRY TECHNICAL OVERVIEW PCBs serve as the foundation of almost all electronic products, providing the circuitry and mounting surfaces necessary to interconnect discrete electronic components, including integrated circuits, capacitors and resistors. PCBs consist of a pattern of electrical circuitry etched from copper and laminated to a board made of insulating material, thereby providing electrical interconnection between the components mounted onto it. PCBs can be designed as single-sided, double-sided, or multi-layer boards, are characterized as rigid or flexible depending on their end-use and are designed to customer specification using computer aided design ("CAD") software. Multi- layer PCBs consist of stacked boards separated by bonding sheets and pressed to form a solid board. Electrical connections between the layers are made using standard plated through-holes (drilled and plated through the whole board), or by vias (plated holes between two or more layers). To meet increasing demand among OEMs and contract manufacturers, PCB manufacturers have developed more complex multi-layer designs with surface mount and other attachment technologies, narrower widths and separations of copper traces, advanced materials (such as Teflon), and small diameters of vias and through- holes to connect internal circuitry. Changes in the industry are predominantly evolutionary rather than revolutionary and many of the production processes and technologies used today were first developed more than 10 years ago. MARKET SEGMENTATION AND GROWTH As electronic products have become smaller and more complex, the manufacture of PCBs has required increasingly sophisticated engineering and manufacturing expertise. These advanced manufacturing processes and technology requirements have caused OEMs to rely increasingly on independent or merchant manufacturers and to reduce dependence on their own internal captive facilities. It is estimated that in 1996 independent or merchant manufacturers served 87% of the domestic PCB market, an increase from 71% in 1992. The worldwide PCB market, including both captive and merchant PCB production, generated approximately $30.4 billion of revenue in 1996. The U.S. accounted for approximately 27% of the worldwide market, or $8.3 billion. As described above, approximately 87% of the domestic market, or $7.2 billion was supplied by merchant (i.e., non-captive) fabricators. The merchant market is divided between quick-turn and long-lead manufacturers. Of the $7.2 billion of domestic merchant production, quick-turn PCBs accounted for 21% or approximately $1.5 billion. Quick-turn PCBs, which are defined as printed circuit boards manufactured within 10 days (and as little as 24 hours) in prototype and pre-production quantities, are used in the design, test and launch phases of new electronic products. The quick-turn market is characterized by higher margins, faster growth and greater customer diversity than the long-lead PCB market. Since 1992, the quick-turn segment has experienced rapid growth, increasing at a 24% CAGR, twice the rate for the overall domestic PCB industry. Long-lead PCBs, defined as those with delivery lead times in excess of ten days (and customarily 3-5 weeks), typically have larger order sizes and are utilized in both the ramp-to-production and full production phases of electronic product development. The following table describes the domestic PCB market. DOMESTIC PCB MARKET SIZE
SHIPMENT VALUE IN BILLIONS OF DOLLARS ----------------------------------------- 1992 1993 1994 1995 1996 CAGR ------ ------ ------ ------ ------ ------ Quick-Turn......................... $ 0.6 $ 0.8 $ 1.0 $ 1.2 $ 1.5 24% Long-Lead.......................... 3.1 3.6 4.2 4.9 5.7 16% ------ ------ ------ ------ ------ ----- Total Merchant................... 3.7 4.4 5.2 6.1 7.2 18% Captive............................ 1.5 1.5 1.5 1.4 1.1 (8%) ------ ------ ------ ------ ------ ----- Total PCB Market................. $ 5.2 $ 5.9 $ 6.7 $ 7.5 $ 8.3 12%
39 The customary evolution of an electronic product results in several phases of PCB procurement: prototype, pre-production and production. Initially, in the design and development stage, customers order small lot sizes (1-25 boards) and demand quick-turn delivery ("prototype boards"); in the test- marketing and product introduction stages, they order low to medium quantities (up to 5,000 boards) which may or may not require quick-turn delivery ("pre- production boards"); and in the product roll-out stage, they tend to order large volumes with lead times in excess of three weeks ("production boards"). Prototype and pre-production boards, the segments in which the Company competes, command escalating pricing premiums the shorter the lead time and the greater the board complexity. PCB complexity is determined by layer count, the use of exotic substrates and materials, the fineness of line spaces and traces, the incorporation of buried resistors and capacitors, the use of microvias and numerous other features. By focusing on either time criticality, board complexity, or both, a PCB fabricator can realize significant pricing premiums and commensurately higher profitability per PCB than that attainable in the production segment of the market. END-USE MARKETS PCBs are customized for specific electronic applications and are sold to OEMs and contract manufacturers in volumes that range from smaller quantities for prototypes and pre-production orders to larger quantities for volume production. PCBs are used in various end-use markets which include (i) telecommunications products such as cellular phones, pagers and switching and transmission equipment; (ii) computers and peripherals such as notebook and desktop computers, high-end workstations, network servers, modems and printers; (iii) automotive systems such as ABS traction control, airbag and electric-powered engines and engine transmission control; (iv) industrial applications such as optical code-readers and test equipment; and (v) basic home appliances such as microwave ovens and remote controls. TRENDS The PCB industry is characterized by the following trends: Increasing Complexity of Electronic Products. The increasing complexity of electronic products has driven technological advancements in PCBs. As this trend continues, fabricators face increasingly more difficult demands on the manufacturing process. For example, modern compact and portable designs feature advanced materials, high layer counts, narrower line widths and spaces and smaller vias to connect internal circuitry. As a result, manufacturers must remain at the forefront of both design and manufacturing technologies in order to be competitive in the prototype and pre-production segments. Accelerating Product Lifecycles. Rapid advances in technology and increasing competitive pressures are shortening product lifecycles and forcing electronic OEMs to develop and bring new products to market faster. This has resulted in OEMs viewing "speed to market" as a key competitive advantage causing them to partner with suppliers that can consistently deliver highly reliable product under demanding time constraints. This trend is a key driver of growth in the quick-turn market. Consolidating Industry. The domestic PCB industry is highly fragmented with approximately 600 active fabricators. Although the industry has experienced significant consolidation in the last four years, declining 37% from the approximately 950 manufacturers in 1992, the top eight manufacturers still only account for approximately 25% of industry sales in 1996. Consolidation in the industry is driven by (i) growing demand by electronic OEMs for both increasingly complex PCBs and shortened delivery cycles which mandates sophisticated design, engineering and manufacturing capabilities; (ii) ongoing outsourcing by electronic OEMs; and (iii) increasing desire by OEMs to use fewer suppliers. 40 BUSINESS GENERAL Details is a leading manufacturer and marketer of complex printed circuit boards for the time critical or "quick-turn" segment of the domestic PCB industry. Printed circuit boards are the basic platforms used to interconnect microprocessors, integrated circuits, and other components essential to the functioning of virtually all electronic products. Quick-turn PCBs, which are defined as printed circuit boards manufactured within 10 days (and as little as 24 hours) in prototype and pre-production quantities, are used in the design, test and launch phases of new electronic products. The quick-turn market is characterized by higher margins, faster growth and greater customer diversity than the long-lead market. Approximately 70% of the Company's year- to-date sales are quick-turn PCBs. Complex PCBs are those employing difficult to manufacture specifications such as high layer counts, dense circuitry designs, and exotic materials. Such boards command escalating pricing premiums the greater the complexity. The Company's advanced engineering capability enables it to produce boards with up to 40 layers employing leading edge fabrication technologies. The Company supplies over 300 customers in a wide range of end-use markets including the telecommunications, computer, contract manufacturing, industrial instrumentation, and consumer electronics industries. On a pro forma basis for the twelve months ended September 30, 1997, the Company's net sales and adjusted EBITDA would have been $73.9 million and $31.6 million, respectively. Since the installation of a new management team in 1992, the Company has successfully increased its sales and profitability and diversified its customer base by strategically focusing on the quick-turn PCB market. Because of its superior ability to deliver complex boards in short time frames with a high degree of reliability, management believes that the Company plays a uniquely mission critical role in facilitating its customers' "time-to-market" efforts. Such efforts have become increasingly important in light of the electronic industry's trends toward shortened product lifecycles and increased competitiveness. As a result of this strategic shift, the Company has grown net sales at a CAGR of 25% from $25.8 million in the fiscal year ended December 31, 1992 to $73.9 million for the twelve months ended September 30, 1997. In the same time frame, the Company has grown adjusted pro forma EBITDA at a 27% CAGR from $10.0 million to $31.6 million. As a result of the Recapitalization, management owns stock and options for approximately 27.5% of the fully-diluted capital stock of Holdings. Such equity ownership represents a significant economic commitment to, and participation in, the Company. COMPETITIVE STRENGTHS The Company believes that it has several competitive advantages in the PCB industry, including: Quick-Turn Market Leader. The Company is one of the largest manufacturers of quick-turn PCBs in the United States, with approximately 70% of its year-to- date sales derived from quick-turn products. The Company believes it is among a select few manufacturers that can routinely complete complex orders in less than 24 hours. The Company believes that its superior engineering expertise, ability to produce highly complex PCBs, and consistent record of reliable service, product quality and on-time performance give it a competitive advantage in the quick-turn market. Leading Technological Capabilities. The Company believes that it is an industry leader in the engineering of advanced PCB materials and technologies that maximize performance and board density. Customers utilize the technological expertise of Details' 66 front-end engineers throughout the product development effort to achieve an integrated cost-effective manufacturing effort. The Company 41 has the ability to produce boards with up to 40 layers, and approximately 40% of its sales year-to-date included boards with layer counts of 8 or more. The Company consistently delivers dependable, high quality products with an on- time delivery record of approximately 97%. The Company believes its ability to improve customer board designs for enhanced manufacturing efficiency differentiates it from its competition. Diverse and Loyal Customer Base. The Company believes that it has one of the broadest customer bases in the industry, with more than 300 customers serving a wide range of end-use markets. Year-to-date, the Company's largest customer accounted for less than 11% of revenue. In addition, the Company has been successful at retaining customers. For example, the Company has maintained a relationship with its top three year-to-date customers--Motorola, Intel and IBM--since at least 1993. Details believes that its ability to rapidly respond to changes in demand for new or modified board designs with consistent high quality is a major factor in its success at creating customer partnerships. The Company's customer list includes leading manufacturers of telecommunications equipment, such as Motorola and Qualcomm; computer workstations and servers, such as IBM and Silicon Graphics; semi-conductor fabrication such as Intel; industrial products, such as Caterpillar and Delco; computer assemblers, such as Dell and Compaq; and contract manufacturing firms such as SCI and Jabil. Experienced Management Team with Significant Equity Ownership. The Company's President, Bruce McMaster, has a total of 16 years of experience in the PCB industry. Mr. McMaster, together with the other members of his senior management team--Lee Muse (Vice President of Sales and Marketing), Joseph Gisch (Chief Financial Officer), Terry Wright (Vice President of Engineering), and Michael Moisan (Vice President of Operations)--have over 70 years of industry experience and approximately 30 years with the Company. Since 1992, management has successfully developed and implemented manufacturing and marketing strategies which have resulted in a compound annual growth rate in net sales of 25% from the fiscal year ended December 31, 1992 to the twelve months ended September 30, 1997. As a result of the Recapitalization, management owns stock and options for approximately 27.5% of the fully-diluted capital stock of Holdings. Such equity ownership represents a significant economic commitment to, and participation in the Company. BUSINESS STRATEGY The Company's goal is to maintain its growth rate in sales and profitability by leveraging its quick-turnaround capability, its market leading technology, and its large customer base to increase its penetration of value-added market segments. In order to accomplish its goal, the Company intends to: Increase Technical Leadership in Quick-Turn Segment. The Company intends to extend its leadership in the quick-turn segment by continuing to provide consistent, rapid delivery through leading-edge processes and technology. Currently, the Company is capable of delivering 12- layer boards in as little as 24 hours which it believes is among the fastest of any current industry participant. Moreover, the Company had a less than 1% product return rate for the nine months ended September 30, 1997 which it believes is among the lowest in the quick-turn segment. Such performance is largely due to the technology and processes employed by the Company coupled with its engineering expertise and customized design and development services. The Company intends to maintain its focus on improving quality and delivery times by incorporating emerging technologies and by continuously improving its manufacturing processes. Cross-Sell Pre-Production to Quick-Turn Customers. The Company believes there are substantial opportunities to leverage its strong customer relations in the quick-turn segment by cross-selling 10 to 20 day pre-production volume to its existing customers. Recognizing OEMs' desire to 42 simplify their supplier chain, the Company aims to offer customers a more efficient production solution which will (i) reduce customers' tooling costs, (ii) eliminate supplier switching risk, and (iii) shorten its customers' "time-to-market." In furtherance of this initiative, the Company continues to make investments in capital equipment, engineering capability and systems infrastructure. Achieve International Presence. The Company believes there are substantial opportunities to satisfy international demand for time-critical, complex PCBs. Year-to-date, approximately 94% of the Company's revenues were generated domestically despite the fact that the U.S. accounts for only 27% of the worldwide market. In particular, the Company has established a sales office in the United Kingdom to service existing European customers' needs and to broaden the Company's European presence. The Company is currently developing a manufacturers' representative arrangement in Singapore as an entry into the Asian market. Pursue Selective Acquisitions. The Company is currently pursuing selective acquisitions to complement its organic growth. Due to the high degree of fragmentation in the PCB industry, the Company believes substantial consolidation opportunities exist. Consequently, the Company is actively seeking acquisitions which will: (i) increase its 10 to 20 day pre-production capacity, (ii) expand its international geographic coverage, (iii) strengthen its position in existing markets, (iv) provide significant profit improvement opportunities through the application of the Company's superior operating capabilities, and (v) enhance its technology base. The Company is currently in discussions with several potential acquisition candidates but has not entered into any agreements or understandings with third parties. PRODUCTS AND SERVICES The majority of the Company's business consists of building printed circuit boards for sophisticated electronics products on a quick-turn delivery basis and involves working closely with its customers from the initial design stage through product development and launch. The Company's product offering includes boards using super-fine line spaces and traces, buried resistors and capacitors, microvias and a wide range of substrates and materials. All of the Company's products are manufactured to customer order. The Company's PCBs are utilized in cellular phones, telecommunications equipment, computer networking equipment, medical devices, sophisticated industrial equipment and other high growth electronic applications. In addition to direct sales to OEMs, the Company sells to contract manufacturers and is a turnkey supplier in the event of product shortages. The Company provides design and engineering assistance in the early stages of product development to ensure that both mechanical and electrical considerations are integrated into a cost-effective manufacturing solution. In doing so, the Company often recommends design changes to its customers to reduce manufacturing costs and lead times or to increase manufacturing yields and the quality of the finished product. The Company believes that this long- term view of manufacturing and customer relationships distinguishes it from many of its competitors in the quick-turn market. This cooperative approach further enables the Company to gain valuable insight into the future technology requirements of its customers and to obtain opportunities for subsequent prototype and pre-production business. MANUFACTURING The production of complex printed circuit boards is an extensive and sequential process. A variety of manufacturing operations are utilized, including: (i) graphic operations such as photoprinting, screen printing, and phototool generation; (ii) chemical operations such as copper deposition, electroplating and etching; (iii) mechanical operations such as lamination, drilling and routing; and (iv) electronic operations such as computer-aided manufacturing ("CAM"), automated optical inspection, and electrical testing. Management believes that the highly specialized equipment it uses is among the most advanced in the industry. 43 Details utilizes a number of advanced processes and technologies, including direct chip attached, multichip module-laminate, ball grid array, chip on board, tape automated bonding, flip chip, and high density interface. Details also maintains the capability to produce less sophisticated plate-through-hole circuit ("PTH") boards. The Company's engineering operations consist of 89 engineering professionals (including 66 front-end) dedicated to improving the design and functionality of its customers' products. The Company utilizes state-of-the-art equipment to implement advanced technologies such as high density interface (microvias), blind and buried vias, buried capacitors and resistors, electroless gold (wire bond), and controlled and differential impedance to meet customer specifications. The Company is qualified under various industry standards for the manufacture of PCBs. Such qualifications include Bellcore compliance for telecommunications products and UL (Underwriters Laboratories) approval for electronics. In addition, all of the Company's facilities are ISO-9002 certified. The Company seeks to maximize the use of its manufacturing capacity. This requires efficient management of time-critical production schedules. In addition, the Company opportunistically augments its quick-turn capacity with pre-production and longer-lead orders. The majority of engineering and manufacturing takes place at the Company's facilities in Anaheim, California. Research and development and longer term manufacturing jobs are carried out in a nearby facility in Placentia, California. TECHNOLOGY, DEVELOPMENT AND PROCESSES The Company maintains a strong commitment to research and development, focusing its efforts on enhancing existing capabilities as well as developing new technologies. The Company's staff of over 80 experienced engineers, chemists and laboratory technicians works in conjunction with the Company's sales staff to identify specific needs and develop innovative, high performance solutions to customer issues. This method of product development allows customers to augment their own internal development teams while providing Details with the opportunity to gain an in-depth understanding of its customers' businesses, thereby enabling it to better anticipate and serve their future needs. The market for the Company's products and services is characterized by rapidly changing technology and continuing process development. The future success of the Company's business will depend in large part upon its ability to maintain and enhance its technological capabilities, develop and market products and services that meet changing customer needs, and successfully anticipate or respond to technological changes on a cost-effective and timely basis. See "Risk Factors--Technological Change and Process Development." SALES AND MARKETING Marketing Strategy. The Company's marketing strategy focuses on developing close working relationships with its customers early in the design phase and throughout the lifecycle of the product. Accordingly, the Company's senior management personnel and engineering staff advise customers with respect to applicable technology, manufacturability of designs, and cost implications through on-line computer technical support, conference calls, and customer visits. Details has focused its marketing efforts on developing long-term relationships with key customers in high growth segments of the electronics industry. Sales Force. The Company markets its products and manufacturing services through an expansive network consisting of 12 top representative organizations with 60 manufacturers' representatives across the country complemented by a direct sales force of 16 individuals. Approximately 87% of the Company's net sales in the fiscal year ended December 31, 1996 were generated through manufacturers' representatives and 13% through its direct sales force. For many of these representatives, Details is their largest revenue source and their exclusive prototype supplier. 44 The Company's representative network covers the entire United States and has recently expanded to Europe and Asia. The Company's marketing methodology of introducing its capabilities and providing technical support to customers requires extensive interaction with its customers. Consequently, the Company augments the manufacturer's representatives network's sales efforts by providing extensive marketing, engineering and technical support. The Company utilizes fully trained sales representatives and its own engineering force to provide customer service during all aspects of pre-production and prototype board fabrication. MARKETS AND CUSTOMERS The Company believes that it has one of the broadest customer bases in the industry, with more than 300 customers consisting primarily of leading OEMs and contract manufacturers in a wide range of end-use markets. The Company's customers principally consist of telecommunications, industrial and business computers companies, as well as medical, semiconductor equipment and manufacturers. During the nine months ended September 30, 1997, sales to the Company's largest customer, Motorola, accounted for 10.9% of the Company's net revenues. Sales to the Company's two largest customers accounted for 20.4% of the Company's net revenues during the nine months ended September 30, 1997 and sales to its ten largest customers accounted for approximately 48.4% during the same period. The Company's customer list includes leading manufacturers of telecommunications equipment, such as Motorola and Qualcomm; computer workstations and servers, such as IBM and Silicon Graphics; semiconductor fabrication such as Intel; industrial products, such as Caterpillar and Delco; computer assemblers, such as Dell and Compaq; and contract manufacturing firms such as SCI and Jabil. The Company has been successful at retaining customers. For example, the Company has maintained a relationship with its top three year-to-date customers--Motorola, Intel and IBM--since at least 1993. The Company's active customer base (defined as customers who have placed orders within the month) has increased from an average of 122 in 1994 to the current average of 149 customers per month. The Company believes that its ability to rapidly respond to changes in demand for new or modified board designs with consistent high quality is a major factor in building customer partnerships. The following table shows, for the periods indicated, the Company's sales and the percentage of its sales in each of the principal end-user markets it serves for the fiscal years ended December 31, 1994 through 1996.
FISCAL YEAR ENDED DECEMBER 31, ------------------------------- MARKETS 1994 1995 1996 - ------- --------- --------- --------- (DOLLARS IN MILLIONS) Telecommunications..................... $12.0 27% $21.5 36% $20.7 30% Computer............................... 13.2 30 18.1 30 24.9 37 Automotive and Industrial.............. 3.6 8 2.2 4 2.7 4 Turnkey................................ 3.8 9 11.1 19 6.6 10 Governmental Aerospace................. 1.4 3 3.0 5 3.0 4 Other.................................. 10.2 23 3.9 6 10.2 15 ----- --- ----- --- ----- --- Total (1)............................ $44.2 100% $59.8 100% $68.1 100% ===== === ===== === ===== ===
- -------- (1)Sales include shipping charges and sales taxes not reflected in the Company's financial statements as net sales. The Company's core strategy is focused on serving the domestic quick-turn PCB market. It has broad national coverage and services customers in all regions of the country. The Company is also expanding internationally, and has recently opened an office in London, England staffed with three individuals. In addition, the Company is currently developing a manufacturers' representative arrangement in Singapore as an entry into the Asian market. 45 SUPPLIERS The Company's raw materials inventory is small in comparison to sales and must be regularly and rapidly replenished. The Company uses "just-in-time" procurement practices to maintain its raw materials inventory at low levels and works closely with its suppliers to incorporate technological advances in the raw materials it purchases. Although the Company prefers certain suppliers for some raw materials, multiple sources exist for all materials. Adequate amounts of all raw materials have been available in the past and the Company believes this will continue in the foreseeable future. The primary raw materials used by the Company in its manufacturing process are core materials (copperclad layers of fiberglass of varying thickness impregnated with bonding materials), chemical solutions (copper, gold, etc.) for plating operations, photographic film, carbide drill bits, and other supplies such as copper anodes which are used in plating operations. COMPETITION The PCB industry is highly fragmented and characterized by intense competition. Details principally competes with independent and captive manufacturers of complex and quick-turn PCBs. The Company's principal competitors include other independent, small private companies and integrated subsidiaries of more broadly based volume producers. Some of the Company's principal competitors are less highly-leveraged than the Company and may have greater financial and operating flexibility. Moreover, the Company may face additional competitive pressures as a result of changes in technology. Competition in the complex and quick-turn PCB industry has increased due to the consolidation trend in the industry, which results in potentially better capitalized and more effective competitors. The Company's basic technology is generally not subject to significant proprietary protection, and companies with significant resources or international operations may enter the market. Increased competition could result in price reductions, reduced margins or loss of market share, any of which could materially adversely affect the Company's business, financial condition and results of operations. See "Risk Factors--Competition." FACILITIES Details conducts its operations within 14 adjacent buildings, located in Anaheim, California, totalling 73,000 square feet. Existing leases have a remaining term of 8 years with an option to renew for 10 years or to purchase at fair market value upon expiration. These lease arrangements have been entered into with the Swenson Family Trust, which is controlled by the Company's founder and former shareholder, James I. Swenson and his wife. Most operations, including management, marketing, manufacturing, testing and shipping, are housed in this building complex. The Company also leases a 5,000 square foot facility located in Placentia, California approximately one mile from the main facility complex, which is used for research and development and longer-lead time production volumes. The Company believes that its facilities are adequate to support its current operations. See "Certain Relationships and Related Transactions." EMPLOYEES As of October 1, 1997, the Company has approximately 417 employees, none of whom are represented by unions. The Company has not experienced any labor problems resulting in a work stoppage and believes it has good relations with its employees. ENVIRONMENTAL MATTERS The Company utilizes various chemicals in its plating operations (copper sulfate, sulfuric acid, nitric acid, hydrochloric acid, and ammonia agents) which are carefully monitored to assure compliance 46 with EPA requirements. Other chemicals are used in the laminate processes, but are usually impregnated in raw materials and do not create toxic exposures. Proper waste disposal and environmental regulations are major considerations for PCB manufacturers because of the metals and chemicals used in the manufacturing process. Although the Company believes that its facilities are currently in material compliance with applicable environmental laws, and it monitors its operations to avoid violations arising from human error or equipment failures, there can be no assurance that violations will not occur. In the event of a violation of environmental laws, the Company could be held liable for damages and for the costs of remedial actions and could also be subject to revocation of its affluent discharge permits. Any such revocations could require the Company to cease or limit production at one or more of its facilities, thereby having a material adverse effect on the Company's operations. Environmental laws could also become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with any violation, which could have a material adverse effect on the Company, its results of operations, prospects or debt service ability. See "Risk Factors--Environmental Matters." LEGAL PROCEEDINGS The Company is a party to various legal actions arising in the ordinary course of its business. The Company believes that the resolution of these legal actions will not have a material adverse effect on the Company's financial position or results of operations. 47 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The following table sets forth certain information regarding the Directors and executive officers of the Company, Details Capital and Holdings following the Recapitalization and the incorporation of the Company and Details Capital, including their respective ages, as of November 25, 1997.
NAME AGE POSITION - ---- --- -------- Bruce D. McMaster................ 36 President and Director of Holdings, Details Capital and Details Joseph P. Gisch.................. 41 Chief Financial Officer of Holdings, Details Capital and Details Lee W. Muse, Jr. ................ 41 Vice President--Sales and Marketing of Holdings, Details Capital and Details Terry L. Wright.................. 38 Vice President--Engineering of Holdings, Details Capital and Details Michael P. Moisan................ 43 Vice President--Operations of Holdings, Details Capital and Details Stephen M. Zide.................. 37 Vice President and Director of Holdings, Details Capital and Details Christopher Behrens.............. 36 Director of Holdings, Details Capital and Details Edward W. Conard................. 41 Director of Holdings, Details Capital and Details Prescott Ashe.................... 30 Director of Holdings, Details Capital and Details
Bruce D. McMaster joined Details in 1985 and has served as President since 1991 and as a Director since the Recapitalization. Prior to joining the Company, Mr. McMaster was employed by Multiplex, Inc., a PCB manufacturer, where he was Production Supervisor for its factory. Joseph P. Gisch has served as Chief Financial Officer since 1995. Prior to 1995, Mr. Gisch was a partner at the accounting firm of McGladrey & Pullen, LLP where he was responsible for the audit, accounting and information systems for a variety of manufacturing clients. Mr. Gisch was responsible for general accounting and income tax matters for Details. Mr. Gisch has not been responsible for any audit services for Details since 1991. Lee W. Muse, Jr. joined Details in 1989 and has served as Vice President, Sales and Marketing since 1992. Prior to 1989, Mr. Muse was employed by Metro- Circuits, Inc., a PCB manufacturer, where he served as both the East and West Coast Regional Sales Manager. Terry L. Wright joined Details in 1991 and has served as Vice President, Engineering since 1995. Prior to 1991, Mr. Wright was employed as a general manager at the circuit board manufacturer, Applied Circuit Solutions, Inc. Michael P. Moisan has been Vice President, Operations since 1996. Prior to joining Details in October 1996, Mr. Moisan was employed by Circuit-Wise, Inc., a PCB manufacturer, as Director of Technology & Engineering. From 1987 to 1995 Mr. Moisan was employed by AMP-AKZO, Inc., a PCB manufacturer, most recently as Director of Operations. Edward W. Conard has served as a Director since the Recapitalization. He has been a Managing Director of Bain Capital, Inc. since March 1993. From 1990 to 1992, Mr. Conard was a director of Wasserstein Perella, an investment banking firm that specializes in mergers and acquisitions. Previously, he was a Vice President at Bain & Company, where he headed the firm's operations practice area. Mr. Conard also serves as a director of Waters Corporation. 48 Stephen M. Zide has served as Vice President and a Director since the Recapitalization. Mr. Zide has been an Associate at Bain Capital, Inc. since August 1997. Previously, he was a partner at the law firm of Kirkland & Ellis from 1992 to 1995. Christopher Behrens has served as a Director since the Recapitalization. He has been a Principal of Chase Capital Partners since 1994. Prior to joining Chase Capital Partners ("CCP"), Mr. Behrens was a Vice President in the Merchant Banking Group of The Chase Manhattan Bank ("Chase") from 1990 to 1994. Mr. Behrens is also a director of Portola Packaging and The Pantry in addition to numerous private companies. Prescott Ashe has served as a Director since the Recapitalization. Mr. Ashe has been an Associate at Bain Capital, Inc. since December 1992. Previously, he worked as an analyst at Bain Capital, Inc. and as a consultant at Bain & Company. At present, all Directors are elected and serve until a successor is duly elected and qualified or until the earlier of his death, resignation or removal. All members of the Board of Directors of Holdings set forth herein were elected by class vote pursuant to Holdings' Articles of Incorporation. There are no family relationships between any of the Directors or executive officers of Holdings, Details Capital or the Company. Executive officers of Holdings, Details Capital and the Company are elected by and serve at the discretion of their respective boards of directors. COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth information concerning the compensation for the fiscal year ended December 31, 1996 of Mr. Swenson, the former CEO of Holdings, and the four other most highly compensated executive officers of Holdings (collectively, the "Named Executive Officers"). SUMMARY COMPENSATION TABLE
LONG TERM ANNUAL COMPENSATION COMPENSATION ---------------------------------------- ------------ SECURITIES OTHER ANNUAL UNDERLYING ALL OTHER NAME AND POSITION SALARY ($) BONUS ($) COMPENSATION ($)(1) OPTIONS (2) COMPENSATION ($) - ----------------- ---------- --------- ------------------- ------------ ---------------- James I. Swenson(3)..... $611,538 $400,000 -- -- $10,397(4) Chief Executive Officer Bruce D. McMaster....... 331,250 300,000 -- 781 -- President Joseph P. Gisch......... 246,693 50,286 -- 111 -- Chief Financial Officer Lee W. Muse, Jr. ....... 254,807 300,000 -- 649 -- Vice President, Sales Terry L. Wright......... 127,502 75,000 -- 162 -- Vice President, Engineering
- -------- (1) The perquisites and other benefits paid to each Named Executive Officer did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus received by each Named Executive Officer. (2) The options represent options to purchase shares of common stock of Holdings in 1996, prior to the Recapitalization. (3) Mr. Swenson resigned effective October 28, 1997 in connection with the Recapitalization and received approximately $1.2 million in connection with the termination of his employment agreement. (4) Reflects certain life insurance benefits paid by Holdings on behalf of Mr. Swenson. 49 OPTION GRANTS The following table sets forth information concerning grants of options to purchase common stock of Holdings made to the Named Executive Officers during the fiscal year ended December 31, 1996. OPTION GRANTS IN FISCAL 1996
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM(4) -------------------------------------- --------------------- NUMBER OF % OF TOTAL EXERCISE OPTIONS OPTIONS TO PRICE EXPIRATION NAME GRANTED (1)(2)(3) EMPLOYEES ($/SHARE) DATE 5% ($) 10% ($) - ---- ----------------- ---------- --------- ---------- ---------- ---------- James I. Swenson........ -- -- -- -- -- -- Bruce D. McMaster....... 781 41.3% $2,179 2006 $1,070,248 $2,712,231 Joseph P. Gisch......... 111 5.9 2,179 2006 152,110 385,477 Lee W. Muse, Jr. ....... 649 34.4 2,179 2006 889,364 2,253,828 Terry L. Wright......... 162 8.6 2,179 2006 221,999 562,589
- -------- (1) The options represent options to purchase shares of common stock of Holdings in 1996, prior to the Recapitalization. (2) Prior to the Recapitalization, upon the exercise of any options and, following the Recapitalization, upon the exercise of options to acquire shares of Class L Common (as defined), the Company must pay to the optionee a bonus in an aggregate amount sufficient to enable the optionee to satisfy his federal and state income tax liability attributable to such exercise and bonus (subject to certain limitations). (3) In connection with the Recapitalization: (i) unvested options to purchase 328.6 shares of common stock held by the Named Executive Officers became vested and converted into options to purchase approximately 74,279 shares of Class A Common at an exercise price of $0.9639 per share and options to purchase approximately 9,181 shares of Class L Common at an exercise price of $70.1858 per share; (ii) of the remaining options to purchase 1,374.4 shares of common stock, approximately 1,203.7 were exercised and converted into the right to receive cash and approximately 170.7 were exercised and converted into approximately 38,583 shares of Class A Common Stock of Holdings, without par value ("Class A Common"), and 4,769 shares of Class L Common Stock of Holdings, without par value ("Class L Common"); (iii) the Named Executive Officers received a bonus payment of $10 million in the aggregate from the Company; and (iv) the Named Executive Officers employed by the Company after the Recapitalization received an aggregate bonus of approximately $2.4 million, which amount is payable on the third anniversary of the Recapitalization whether or not such Named Executive Officer is still employed by the Company. (4) In the nine months ended September 30, 1997, the Company recorded a non- cash charge against earnings of approximately $2.9 million in connection with stock compensation and related bonuses under the 1996 Stock Option Plan. The Company estimates that an additional non-cash charge of approximately $15.9 million will be incurred in the fourth quarter of 1997 in connection with the Recapitalization and the 1996 Stock Option Plan. EMPLOYMENT AGREEMENTS Mr. McMaster is currently employed as President of the Company pursuant to an agreement dated September 1, 1995, as amended, effective until October 28, 2000. Under this agreement, Mr. McMaster is entitled to receive an annual salary of $375,000 in 1997, $425,000 in 1998 and $450,000 in 1999. In addition, Mr. McMaster is eligible for an annual bonus based upon the achievement of EBITDA targets and received an award, pursuant to the agreement, of 4,747.009 shares of Class A Common, on the Recapitalization closing date. Mr. McMaster's employment agreement contains 50 customary confidentiality provisions and a non-compete clause effective for the duration of the term of the agreement. In addition, Mr. McMaster will be entitled to receive an additional bonus of $1,088,558.35 in consideration of prior services which will be payable on the third anniversary of the Recapitalization whether or not he is still employed by the Company. Mr. Gisch is currently employed as Chief Financial Officer of the Company pursuant to an agreement dated September 19, 1995, as amended, effective until October 28, 2000. Under this agreement, Mr. Gisch is entitled to receive an annual salary of $252,000 in 1997, $265,000 in 1998 and $275,000 in 1999. In addition, Mr. Gisch is eligible for an annual bonus based upon the achievement of EBITDA targets and received an award, pursuant to the agreement, of 676.7889 shares of Class A Common on the Recapitalization closing date. Mr. Gisch's employment agreement contains customary confidentiality provisions. In addition, Mr. Gisch will be entitled to receive an additional bonus of $155,197.52 in consideration of prior services which will be payable on the third anniversary of the Recapitalization whether or not he is still employed by the Company. Mr. Muse is currently employed as Vice President--Sales and Marketing of the Company pursuant to an agreement dated September 1, 1995, as amended, effective until October 28, 2000. Under this agreement, Mr. Muse is entitled to receive an annual salary of $300,000 in 1997, $350,000 in 1998 and $375,000 in 1999. In addition, Mr. Muse is eligible for an annual bonus based upon the achievement of EBITDA targets and received an award, pursuant to the agreement, of 3,950.0435 shares of Class A Common on the Recapitalization closing date. Mr. Muse's employment agreement contains customary confidentiality provisions and a non-compete clause effective for the duration of the term of the agreement. In addition, Mr. Muse will be entitled to receive an additional bonus of $905,802.38 in consideration of prior services which will be payable on the third anniversary of the Recapitalization whether or not he is still employed by the Company. Mr. Wright is currently employed as Vice President--Engineering of the Company pursuant to an agreement dated September 1, 1995, as amended, effective until October 28, 2000. Under this agreement, Mr. Wright is entitled to receive an annual salary of $140,000 in 1997, $155,000 in 1998 and $170,000 in 1999. In addition, Mr. Wright is eligible for an annual bonus based upon the achievement of EBITDA targets and received an award, pursuant to the agreement, of 993.0454 shares of Class A Common on the Recapitalization closing date. Mr. Wright's employment agreement contains customary confidentiality provisions and a non-compete clause effective for the duration of the term of the agreement. In addition, Mr. Wright will be entitled to receive an additional bonus of $227,719.73 in consideration of prior services which will be payable on the third anniversary of the Recapitalization whether or not he is still employed by the Company. COMPENSATION OF DIRECTORS During 1996 and 1997 until the closing date of the Recapitalization, outside Directors of Holdings received $2,500 per meeting attended for serving on the Board of Directors of Holdings and were reimbursed for their out-of-pocket expenses incurred in connection with attending board meetings. The Company, Details Capital and Holdings currently pay no compensation to their independent directors, and pay no additional remuneration to their employees or to executives of the Company, Details Capital or Holdings for serving as directors. STOCK OPTION PLANS AND RELATED TRANSACTIONS Prior to the Recapitalization, the Company had two stock option plans, (i) the 1996 Performance Stock Option Plan (the "1996 Stock Option Plan") under which the Board was authorized to sell or otherwise issue options to acquire up to 1,809 shares of the Company's common stock in such quantity, at such price, on such terms and subject to such conditions as established by the Board, and (ii) the 1996 Employee Stock Option Plan (the "1996 Employee Plan") under which the Board was authorized 51 to sell or otherwise issue options to acquire up to 260 shares of the Company's common stock in such quantity, at such price, on such terms and subject to such conditions as established by the Board. Under the 1996 Stock Option Plan, the Board had granted options to acquire 1,703 shares of the Company's common stock and, under the 1996 Employee Plan, the Board had granted options to acquire 247 shares of the Company's common stock, in each case, at an exercise price of $2,179 per share. In connection with the Recapitalization, the Board accelerated the vesting of all of the unvested options as of the closing date of the Recapitalization and (i) of the 1,703 options granted under the 1996 Stock Option Plan, 1,374.4 were exercised and the remaining 328.6 continue outstanding, and (ii) of the 247 options granted under the 1996 Employee Plan, 64.2 were canceled and redeemed and 182.8 continue outstanding. In accordance with the provisions of the respective plans, upon the effectiveness of the amendment of the Company's Articles of Incorporation in connection with the Recapitalization, the holder of each outstanding option became entitled to purchase 226.0362 shares of Class A Common at an exercise price of $0.9639 per share and 27.9371 shares of Class L Common at an exercise price of $70.1858 per share. Shortly after the Recapitalization, each of the Named Executive Officers elected to exercise his remaining options to acquire shares of Class A Common under the 1996 Stock Option Plan. The Company loaned to each Named Executive Officer sufficient funds to satisfy the exercise price of such options. Immediately after the Recapitalization, the Board of Directors adopted, and the stockholders approved, the 1997 Details, Inc. Equity Incentive Plan (the "1997 Stock Option Plan" and, together with the 1996 Stock Option Plan and the 1996 Employee Plan, collectively, the "Stock Option Plans") which authorizes the granting of stock options and the sale of Class A Common to current or future employees, directors, consultants or advisors of Holdings or its subsidiaries. The Board is authorized to sell or otherwise issue Class A Common at any time prior to the termination of the 1997 Stock Option Plan in such quantity, at such price, on such terms and subject to such conditions as established by the Board up to an aggregate of 235,000 shares of Class A Common, subject to adjustment upon the occurrence of certain events to prevent any dilution or expansion of the rights of participants that might otherwise result from the occurrence of such events. Currently there are approximately 10,021 shares of Class A Common available for grant under the 1997 Stock Option Plan. Pursuant to the Recapitalization Agreement, the Named Executive Officers (i) received approximately $89.1 million, subject to adjustment, in cash in exchange for shares and options of Holdings held by such Named Executive Officers that were repurchased in the Recapitalization, (ii) received options with a net realizable value of $3.0 million, and (iii) retained common stock of Holdings with a value of approximately $11.3 million. Options to purchase an aggregate of 112,489.4228 shares of Class A Common at an exercise price of $61.17 per share were granted and 112,489.4228 shares of Class A Common restricted stock were made available at $5 per share to the Named Executive Officers under the 1997 Stock Option Plan in connection with the Recapitalization. The restricted stock and options vest in equal monthly increments over a four year period from the date of grant or issue, subject to earlier vesting upon certain events, including all of such shares vesting immediately on a sale of the Company. The aggregate exercise price of the options granted under the 1997 Stock Option Plan in connection with the Recapitalization is approximately $6.9 million. Subsequent to the Recapitalization, the Named Executive Officers purchased an aggregate of 112,489.4228 shares of Class A Common restricted stock at a price of $5 per share and exercised options to purchase an aggregate of 74,278.5902 shares of Class A Common with an exercise price of $0.9639 per share. The Company loaned to each such Named Executive Officer, pursuant to an interest bearing note, sufficient funds to pay the purchase price and the exercise price with respect to such shares and options. Mr. McMaster, Mr. Gisch, Mr. Muse and Mr. Wright received loans of approximately $285,885, $46,856, $224,137 and $77,164 for the purchase of restricted shares of Class A Common and the exercise of options to purchase shares of Class A Common. The Company has agreed to permit the Named Executive Officers to repay their respective loan obligations with proceeds received as deferred purchase price in connection with the Recapitalization. 52 The following table summarizes the shares of capital stock and options that were acquired by the Named Executive Officers under the 1997 Stock Option Plan in connection with the Recapitalization:
NO. OF OPTIONS TO PURCHASE NO. OF RESTRICTED SHARES SHARES OF OF CLASS A COMMON AGGREGATE CLASS A COMMON NAME PURCHASED(1) PURCHASE PRICE(2) GRANTED - ---- ------------------------ ----------------- ------------------- James I. Swenson........ -- $ -- -- Bruce D. McMaster....... 50,620.2402 253,101 50,620.2402 Joseph P Gisch.......... 8,436.7067 42,184 8,436.7067 Lee W. Muse, Jr. ....... 39,371.2980 196,856 39,371.2980 Terry L. Wright......... 14,061.1778 70,306 14,061.1778
- -------- (1) The Company has the right to repurchase the restricted shares of Class A Common held by a Named Executive Officer for the original purchase price in the event that the Named Executive Officer ceases to be employed by the Company. (2) The Company loaned the aggregate purchase price to each Named Executive Officer pursuant to an interest bearing note. 53 PRINCIPAL STOCKHOLDERS All of the Company's issued and outstanding capital stock is owned by Details Capital. All of Details Capital's issued and outstanding capital stock is owned by Holdings. As of November 25, 1997, the outstanding equity securities of Holdings consisted of 1,924,936.8583 shares of Class A Common and 208,380.2060 shares of Class L Common. The Class A Common consists of six separate classes (A-1 through A-6), which have different rights with respect to the election of directors. All of the shares of Class A Common entitle the holder to one vote per share on all matters to be voted upon by the stockholders of Holdings except for Class A-6, which is nonvoting. The Class L Common is identical to the Class A Common except that the Class L Common is nonvoting and is entitled to a preference over the Class A Common with respect to any distribution by Holdings to holders of its capital stock equal to the original cost of such share ($364.0909) plus an amount which accrues on a daily basis at a rate of 12% per annum, compounded quarterly. The Class L Common is convertible into Class A Common upon a vote of a majority of the holders of the outstanding Class L Common at any time. The following table sets forth certain information as of November 25, 1997 regarding the beneficial ownership of (i) each class of voting securities of the Company by each person known to Holdings to own more than 5% of any class of outstanding voting securities of Holdings, and (ii) the equity securities of Holdings by each Director of Holdings, each Named Executive Officer and all of Holdings' directors and executive officers as a group. To the knowledge of Holdings, each of such stockholders has sole voting and investment power as to the shares shown unless otherwise noted. Beneficial ownership of the securities listed in the table has been determined in accordance with the applicable rules and regulations promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
SHARES BENEFICIALLY OWNED ----------------------------------------------- CLASS A COMMON STOCK CLASS L COMMON STOCK ----------------------- ----------------------- NUMBER PERCENTAGE NUMBER PERCENTAGE NAME AND ADDRESS OF SHARES OF CLASS OF SHARES OF CLASS - ---------------- ------------ ---------- ------------ ---------- PRINCIPAL STOCKHOLDERS: Bain Capital Funds (1)......... 960,775.8780 49.9% 118,747.5833 53.3% c/o Bain Capital, Inc. Two Copley Place Boston, Massachusetts 02116 Chase Manhattan Capital, L.P.(2)....................... 344,036.3778 17.9 42,521.3511 19.1 380 Madison Avenue 12th Floor New York, New York 10017 DIRECTORS AND EXECUTIVE OFFI- CERS: James I. Swenson(3)............ -- -- -- -- Bruce D. McMaster(4)........... 207,004.2630 10.8 18,741.6538 8.4 Joseph P. Gisch(5)............. 29,785.2110 1.6 2,554.9312 1.2 Lee W. Muse(6)................. 148,207.4334 7.7 12,963.4499 5.8 Terry L. Wright(7)............. 39,461.1467 2.1 3,016.5861 1.4 Christopher Behrens(8)......... 344,036.3778 17.9 42,521.3511 19.1 Edward Conard (9).............. 960,775.8780 49.9 118,747.5833 53.3 Stephen M. Zide(10)............ 199,770.7344 10.4 24,683.2317 11.1 Prescott Ashe(10).............. 199,770.7344 10.4 24,683.2317 11.1 All Directors and executive of- ficers as a group (9 per- sons)(11)..................... 424,458.0541 22.1 37,276.6210 16.7
- -------- (1) Includes shares of Class A Common and Class L Common held by Bain Capital Fund V, L.P., ("Fund V"); Bain Capital Fund V-B, L.P. ("Fund V-B"); BCIP Associates ("BCIP"); and BCIP Trust Associates, L.P. ("BCIP Trust" and collectively with Fund V, Fund V-B and BCIP, the "Bain Capital Funds"). 54 (2) CMC is the managing member of DI Investors, L.L.C. and owns a majority of the interests therein. Accordingly, CMC may be deemed to beneficially own shares owned by DI Investors, L.L.C. CMC disclaims beneficial ownership of any such shares in which it does not have a pecuniary interest. (3) Mr. Swenson's employment with Holdings and the Company terminated on October 28, 1997. (4) The shares of Class A Common included in the table include 50,620.2402 shares, which, upon purchase, are subject to vesting and 34,012.2526 shares that can be acquired upon the exercise of outstanding options. The shares of Class L Common included in the table include 4,203.7617 shares that can be acquired upon the exercise of outstanding options. (5) The shares of Class A Common included in the table include 8,436.7067 shares, which, upon purchase, are subject to vesting and 4,849.1820 shares that can be acquired upon the exercise of outstanding options. The shares of Class L Common included in the table include 599.3371 shares that can be acquired upon the exercise of outstanding options. (6) The shares of Class A Common included in the table include 39,371.2980 shares, which, upon purchase, are subject to vesting and 28,302.0008 shares that can be acquired upon the exercise of outstanding options. The shares of Class L Common included in the table include 3,498.0002 shares that can be acquired upon the exercise of outstanding options. (7) The shares of Class A Common included in the table include 14,061.1778 shares, which, upon purchase, are subject to vesting and 7,115.1548 shares that can be acquired upon the exercise of outstanding options. The shares of Class L Common included in the table include 879.4012 shares that can be acquired upon the exercise of outstanding options. (8) Mr. Behrens is a Principal of CCP, the general partner of CMC and, accordingly, may be deemed to beneficially own shares owned by CMC. Mr. Behrens disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. The address of Mr. Behrens is c/o Chase Capital Partners, 380 Madison Avenue, 12th Floor, New York, New York 10017. (9) Mr. Conard is Managing Director of Bain Capital, Inc. and a limited partner of Bain Capital Partners V, L.P., the sole general partner of Fund V and Fund V-B. Accordingly, Mr. Conard may be deemed to beneficially own shares owned by Fund V and Fund V-B. Mr. Conard is a general partner of BCIP and BCIP Trust and, accordingly, may be deemed to beneficially own shares owned by such funds. Mr. Conard disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. The address of Mr. Conard is c/o Bain Capital, Inc., Two Copley Place, Boston, Massachusetts 02116. (10) The shares of Class A Common and Class L Common included in the table represent shares held by BCIP. Messrs. Zide and Ashe are each Associates of Bain Capital, Inc. and are partners of BCIP and limited partners of BCIP Trust and, accordingly, may be deemed to beneficially own shares owned by such funds. Each such person disclaims beneficial ownership of any such shares in which he does not have a pecuniary interest. The address of each such person is c/o Bain Capital, Inc., Two Copley Place, Boston, Massachusetts 02116. (11) Excludes shares deemed to be beneficially owned by Messrs. Conard, Zide, Ashe and Behrens. 55 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The following summary of the Recapitalization Agreement, the Stockholders Agreement and the Management Agreement is a description of the material provisions of these agreements a copy of each of which is filed as an exhibit to the Exchange Offer Registration Statement. RECAPITALIZATION AGREEMENT The Recapitalization Agreement contains customary provisions for such agreements, including representations and warranties with respect to the condition and operations of the business, covenants with respect to the conduct of the business prior to the Recapitalization closing date and various closing conditions, including the obtaining of financing and the continued accuracy of representations and warranties. In addition, the Company has agreed to pay to the equity holders immediately prior to the Recapitalization amounts received as a result of tax benefits realized in connection with the Recapitalization. Subject to certain limitations set forth therein, the Recapitalization Agreement contains indemnification provisions binding on the Company after the Recapitalization closing date. Specifically, the Company has agreed to indemnify each stockholder party to the Recapitalization Agreement against any and all liabilities resulting from (i) any misrepresentation or breach of warranty made by DIA in the Recapitalization Agreement and (ii) any breach or default in performance by the Company of any covenant or agreement contained in the Recapitalization Agreement, after the Recapitalization. Subject to certain limitations set forth therein, the equity holders immediately prior to the Recapitalization have agreed to indemnify the Company and its officers, directors, employees and agents on a pro rata basis against any and all liabilities resulting from (i) any misrepresentation or breach of warranty by such stockholders in the Recapitalization Agreement and (ii) any breach or default in performance by the Company, prior to the Effective Time, of such covenant or agreement (as described in the Recapitalization Agreement). STOCKHOLDERS AGREEMENT In connection with the Recapitalization, the Bain Capital Funds, Company management, CMC and all of the other stockholders and optionholders of Holdings entered into a stockholders agreement (the "Stockholders Agreement"), that, among other things, provides for tag-along rights, drag-along rights, registration rights, restrictions on the transfer of shares held by parties to the Stockholders Agreement and certain preemptive rights for certain stockholders including the Bain Capital Funds, management and CMC. The Stockholders Agreement also provides that the parties thereto will vote their shares in the same manner as the Bain Capital Funds in connection with certain transactions and that the Bain Capital Funds will be entitled to fix the number of directors of Holdings. Pursuant to Holdings' charter, the Bain Capital Funds will be entitled to designate a sufficient number of directors to maintain a majority of the board of directors of Holdings and each of management and CMC will be entitled to designate one director. MANAGEMENT AGREEMENT Pursuant to a management agreement among Bain Capital Partners V, L.P. ("Bain"), Holdings, and the Company (the "Management Agreement"), Bain is entitled to a management fee when, and if, it provides advisory services to Holdings or the Company in connection with potential business acquisitions. Beginning on the first anniversary of the Recapitalization, Bain may, upon the request of Holdings or the Company, perform certain management consulting services at Bain's customary rates plus reimbursement for reasonable out-of- pocket expenditures. In addition, Bain will receive a fee in an amount which will approximate 1% of the gross purchase price of any senior financing transaction for any acquisition, recapitalization or refinancing transaction (including assumed debt). In connection 56 with the Recapitalization, Bain received a transaction fee of approximately $3.1 million. The Management Agreement continues in full force and effect, unless and until terminated by mutual consent of the parties, or until terminated as a result of a breach of the Management Agreement. The Management Agreement includes customary indemnification provisions in favor of Bain. CERTAIN INTERESTS OF THE FORMER CEO The Company leases the buildings and certain equipment located at its Anaheim, California facility pursuant to lease arrangements entered into with the Swensen Family Trust, a trust controlled by the Company's founder and former shareholder, James I. Swensen, and his wife. Under the terms of these leases, the Company pays approximately $104,000 per month in 1997 as base rent subject to applicable adjustment based upon changes in the consumer price index. The leases have a remaining term of 8 years with an option to renew for an additional 10 years or to purchase the property at fair market value upon expiration. See "Business--Facilities." 57 DESCRIPTION OF SENIOR CREDIT FACILITIES The Company has entered into an agreement with various banks and financial institutions, including Chase, an affiliate of the Initial Purchaser, as a bank lender and as agent for the bank lenders party thereto, providing for the Senior Credit Facilities, which currently consists of (i) the Tranche A Facility of up to approximately $31.1 million in term loans; (ii) the acquisition facility (the "Acquisition Facility") of up to $25.0 million which may be borrowed for a period of up to one year after the closing date of the Senior Credit Facilities for permitted acquisitions by the Company; (iii) the Tranche B Facility of up to $50.0 million in term loans; and (iv) the Revolving Credit Facility of up to $30.0 million in revolving credit loans, letters of credit and swing line loans. The Senior Credit Facilities are (i) jointly and severally guaranteed by Holdings and Details Capital and (ii) secured by all of the stock of the Company and certain stock of the Company's subsidiaries. Future domestic subsidiaries of the Company will guarantee the Senior Credit Facilities and secure that guarantee with their tangible and intangible assets. The Senior Credit Facilities require the Company to meet certain financial tests, including without limitation, maximum leverage ratio, minimum interest coverage and fixed charges coverage and minimum levels of EBITDA. In addition, the Senior Credit Facilities contain certain negative covenants limiting, among other things, additional debt, additional liens, transactions with affiliates, mergers and consolidations, liquidations and dissolutions, sales of assets, dividends, capital expenditures, investments, loans and advances, prepayments and modifications of debt instruments and other matters customarily restricted in such agreements. The Senior Credit Facilities contain customary events of default, including without limitation, payment defaults, breaches of representations and warranties, covenant defaults, certain events of bankruptcy and insolvency, failure of any guaranty or security document supporting the Senior Credit Facilities to be in full force and effect, change of control of Holdings and change of ownership of the stock of the Company. The Tranche A Facility and any borrowings pursuant to the Acquisition Facility mature in quarterly installments from September 1998 until October 2003. The Tranche B Facility matures in minimal quarterly installments from September 1998 until December 2003 at which time the remaining outstanding loans under the Tranche B Facility become repayable in three equal quarterly installments with a final payment in October 2004. The Revolving Credit Facility terminates in October 2003. The Company's borrowings under the Senior Credit Facilities bear interest at a floating rate and may be maintained as ABR Loans (as defined in the Senior Credit Facilities) or, beginning 60 days after the closing date of the Senior Credit Facilities (or earlier upon syndication) at the Company's option, as Eurodollar Loans. ABR Loans bear interest at the ABR (defined as the higher of (x) the applicable prime lending rate of Chase and (y) the Federal Reserve reported overnight funds rate plus 1/2 of 1%) plus the Applicable Margin (as defined in the Senior Credit Facilities). Eurodollar Loans shall bear interest at the Eurodollar Rate (as defined in the Senior Credit Facilities) plus the Applicable Margin. The Applicable Margin shall be (a) with respect to the Revolving Credit Facility, the Acquisition Facility and the Tranche A Facility, (i) 1 1/2%, in the case of ABR Loans and (ii) 2 1/2%, in the case of Eurodollar Loans and (b) with respect to the Tranche B Facility, (i) 1 3/4% in the case of ABR Loans and (ii) 2 3/4%, in the case of Eurodollar Loans. The Applicable Margin with respect to the Revolving Facility and the Tranche A Facility is subject to reduction after four fiscal quarters following the closing of the Senior Credit Facilities in accordance with an agreed upon pricing grid. The Company is required to pay to the lenders under the Senior Credit Facilities a commitment fee equal to 1/2 of 1% per annum, payable in arrears on a quarterly basis, on the average unused portion of the Revolving Credit Facilities during such quarter (provided that such commitment 58 fee decreases to 3/8 of 1% per annum if during any quarterly payment period certain financial ratios relating to interest coverage and leverage are attained). The Company is required to pay to the lenders a letter of credit fee with respect to each letter of credit outstanding equal to a floating rate of interest equal to the Applicable Margin on Eurodollar Loans times the average daily stated amount of such letter of credit as well as a fronting fee of 1/4 of 1% on such average daily stated amount. The Senior Credit Facilities prescribe that certain amounts must be used to prepay the Term Loan Facilities and reduce commitments under the Revolving Credit Facility including (a) 100% of the net proceeds of any sale or issuance of equity or any incurrence of indebtedness after the closing date by the Company or any of its subsidiaries, except for proceeds of Notes offered hereby and the Discount Notes to the extent applied to repay the Senior Subordinated Facility or the Holdings Facility and subject to certain other exceptions including the retention of equity proceeds under certain circumstances including for use in acquisitions or the making of capital expenditures, (b) 100% of the net proceeds of any sale or other disposition by the Company or any of its subsidiaries of any assets (including casualties or condemnations), except for the sale of inventory or obsolete or worn-out property in the ordinary course of business and subject to exceptions for certain reinvestments and (c) 75% of Excess Cash Flow (as defined in the Senior Credit Facilities) for each fiscal year of the Company commencing with the fiscal year ending December 31, 1998, provided, that the foregoing percentage will be reduced to 50% upon satisfaction of certain financial ratios. Details repaid approximately $10.3 million of the Term Loan Facilities with a portion of the proceeds from the Initial Offering. In general, mandatory prepayments described above will be applied, first to prepay the Term Loan Facilities (pro rata among the Tranche A Facility and the Tranche B Facility) and second, to permanently reduce commitments under the Revolving Credit Facility (with extensions of credit thereunder being prepaid to the extent the aggregate amount thereof exceeds the Revolving Credit Facility commitments as so reduced). Prepayments, optional or mandatory of the Term Loan Facilities will be applied pro rata to the Tranche A Facility and the Tranche B Facility, and ratably to the respective installments thereof. Notwithstanding the foregoing, as long as any Tranche A term loans are outstanding, each holder of Tranche B term loans has the right to refuse all or any portion of such prepayment allocable to it, and the amount so refused will be applied to prepay the Tranche A term loans. Any prepayments of the Term Loan Facilities may not be reborrowed. 59 DESCRIPTION OF EXCHANGE NOTES GENERAL The Exchange Notes are to be issued under an indenture dated November 18, 1992, (the "Indenture"), between the Company and State Street Bank and Trust Company, as trustee (the "Trustee"), a copy of which is available upon request to the Company. The following is a description of the material provisions of the Indenture, which is filed as an exhibit to the Exchange Offer Registration Statement of which this Prospectus forms a part. Principal of, premium, if any, and interest on the Exchange Notes will be payable, and the Exchange Notes may be exchanged or transferred, at the office or agency of the Company in the Borough of Manhattan, The City of New York (which initially shall be the corporate trust office of the Trustee in New York, New York), except that, at the option of the Company, payment of interest may be made by check mailed to the address of the Holders as such address appears in the Note Register. The Exchange Notes will not be entitled to the benefit of any mandatory sinking fund. The Exchange Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiple of $1,000. No service charge will be made for any registration of transfer or exchange of Exchange Notes, but the Company may require payment of a sum sufficient to cover any transfer tax or other similar governmental charge payable in connection therewith. Initially, the Trustee will act as Paying Agent and Registrar for the Exchange Notes. The Exchange Notes may be presented for registration of transfer and exchange at the offices of the Registrar, which initially will be the Trustee's corporate trust office. The Company may change any Paying Agent and Registrar without notice to Holders of the Exchange Notes. The Exchange Notes are expected to be eligible for trading in the PORTAL market. TERMS OF EXCHANGE NOTES The Exchange Notes will be unsecured, senior subordinated obligations of the Company, limited to $100 million aggregate principal amount, and will mature on November 15, 2005. Each Exchange Note will bear interest at the rate per annum shown on the front cover of this Prospectus from the date of issuance, or from the most recent date to which interest has been paid or provided for, payable semi-annually on May 15 and November 15 of each year commencing on May 15, 1998 to holders of record at the close of business on the May 1 or November 1 immediately preceding the interest payment date. OPTIONAL REDEMPTION Except as set forth below, the Notes will not be redeemable at the option of the Company prior to November 15, 2001. On and after such date, the Notes will be redeemable, at the Company's option, in whole or in part, at any time upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): 60 If redeemed during the 12-month period commencing on November 15 of the years set forth below:
PERIOD REDEMPTION PRICE ------ ---------------- 2001.................................................... 105.000% 2002.................................................... 103.333% 2003.................................................... 101.667% 2004 and thereafter..................................... 100.000%
In addition, at any time and from time to time prior to November 15, 2000, the Company may redeem in the aggregate up to 40% of the original principal amount of the Notes with the proceeds of one or more Equity Offerings received by, or invested in, the Company so long as there is a Public Market at the time of such redemption, at a redemption price (expressed as a percentage of principal amount) of 110% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least 60% of the original principal amount of the Notes must remain outstanding after each such redemption. At any time on or prior to November 15, 2001, the Notes may also be redeemed as a whole at the option of the Company upon the occurrence of a Change of Control, upon not less than 30 nor more than 60 days prior notice (but in no event more than 90 days after the occurrence of such Change of Control) mailed by first-class mail to each holder's registered address, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, the date of redemption (the "Redemption Date") (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). "Applicable Premium" means, with respect to an Note at any Redemption Date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess of (A) the present value at such time of (1) the redemption price of such Note at November 15, 2001 (such redemption price being described under "--Optional Redemption") plus (2) all required interest payments due on such Note through November 15, 2001, computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the principal amount of such Note. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two business days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source or similar market data)) most nearly equal to the period from the Redemption Date to November 15, 2001; provided, however, that if the period from the Redemption Date to November 15, 2001 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to November 15, 2001 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. Selection. In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Note of $1,000 in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating 61 to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. RANKING AND SUBORDINATION The payment of the principal of, premium, if any, and interest on the Notes is subordinated in right of payment, as set forth in the Indenture, to the prior payment in full in cash or Cash Equivalents when due of all Senior Indebtedness of the Company. However, payment from the money or the proceeds of U.S. Government Obligations held in any defeasance trust described under "Defeasance" below is not subordinate to any Senior Indebtedness or subject to the restrictions described herein. As of November 25, 1997, the outstanding Senior Indebtedness of the Company was approximately $87.6 million (exclusive of unused commitments). Although the Indenture contains limitations on the amount of additional Indebtedness that the Company may incur, under certain circumstances the amount of such Indebtedness could be substantial and, in any case, such Indebtedness may be Senior Indebtedness. See "Certain Covenants-- Limitation on Indebtedness" below. "Senior Indebtedness" is defined, whether outstanding on the Issue Date or thereafter issued, created, incurred or assumed, as the Bank Indebtedness and all other Indebtedness of the Company, including interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) thereon and fees relating thereto, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that the obligations in respect of such Indebtedness are not superior in right of, or are subordinate to, payment to the Notes; provided, however, that Senior Indebtedness will not include (i) any obligation of the Company to any Subsidiary, (ii) any liability for Federal, state, foreign, local or other taxes owed or owing by the Company, (iii) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities), (iv) any Indebtedness, Guarantee or obligation of the Company that is expressly subordinate or junior in right of payment to any other Indebtedness, Guarantee or obligation of the Company, including any Senior Subordinated Indebtedness and any Subordinated Obligations or (v) any Capital Stock. Only Indebtedness of the Company that is Senior Indebtedness will rank senior to the Notes in accordance with the provisions of the Indenture. The Notes will in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company. The Company has agreed in the Indenture that it will not incur, directly or indirectly, any Indebtedness that is subordinate or junior in ranking in any respect to Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is expressly subordinated in right of payment to Senior Subordinated Indebtedness. In addition, no Subsidiary Guarantor shall incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness of such Subsidiary Guarantor unless such Indebtedness is Senior Subordinated Indebtedness of such Subsidiary Guarantor or is expressly subordinated in right of payment to Senior Subordinated Indebtedness of such Subsidiary Guarantor. Unsecured Indebtedness is not deemed to be subordinate or junior to Secured Indebtedness merely because it is unsecured. The Company may not pay principal of, premium, if any, or interest on, the Notes or make any deposit pursuant to the provisions described under "Defeasance" below and may not otherwise purchase or retire any Notes (collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid when due whether at maturity, upon any redemption, by declaration or otherwise, in cash or Cash Equivalents or (ii) any other default on Senior Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Senior Indebtedness has been paid in full in cash or Cash Equivalents. However, the Company may pay the Notes without regard to the foregoing if the Company and the Trustee receive written notice approving such payment 62 from the Representative of the Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. During the continuance of any default (other than a default described in clause (i) or (ii) of the second preceding sentence) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (ii) because the default giving rise to such Blockage Notice is no longer continuing or (iii) because such Designated Senior Indebtedness has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence, unless the holders of such Designated Senior Indebtedness or the Representative of such holders have accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments on the Notes after the end of such Payment Blockage Period. Not more than one Blockage Notice may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period. Upon any payment or distribution of the assets of the Company upon a total or partial liquidation, dissolution, reorganization or bankruptcy of or similar proceeding relating to the Company or its property, the holders of Senior Indebtedness will be entitled to receive payment in full in cash or Cash Equivalents of the Senior Indebtedness (including interest after, or which would accrue but for, the commencement of any proceeding at the rate specified in the applicable Senior Indebtedness, whether or not a claim for such interest would be allowed) before the holders of the Notes are entitled to receive any payment, and until the Senior Indebtedness is paid in full in cash or Cash Equivalents, any payment or distribution to which holders of the Notes would be entitled but for the subordination provisions of the Indenture will be made to holders of the Senior Indebtedness as their interests may appear. If a distribution is made to holders of the Notes that, due to the subordination provisions, should not have been made to them, such holders are required to hold it in trust for the holders of Senior Indebtedness and pay it over to them as their interests may appear. If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of the Designated Senior Indebtedness or the Representative of such holders of the acceleration. The Company may not pay the Notes until five Business Days after such holders or the Representative of the Designated Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the Notes only if the subordination provisions of the Indenture otherwise permit payment at that time. By reason of such subordination provisions contained in the Indenture, in the event of insolvency, creditors of the Company who are holders of Senior Indebtedness may recover more, ratably, than the Noteholders. CHANGE OF CONTROL Upon the occurrence of any of the following events (each a "Change of Control"), unless the Company shall have exercised its right to redeem the Notes as described under "--Optional Redemption", each holder will have the right to require the Company to repurchase all or any part of 63 such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than one or more Permitted Holders, is or becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except that such person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than 50% of the total voting power of the Voting Stock of the Company or Holdings (or its successor by merger, consolidation or purchase of all or substantially all of its assets) (for the purposes of this clause, such person shall be deemed to beneficially own any Voting Stock of the Company or Holdings held by a parent corporation, if such person "beneficially owns" (as defined above), directly or indirectly, more than 50% of the voting power of the Voting Stock of such parent corporation); or (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company or Holdings (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company or Holdings was approved by a vote of at least a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved or is a designee of the Permitted Holders or was nominated or elected by such Permitted Holders or any of their designees) cease for any reason to constitute a majority of the Board of Directors of the Company or Holdings then in office; or (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder or Holdings; or (iv) the adoption by the stockholders of a plan for the liquidation or dissolution of the Company or Holdings. Within 30 days following any Change of Control, unless the Company has mailed a redemption notice with respect to all the outstanding Notes in connection with such Change of Control as described under "--Optional Redemption", the Company shall mail a notice to each holder with a copy to the Trustee stating: (i) that a Change of Control has occurred and that such holder has the right to require the Company to purchase such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on a record date to receive interest on the relevant interest payment date); (ii) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (iii) the procedures determined by the Company, consistent with the Indenture, that a holder must follow in order to have its Notes purchased. The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof. The occurrence of certain of the events that would constitute a Change of Control would constitute a default under the Senior Credit Agreement. Future Senior Indebtedness of the Company and its 64 Subsidiaries may also contain prohibitions of certain events that would constitute a Change of Control or require such Senior Indebtedness to be repurchased upon a Change of Control. Moreover, the exercise by the holders of their right to require the Company to repurchase the Notes could cause a default under such Senior Indebtedness, even if the Change of Control itself does not, due to the financial effect of such repurchase on the Company. Finally, the Company's ability to pay cash to the holders upon a repurchase may be limited by the Company's then existing financial resources. There can be no assurance that sufficient funds will be available when necessary to make any required repurchases. Even if sufficient funds were otherwise available, the terms of the Senior Credit Agreement will (and other Senior Indebtedness may) prohibit the Company's prepayment of Notes prior to their scheduled maturity. Consequently, if the Company is not able to prepay the Bank Indebtedness and any other Senior Indebtedness containing similar restrictions or obtain requisite consents, as described above, the Company will be unable to fulfill its repurchase obligations if holders of Notes exercise their repurchase rights following a Change of Control, thereby resulting in a default under the Indenture. The Change of Control provisions described above may deter certain mergers, tender offers and other takeover attempts involving the Company by increasing the capital required to effectuate such transactions. The definition of "Change of Control" includes a disposition of all or substantially all of the property and assets of the Company and its Restricted Subsidiaries. With respect to the disposition of property or assets, the phrase "all or substantially all" as used in the Indenture varies according to the facts and circumstances of the subject transaction, has no clearly established meaning under New York law (which is the choice of law under the Indenture) and is subject to judicial interpretation. Accordingly, in certain circumstances there may be a degree of uncertainty in ascertaining whether a particular transaction would involve a disposition of "all or substantially all" of the property or assets of a Person, and therefore it may be unclear as to whether a Change of Control has occurred and whether the Company is required to make an offer to repurchase the Notes as described above. CERTAIN COVENANTS The Indenture contains certain covenants including, among others, the following: Limitation on Indebtedness. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that the Company and its Restricted Subsidiaries may Incur Indebtedness if on the date thereof the Consolidated Coverage Ratio for the Company and its Restricted Subsidiaries is at least (i) 2.00 to 1.00, if such Indebtedness is Incurred on or prior to the second anniversary of the Issue Date and (ii) 2.25 to 1.00, if such Indebtedness is Incurred thereafter. (b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness Incurred pursuant to the Senior Credit Agreement; provided, however, that the aggregate principal amount of all Indebtedness Incurred pursuant to this clause (i) does not exceed $160 million at any time outstanding, less the aggregate principal amount of all mandatory prepayments of principal thereof with the proceeds of Asset Dispositions; (ii) the Subsidiary Guarantees and Guarantees of Indebtedness Incurred pursuant to clause (i); (iii) Indebtedness of the Company owing to and held by any Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or any Wholly-Owned Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness (except to the Company or a Wholly-Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (iv) Indebtedness represented by (x) the Notes, (y) any Indebtedness (other than the Indebtedness described in clauses (i), (ii) and (iii)) outstanding on the Issue Date and (z) any 65 Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (iv) or clause (v) or Incurred pursuant to paragraph (a) of the covenant described under "Limitation on Indebtedness"; (v) Indebtedness of a Restricted Subsidiary Incurred and outstanding on the date on which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company (other than Indebtedness Incurred to provide all or any portion of the funds utilized to consummate the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Subsidiary or was otherwise acquired by the Company); provided, however, that at the time such Restricted Subsidiary is acquired by the Company, the Company would have been able to Incur $1.00 of additional Indebtedness under this covenant after giving effect to the Incurrence of such Indebtedness pursuant to this clause (v); (vi) Indebtedness under Currency Agreements and Interest Rate Agreements; provided, however, that in the case of Currency Agreements and Interest Rate Agreements, such Currency Agreements and Interest Rate Agreements are entered into for bona fide hedging purposes of the Company or its Restricted Subsidiaries (as determined in good faith by the Board of Directors or senior management of the Company) and correspond in terms of notional amount, duration, currencies and interest rates, as applicable, to Indebtedness of the Company or its Restricted Subsidiaries Incurred without violation of the Indenture or to business transactions of the Company or its Restricted Subsidiaries on customary terms entered into in the ordinary course of business; (vii) Indebtedness of foreign Restricted Subsidiaries under working capital facilities; provided that the aggregate principal amount of such Indebtedness outstanding at any time does not exceed 5% of Consolidated Tangible Assets; (viii) Indebtedness (including Capital Lease Obligations) incurred by the Company or any of its Restricted Subsidiaries to finance the purchase, lease or improvement of property (real or personal) or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets) in an aggregate principal amount outstanding not to exceed the greater of (A) $5.0 million or (B) 5% of Consolidated Tangible Assets at the time of any Incurrence thereof (including any Refinancing Indebtedness with respect thereto); (ix) Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims; (x) Indebtedness arising from agreements of the Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price, earn out or other similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Restricted Subsidiary of the Company, provided that the maximum liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Restricted Subsidiaries in connection with such disposition; (xi) obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary of the Company in the ordinary course of business; and (xii) Indebtedness (other than Indebtedness described in clauses (i)--(xi)) in a principal amount which, when taken together with the principal amount of all other Indebtedness Incurred pursuant to this clause (xii) and then outstanding, will not exceed the greater of (A) $5.0 million or (B) 5% of Consolidated Tangible Assets. (c) Neither the Company nor any Restricted Subsidiary shall Incur any Indebtedness under paragraph (b) above if the proceeds thereof are used, directly or indirectly, to refinance any Subordinated Obligations of the Company unless such Indebtedness shall be subordinated to the Notes to at least the same extent as such Subordinated Obligations. No Subsidiary Guarantor shall incur any Indebtedness under paragraph (b) above if the proceeds thereof are used, directly or indirectly to refinance any Subordinated Obligations of such Subsidiary Guarantor unless such Indebtedness shall be subordinated to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee to at least the same extent as such Subordinated Indebtedness. Limitation on Liens. The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind against or upon any of its property or 66 assets, or any proceeds therefrom, unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Notes, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (ii) in all other cases, the Notes are equally and ratably secured, except for (A) Liens existing as of the Issue Date and any extensions, renewals or replacements thereof, (B) Liens securing Senior Indebtedness, (C) Liens securing the Notes, (D) Liens of the Company or a Wholly Owned Restricted Subsidiary of the Company on assets of any Subsidiary of the Company, (E) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so refinanced, and (F) Permitted Liens. Limitation on Layering. The Company shall not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is contractually subordinated in right of payment to Senior Subordinated Indebtedness. No Subsidiary Guarantor shall Incur any Indebtedness if such Indebtedness is contractually subordinate or junior in ranking in any respect to any Senior Indebtedness of such Subsidiary Guarantor unless such Indebtedness is Guarantor Senior Subordinated Indebtedness of such Subsidiary Guarantor or is contractually subordinated in right of payment to Senior Subordinated Indebtedness of such Subsidiary Guarantor. Limitation on Restricted Payments. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock except (A) dividends or distributions payable in its Capital Stock (other than Disqualified Stock) and (B) dividends or distributions payable to the Company or a Restricted Subsidiary of the Company (and if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company held by Persons other than a Restricted Subsidiary of the Company or any Capital Stock of a Restricted Subsidiary of the Company held by any Affiliate of the Company, other than another Restricted Subsidiary (in either case, other than in exchange for its Capital Stock (other than Disqualified Stock)), (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase or acquisition) or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to in clauses (i) through (iv) as a "Restricted Payment"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); or (2) the Company is not able to incur an additional $1.00 of Indebtedness pursuant to the covenant described in "Limitation on Indebtedness"; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made subsequent to the Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from, but excluding, the Issue Date to, but excluding, the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate net proceeds, including the fair market value of property other than cash (determined in good faith by the Board of Directors as evidenced by a certificate filed with the Trustee, except that in the event the value of any non-cash consideration shall be $10 million or more, the value shall be as determined in writing by an Independent Appraiser) received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or other capital contributions subsequent to the Issue Date (other than net proceeds received from an issuance or sale of such Capital Stock to a Subsidiary of the 67 Company or an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination); (C) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company convertible or exchangeable for Capital Stock of the Company (less the amount of any cash, or other property, distributed by the Company upon such conversion or exchange); (D) the amount equal to the net reduction in Investments made by the Company or any of its Restricted Subsidiaries in any Person resulting from (i) repurchases or redemptions of such Investments by such Person, proceeds realized upon the sale of such Investment to an unaffiliated purchaser, repayments of loans or advances or other transfers of assets (including by way of dividend or distribution) by such Person to the Company or any Restricted Subsidiary of the Company or (ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investment") not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of the amount of Restricted Payments; provided, however, that no amount shall be included under this clause (D) to the extent it is already included in Consolidated Net Income. (b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or redemption of Capital Stock or Subordinated Obligations of the Company or any Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination); provided, however, that (A) such purchase or redemption shall be excluded in subsequent calculations of the amount of Restricted Payments and (B) the aggregate net proceeds from such sale shall be excluded from clause (3) (B) of paragraph (a); (ii) any purchase or redemption of Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Obligations of the Company; provided, however, that such purchase or redemption shall be excluded in subsequent calculations of the amount of Restricted Payments; (iii) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted under "Limitation on Sales of Assets and Subsidiary Stock" below; provided, however, that such purchase or redemption shall be excluded in subsequent calculations of the amount of Restricted Payments; (iv) dividends paid within 60 days after the date of declaration if at such date of declaration such dividend would have complied with this provision; provided, however, that such dividend shall be included in subsequent calculations of the amount of Restricted Payments; (v) payments for the purpose of, and in amounts equal to, amounts required to permit Holdings to redeem or repurchase Capital Stock of Holdings from existing or former employees or management of the Company or any Subsidiary or their assigns, estates or heirs, in each case in connection with the repurchase provisions under employee stock option or stock purchase agreements or other agreements to compensate management employees; provided that such redemption or repurchases pursuant to this clause shall not exceed $5.0 million (and shall be increased by the amount of any proceeds to the Company from (x) sales of Capital Stock of Holdings to management employees subsequent to the Issue Date and (y) any "key-man" life insurance policies which are used to make such redemptions or repurchases) in the aggregate; provided, however, that such payments shall be included in the calculation of the amount of Restricted Payments; provided, further, that the cancellation of Indebtedness owing to the Company from members of management of the Company or any of its Restricted Subsidiaries in connection with a repurchase of Capital Stock of Holdings will not be deemed to constitute a Restricted Payment under the Indenture; (vi) loans or advances made after the Issue Date to employees or directors of the Company or any Subsidiary the proceeds of which are used to purchase Capital Stock of Holdings, in an aggregate amount not in 68 excess of $1.0 million at any one time outstanding; provided, however, that such payments shall be included in the calculation of the amount of Restricted Payments; (vii) cash dividends to Holdings in amounts equal to (A) the amounts required for Holdings to pay any Federal, state or local income taxes to the extent that such income taxes are attributable to the income of the Company and its Subsidiaries, (B) the amounts required for Holdings to pay franchise taxes and other fees required to maintain its legal existence, (C) an amount not to exceed $250,000 in any fiscal year to permit Holdings to pay its corporate overhead expenses incurred in the ordinary course of business, and to pay salaries or other compensation of employees who perform services for both Holdings and the Company, (D) so long as no Default or Event of Default shall have occurred and be continuing, an amount not to exceed $100,000 in the aggregate, to enable Holdings to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock, (E) the amounts required for Holdings to make indemnification payments under the Recapitalization Agreement, and (F) on or about the Issue Date the amount required to enable Holdings to repay the Holdings Facility in an amount not to exceed the difference between all amounts then owing by Holdings in respect of the Holdings Facility less the net proceeds to Holdings from the issuance of the Holdings Senior Discount Notes; provided, however, that such payments shall not be included in the calculation of the amount of Restricted Payments; (viii) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price hereof; provided, however, that such repurchases shall not be included in the calculation of the amount of Restricted Payments; and (ix) so long as (A) no Default or Event of Default has occurred and is continuing and (B) immediately before and immediately after giving effect thereto, the Company would have been permitted to Incur at least $1.00 of additional Indebtedness under the covenant described in "Limitation on Indebtedness," from and after May 15, 2003, payments of cash dividends to Holdings in an amount sufficient to enable Holdings to make payments of interest required to be made in respect of the Holdings Senior Discount Notes in accordance with the terms thereof in effect on the date of the Indenture, provided such interest payments are made with the proceeds of such dividends; provided, however, that such payments shall not be included in the calculation of the amount of Restricted Payments. Limitation on Restrictions on Distributions from Restricted Subsidiaries. The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company, (ii) make any loans or advances to the Company or (iii) transfer any of its property or assets to the Company, except (a) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the date of the Indenture (including, without limitation, the Senior Credit Facility); (b) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (c) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (a) or (b) of this covenant or this clause (c) or contained in any amendment to an agreement referred to in clause (a) or (b) of this covenant or this clause (c); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such agreement or amendment are no less favorable to the Holders of the Notes than encumbrances and restrictions contained in such agreements; (d) in the case of clause (iii) above, any encumbrance or restriction (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, or the assignment or transfer of any such lease, license or other contract, (B) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by 69 the Indenture, (C) contained in mortgages, pledges or other security agreements securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restrictions restrict the transfer of the property subject to such mortgages, pledges or other security agreements or (D) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary; (e) any restriction with respect to a Restricted Subsidiary (or any of its property or assets) imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary (or the property or assets that are subject to such restriction) pending the closing of such sale or disposition; (f) encumbrances or restrictions arising or existing by reason of applicable law; (g) any restrictions pursuant to the Indenture and the Holdings Senior Discount Notes; (h) restrictions imposed by any agreement or instrument governing Capital Stock of any Person that is acquired; and (i) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. Limitation on Sales of Assets and Subsidiary Stock. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any Asset Disposition unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value, as determined in good faith by the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition, (ii) at least 75% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents and (iii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) first, to the extent the Company or any Restricted Subsidiary, as the case may be, elects (or is required by the terms of any Senior Indebtedness), to prepay, repay or purchase Senior Indebtedness or Indebtedness (other than any Preferred Stock) of a Wholly Owned Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 180 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of such Net Available Cash after application in accordance with clause (A), at the Company's election to the investment in Additional Assets within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to the extent of the balance of such Net Available Cash after application and in accordance with clauses (A) and (B), to make an offer to purchase (an "Offer") Notes and other pari passu debt obligations subject to a similar covenant (collectively, the "pari passu Notes") at par plus accrued and unpaid interest, if any, thereon; and (D) fourth, to the extent of the balance of such Net Available Cash after application in accordance with clauses (A), (B) and (C), for other general corporate purposes not prohibited by the Indenture; provided, however, that, in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) above, the Company or such Restricted Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions, the Company and its Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance herewith except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this covenant exceed $5 million. The Company shall not be required to make an Offer for the Notes and for the pari passu Notes pursuant to this covenant if the Net Available Cash available therefor (after application of the proceeds as provided in clauses (A) and (B)) are less than $5 million for any particular Asset Disposition (which lesser amounts shall be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (b) If the aggregate principal amount (or accreted value, as applicable) of Notes and pari passu Notes validly tendered and not withdrawn in connection with an Offer pursuant to clause (C) above exceeds the funds available therefor ("Offer Proceeds"), the Offer Proceeds will be apportioned between the Notes and such pari passu Notes, with the portion of the Offer Proceeds payable in 70 respect of the Notes equal to the lesser of (i) the Offer Proceeds amount multiplied by a fraction, the numerator of which is the outstanding principal amount of the Notes and the denominator of which is the sum of the outstanding principal amount of the Notes and the outstanding principal amount (or accreted value, as applicable) of the relevant pari passu Notes, and (ii) the aggregate principal amount of Notes validly tendered and not withdrawn. (c) For the purposes of this covenant, the following will be deemed to be cash: (x) the assumption by the transferee of Senior Indebtedness of the Company or Indebtedness of any Restricted Subsidiary of the Company and the release of the Company or such Restricted Subsidiary from all liability on such Senior Indebtedness or Indebtedness in connection with such Asset Disposition (in which case the Company shall, without further action, be deemed to have applied such assumed Indebtedness in accordance with clause (A) of the preceding paragraph), (y) securities received by the Company or any Restricted Subsidiary of the Company from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash and (z) any Designated Noncash Consideration received by the Company or any of its Restricted Subsidiaries in such Asset Disposition having an aggregate fair market value, taken together with all other Designated Noncash Consideration received pursuant to this clause (z) that is at that time outstanding, not to exceed 10% of Consolidated Tangible Assets at the time of the receipt of such Designated Noncash Consideration (with the fair market value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value). (d) In the event of an Asset Disposition that requires the purchase of Notes pursuant to clause (a)(iii)(C), the Company will be required to purchase Notes tendered pursuant to an offer by the Company for the Notes at a purchase price of 100% of their principal amount plus accrued and unpaid interest, if any, to the purchase date in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of the pari passu Notes tendered pursuant to the offer is less than the Net Available Cash allotted to the purchase of the pari passu Notes, the Company will apply the remaining Net Available Cash in accordance with clause (a)(iii)(D) above. (e) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to the Indenture. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue thereof. Limitation on Affiliate Transactions. (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate amount in excess of $2 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Company and by a majority of the members of such Board having no personal stake in such transaction, if any (and such majority or majorities, as the case may be, determines that such Affiliate Transaction satisfies the criteria in (i) above); and (iii) in the event such Affiliate Transaction involves an aggregate amount in excess of $15 million, the Company has received a written opinion from an independent investment banking firm of nationally recognized standing that such Affiliate Transaction is not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arms-length basis from a Person that is not an Affiliate. 71 (b) The foregoing paragraph (a) shall not apply to (i) any Restricted Payment permitted to be made pursuant to the covenant described under "Limitation on Restricted Payments," (ii) any issuance of securities, or other payments, awards or grants in cash, securities or otherwise pursuant to, or the funding of, employment arrangements, stock options and stock ownership plans approved by the Board of Directors of the Company, (iii) the payment of compensation and directors' fees and the performance of indemnification or contribution obligations in the ordinary course of business, (iv) loans or advances to employees in the ordinary course of business of the Company or any of its Restricted Subsidiaries, (v) the execution, delivery and performance of the Management Agreement, or (vi) any transaction between the Company and a Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries. SEC Reports. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted by the Exchange Act, the Company will file with the Commission, and provide, within 15 days after the Company is required to file the same with the Commission, the Trustee and the holders of the Notes with the annual reports and the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) that are specified in Sections 13 and 15(d) of the Exchange Act. In the event that the Company is not permitted to file such reports, documents and information with the Commission pursuant to the Exchange Act, the Company will nevertheless deliver such Exchange Act information to the Trustee and the holders of the Notes as if the Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act. Merger and Consolidation. The Company shall not consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person, unless: (i) the resulting, surviving or transferee Person (the "Successor Company") shall be a corporation, partnership, trust or limited liability company organized and existing under the laws of the United States of America, any State thereof or the District of Columbia and the Successor Company (if not the Company) shall expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and the Indenture; (ii) immediately after giving effect to such transaction (and treating any Indebtedness that becomes an obligation of the Successor Company or any Subsidiary of the Successor Company as a result of such transaction as having been incurred by the Successor Company or such Restricted Subsidiary at the time of such transaction), no Default or Event of Default shall have occurred and be continuing; (iii) immediately after giving effect to such transaction, the Consolidated Net Worth of the Company or the Successor Company, as the case may be, is not less than that of the Company immediately prior to the transaction; (iv) immediately after giving effect to such transaction, the Successor Company would be able to Incur at least an additional $1.00 of Indebtedness under the covenant described in "Limitation on Indebtedness"; and (v) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and such supplemental indenture (if any) comply with the Indenture. The Successor Company will succeed to, and be substituted for, and may exercise every right and power of, the Company under the Indenture and thereafter the Company shall be released from all obligations and covenants thereunder, but, in the case of a lease of all or substantially all its assets, the Company will not be released from the obligation to pay the principal of and interest on the Notes. Notwithstanding the foregoing clauses (ii) and (iii), (i) any Restricted Subsidiary of the Company may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (ii) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction to realize tax or other benefits. Future Subsidiary Guarantors. After the Issue Date, the Company will cause each Restricted Subsidiary created or acquired by the Company which Guarantees the Bank Indebtedness to execute 72 and deliver to the Trustee a Subsidiary Guarantee pursuant to which such Subsidiary Guarantor will unconditionally Guarantee on a joint and several basis, the full and prompt payment of the principal of, premium, if any and interest on Exchange Notes on a senior subordinated basis. The obligations of each Subsidiary Guarantor will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (including, without limitation, any guarantees under the Senior Credit Agreement) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its contribution obligations under the Indenture, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. Each Subsidiary Guarantor will be permitted to consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor without limitation. Each Subsidiary Guarantor will be permitted to consolidate with or merge into or sell all or substantially all its assets to a corporation, partnership or trust other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor). Upon the sale or disposition of a Subsidiary Guarantor (by merger, consolidation, the sale of all or substantially all of its assets) to a Person (whether or not an Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the Company, which sale or disposition is otherwise in compliance with the Indenture (including the covenant described under "Certain Covenants-- Limitation on Sales of Assets and Subsidiary Stock"), such Subsidiary Guarantor shall be deemed released from all its obligations under the Indenture and its Subsidiary Guarantee and such Subsidiary Guarantee shall terminate; provided, however, that any such termination shall occur only to the extent that all obligations of such Subsidiary Guarantor under the Senior Credit Agreement and all of its guarantees of, and under all of its pledges of assets or other security interests which secure, any other Indebtedness of the Company shall also terminate upon such release, sale or transfer. Limitation on Lines of Business. The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than a Related Business. EVENTS OF DEFAULT Each of the following constitutes an Event of Default under the Indenture: (i) a default in any payment of interest on any Note when due, continued for 30 days, whether or not such payment is prohibited by the provisions described under "Ranking and Subordination" above, (ii) a default in the payment of principal of any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise, whether or not such payment is prohibited by the provisions described under "Ranking and Subordination" above, (iii) the failure by the Company to comply for 30 days after notice with any of its obligations under the covenants described under "Change of Control" above or under covenants described under "Certain Covenants" above (in each case, other than a failure to purchase Notes which shall constitute an Event of Default under clause (ii) above), (iv) the failure by the Company to comply for 60 days after notice with its other agreements contained in the Indenture, (v) Indebtedness of the Company or any Restricted Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10 million (the "cross acceleration provision"), (vi) certain events of bankruptcy, insolvency or reorganization of the Company or a Significant Subsidiary (the "bankruptcy provisions"), (vii) any judgment or decree for the payment of money in excess of $10 million is rendered against the Company or a Significant Subsidiary and such judgment or decree shall remain undischarged or unstayed for a period of 60 days after such judgment becomes final and non- appealable (the "judgment default provision") or (viii) any Subsidiary Guarantee ceases to be in full force and effect (except as contemplated by the terms of the 73 Indenture) or any Subsidiary Guarantor denies or disaffirms its obligations under the Indenture or its Subsidiary Guarantee. However, a default under clauses (iii) and (iv) will not constitute an Event of Default until the Trustee or the holders of 25% in principal amount of the outstanding Exchange Notes notify the Company of the default and the Company does not cure such default within the time specified in clauses (iii) and (iv) hereof after receipt of such notice. If an Event of Default occurs and is continuing, the Trustee or the holders of at least 25% in principal amount of the outstanding Notes by notice to the Company and the Trustee may declare the principal of and accrued and unpaid interest, if any, on all the Notes to be due and payable. Upon such a declaration, such principal and accrued and unpaid interest shall be due and payable immediately. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs and is continuing, the principal of and accrued and unpaid interest on all the Notes will become and be immediately due and payable without any declaration or other act on the part of the Trustee or any holders. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. Subject to the provisions of the Indenture relating to the duties of the Trustee, if an Event of Default occurs and is continuing, the Trustee will be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the holders unless such holders have offered to the Trustee reasonable indemnity or security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium, if any, or interest when due, no holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such holder has previously given the Trustee notice that an Event of Default is continuing, (ii) holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy, (iii) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense, (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity and (v) the holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request within such 60-day period. Subject to certain restrictions, the holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other holder or that would involve the Trustee in personal liability. Prior to taking any action under the Indenture, the Trustee shall be entitled to indemnification satisfactory to it in its sole discretion against all losses and expenses caused by taking or not taking such action. The Indenture provides that if a Default occurs and is continuing and is known to the Trustee, the Trustee must mail to each holder notice of the Default within 90 days after it occurs. Except in the case of a Default in the payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold notice if and so long as a committee of its Trust officers in good faith determines that withholding notice is in the interests of the Noteholders. In addition, the Company is required to deliver to the Trustee, within 120 days after the end of each fiscal year, a certificate indicating whether the signers thereof know of any Default that occurred during the previous year. The Company also is required to deliver to the Trustee, within 30 days after the occurrence thereof, written notice of any events which would constitute certain Defaults, their status and what action the Company is taking or proposes to take in respect thereof. AMENDMENTS AND WAIVERS Subject to certain exceptions, the Indenture may be amended with the consent of the holders of a majority in principal amount of the Notes then outstanding and any past default or compliance with any 74 provisions may be waived with the consent of the holders of a majority in principal amount of the Notes then outstanding. However, without the consent of each holder of an outstanding Note affected, no amendment may, among other things, (i) reduce the amount of Notes whose holders must consent to an amendment, (ii) reduce the stated rate of or extend the stated time for payment of interest on any Note, (iii) reduce the principal of or extend the Stated Maturity of any Note, (iv) reduce the premium payable upon the redemption or repurchase of any Note or change the time at which any Note may be redeemed as described under "Optional Redemption" above, (v) make any Note payable in money other than that stated in the Note, (vi) impair the right of any holder to receive payment of principal of and interest on such holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such holder's Notes or (vii) make any change in the amendment provisions which require each holder's consent or in the waiver provisions. Without the consent of any holder, the Company and the Trustee may amend the Indenture to cure any ambiguity, omission, defect or inconsistency, to provide for the assumption by a successor corporation, partnership, trust or limited liability company of the obligations of the Company under the Indenture, to provide for uncertificated Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f) (2) (B) of the Code), to add Guarantees with respect to the Notes, to secure the Notes, to add to the covenants of the Company for the benefit of the holders or to surrender any right or power conferred upon the Company, to make any change that does not adversely affect the rights of any holder or to comply with any requirement of the Commission in connection with the qualification of the Indenture under the Trust Indenture Act. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. The consent of the holders is not necessary under the Indenture to approve the particular form of any proposed amendment. It is sufficient if such consent approves the substance of the proposed amendment. After an amendment under the Indenture becomes effective, the Company is required to mail to the holders a notice briefly describing such amendment. However, the failure to give such notice to all the holders, or any defect therein, will not impair or affect the validity of the amendment. DEFEASANCE The Company at any time may terminate all its obligations under the Notes and the Indenture ("legal defeasance"), except for certain obligations, including those respecting the defeasance trust and obligations to register the transfer or exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and to maintain a registrar and paying agent in respect of the Notes. The Company at any time may terminate its obligations under covenants described under "Certain Covenants" (other than "Merger and Consolidation"), the operation of the cross acceleration provision, the bankruptcy provisions with respect to Significant Subsidiaries, the judgment default provision and the Subsidiary Guarantee provision described under "Events of Default" above and the limitations contained in clauses (iii) and (iv) under "Certain Covenants--Merger and Consolidation" above ("covenant defeasance"). The Company may exercise its legal defeasance option notwithstanding its prior exercise of its covenant defeasance option. If the Company exercises its legal defeasance option, payment of the Notes may not be accelerated because of an Event of Default with respect thereto. If the Company exercises its covenant defeasance option, payment of the Notes may not be accelerated because of an Event of Default specified in clause (iii), (v), (vi) (with respect only to Significant Subsidiaries), (vii) or (viii) under "Events of Default" above or because of the failure of the Company to comply with clause (iii) or (iv) under "Certain Covenants--Merger and Consolidation" above. 75 In order to exercise either defeasance option, the Company must irrevocably deposit in trust (the "defeasance trust") with the Trustee money or U.S. Government Obligations for the payment of principal, premium, if any, and interest on the Notes to redemption or maturity, as the case may be, and must comply with certain other conditions, including delivery to the Trustee of an Opinion of Counsel to the effect that holders of the Notes will not recognize income, gain or loss for Federal income tax purposes as a result of such deposit and defeasance and will be subject to Federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred (and, in the case of legal defeasance only, such Opinion of Counsel must be based on a ruling of the Internal Revenue Service or other change in applicable Federal income tax law). CONCERNING THE TRUSTEE State Street Bank and Trust Company is the Trustee under the Indenture and has been appointed by the Company as Registrar and Paying Agent with regard to the Notes. The Trustee is also the trustee under the indenture for the Discount Notes. GOVERNING LAW The Indenture provides that it and the Notes will be governed by, and construed in accordance with, the laws of the State of New York without giving effect to applicable principles of conflicts of law to the extent that the application of the law of another jurisdiction would be required thereby. CERTAIN DEFINITIONS "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or a Restricted Subsidiary of the Company; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary of the Company; provided, however, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related Business. "Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Asset Disposition" means any sale, lease (other than operating leases entered into in the ordinary course of business), transfer, issuance or other disposition (or series of related sales, leases, transfers, issuances or dispositions that are part of a common plan) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) the sale of Cash Equivalents or Temporary Cash Investments in the ordinary course of business, (iii) a disposition of inventory or a licensing of intellectual property in the ordinary course of business, (iv) a disposition of obsolete or worn out equipment or equipment that is no longer useful or to be used in the conduct of the business of the Company and its Restricted Subsidiaries and that is disposed of in each case in the ordinary course of business, (v) transactions permitted under "Certain Covenants--Merger and Consolidation" above, 76 (vi) for purposes of "Limitation on Sales of Assets and Subsidiary Stock" only, a disposition subject to "Limitation on Restricted Payments" and (vii) the sale, discount or factoring, in each case without recourse, of accounts receivable arising in the ordinary course of business. "Attributable Indebtedness" in respect of a Sale/Leaseback Transaction means, as at the time of determination, the present value (discounted at the greater of (i) the interest rate implicit in such Sale/Leaseback Transaction and (ii) the interest rate borne by the Notes, in each case, compounded semi- annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such Sale/Leaseback Transaction (including any period for which such lease has been extended). "Bank Indebtedness" means any and all amounts, whether outstanding on the Issue Date or thereafter incurred, payable by the Company under or in respect of the Senior Credit Agreement and any related notes, collateral documents, letters of credit and guarantees, including principal, premium, if any, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company whether or not a claim for post filing interest is allowed in such proceedings), fees, charges, expenses, reimbursement obligations, guarantees and all other amounts payable thereunder or in respect thereof and refinancings thereof. "Board of Directors" means, as to any Person, the board of directors of such Person or any duly authorized committee thereof. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including any Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligations" means an obligation that is required to be classified and accounted for as a capitalized lease for financial reporting purposes in accordance with GAAP, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with GAAP, and the Stated Maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date such lease may be terminated without penalty. "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States Government or any agency or instrumentality thereof, having maturities of not more than one year from the date of acquisition; (ii) marketable general obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition thereof, having a credit rating of "A" or better from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.; (iii) certificates of deposit, time deposits, eurodollar time deposits, overnight bank deposits or bankers' acceptances having maturities of not more than one year from the date of acquisition thereof issued by any commercial bank the long-term debt of which is rated at the time of acquisition thereof at least "A" or the equivalent thereof by Standard & Poor's Rating Group, or "A" or the equivalent thereof by Moody's Investors Service, Inc., and having capital and surplus in excess of $500 million; (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (i), (ii) and (iii) entered into with any bank meeting the qualifications specified in clause (iii) above; (v) commercial paper rated at the time of acquisition thereof at least "A-2" or the equivalent thereof by Standard & Poor's Rating Group or "P-2" or the equivalent thereof by Moody's Investors Service, Inc., or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of investments, and in either case maturing within 270 days after the date of acquisition thereof; and (vi) interests in any investment company which invests solely in instruments of the type specified in clauses (i) through (v) above. 77 "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated Coverage Ratio" as of any date of determination means, with respect to any Person, the ratio of (i) the aggregate amount of Consolidated EBITDA of such Person for the period of the most recent four consecutive fiscal quarters ending prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters (in each case, determined, for each fiscal quarter (or portion thereof) of the four fiscal quarters ending prior to or including the Issue Date, on a pro forma basis to give effect to the Transactions, the Offering and the application of proceeds thereof as if they had occurred at the beginning of such four quarter period adjusted for any pro forma expense and cost reductions and related adjustments that are directly attributable to the Transactions and the Offering); provided, however, that (1) If the Company or any Restricted Subsidiary (x) has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period (except that in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation shall be computed based on (A) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period for which such facility was outstanding or (B) if such facility was created after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation) and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, or (y) has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of the period that is no longer outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio involves a discharge of Indebtedness (in each case other than Indebtedness incurred under any revolving credit facility unless such Indebtedness has been permanently repaid), Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such discharge of such Indebtedness, including with the proceeds of such new Indebtedness, as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Asset Disposition, the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the Consolidated EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period (adjusted for any pro forma expense and cost reductions and related adjustments calculated on a basis consistent with Regulation S-X under the Act) and (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was 78 merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition or Investment occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months). "Consolidated EBITDA" for any period means the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense and (iv) amortization of intangibles and (v) other non-cash charges reducing Consolidated Net Income (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation) and less, to the extent added in calculating Consolidated Net Income, non-cash items increasing Consolidated Net Income (excluding such non-cash items to the extent they represent an accrual for cash receipts to be received prior to the Stated Maturity of the Notes) for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the interest, depreciation and amortization of, a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to compute Consolidated EBITDA of such Person only to the extent (and in the same proportion) that the net income of such Subsidiary was included in calculating the Consolidated Net Income of such Person. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its Restricted Subsidiaries on a consolidated basis determined in accordance with GAAP, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations and the interest portion of rent expense associated with Attributable Indebtedness in respect of the relevant lease giving rise thereto, determined as if such lease were a capitalized lease in accordance with GAAP, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) interest actually paid by the Company or any such Subsidiary under any Guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Hedging Obligations (including amortization of fees), (viii) dividends in respect of all Disqualified Stock of the Company and any Restricted Subsidiaries, in each case, held by Persons other than the Company or a Wholly-Owned Subsidiary and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust to purchase Capital Stock of the Company; provided, however, that there shall be excluded therefrom any such interest expense of any Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed or paid by the Company or any Restricted Subsidiary. For purposes of the foregoing, total interest expense shall be determined after giving effect to any net payments made or received by the Company and its Subsidiaries with respect to Interest Rate Agreements. Notwithstanding the foregoing, the Consolidated Interest Expense with respect to any Restricted Subsidiary of the Company that was not a Wholly-Owned Subsidiary shall be included only to the extent (and in the same proportion) that the 79 net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and shall not include interest on the Holdings Senior Discount Notes incurred or accrued by the Company. "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its Restricted Subsidiaries on a consolidated basis determined in accordance with GAAP; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period shall be included in determining such Consolidated Net Income to the extent such loss has been funded with cash from the Company or a Restricted Subsidiary; (ii) any net income (loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the limitations contained in (iv) below the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain or loss realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain or loss realized upon the sale or other disposition of any Capital Stock of any Person; (v) any extraordinary gain or loss, (vi) any non-cash compensation charge for employee stock options or other stock awards, (vii) non-cash, non-recurring charges reducing Consolidated Net Income (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of prepaid cash expense that was paid in a prior period not included in the calculation); (viii) non- cash, non-recurring items increasing Consolidated Net Income (excluding such non-cash items to the extent they represent an accrual for cash receipts to be received prior to the Stated Maturity of the Notes); and (ix) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and its Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the end of the most recent fiscal quarter of the Company ending prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Consolidated Tangible Assets" means, as of any date of determination, the total assets, less goodwill, deferred financing costs and other intangibles less accumulated amortization, shown on the balance sheet of the Company and its Restricted Subsidiaries as of the most recent date for which such balance sheet is available, determined on a consolidated basis in accordance with GAAP. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary. 80 "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Designated Noncash Consideration" means the fair market value of noncash consideration received by the Company or one of its Restricted Subsidiaries in connection with an Asset Disposition that is so designated as Designated Noncash Consideration pursuant to an Officers' Certificate executed by the principal executive officer and the principal financial officer of the Company or such Restricted Subsidiary, less the amount of cash or Cash Equivalents received in connection with a sale of such Designated Noncash Consideration. Such Officers' Certificate shall state the basis of such valuation, which shall be as determined by an Independent Appraiser with respect to the receipt in one or a series of related transactions of Designated Noncash Consideration with a fair market value in excess of $10 million. "Designated Senior Indebtedness" means (i) the Bank Indebtedness in the case of the Company and (ii) any other Senior Indebtedness which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $10.0 million and is specifically designated in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture. "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding capital stock which is convertible or exchangeable solely at the option of the Company or a Restricted Subsidiary) or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the Stated Maturity of the Notes, provided, that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such Stated Maturity shall be deemed to be Disqualified Stock. "Equity Offering" means an offering for cash by either of the Company or Holdings of its respective common stock, or options, warrants or rights with respect to its common stock. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the date of the Indenture, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. 81 "Hedging Obligations" of any Person means the obligations of such Person pursuant to any Interest Rate Agreement or Currency Agreement. "Holdings" means Details Holding Corp. (formerly known as Details, Inc.), a California corporation, and any corporation, which is the direct or indirect sole stockholder of the Company or Holdings. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money; (ii) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto); (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except trade payables), which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services; (v) all Capitalized Lease Obligations and all Attributable Indebtedness of such Person; (vi) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock (but excluding, in each case, any accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Indebtedness of such other Persons; (viii) all Indebtedness of other Persons to the extent Guaranteed by such Person; and (ix) to the extent not otherwise included in this definition, net obligations of such Person under Currency Agreements and Interest Rate Agreements (the amount of any such obligations to be equal at any time to the termination value of such agreement or arrangement giving rise to such obligation that would be payable by such Person at such time). The amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and the maximum liability, upon the occurrence of the contingency giving rise to the obligation, of any contingent obligations at such date. "Independent Appraiser" means, with respect to any transaction or series of related transactions, an independent, nationally recognized appraisal or investment banking firm or other expert with experience in evaluating or appraising the terms and conditions of such transaction or series of related transactions. "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business) or other extension of credit (including by way of Guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit other than a time deposit) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by, such Person. For purposes of the "Limitation on Restricted Payments" covenant, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in a Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market value of the net assets of such Restricted 82 Subsidiary of the Company at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time that such Subsidiary is so re-designated a Restricted Subsidiary; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors of the Company. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means the date on which the Exchange Notes are originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). "Management Agreement" means the Management Agreement between the Company and Bain Capital, Inc. (and its permitted successors and assigns thereunder) as in effect on the Issue Date. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other noncash form) therefrom, in each case net of (i) all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Permitted Holders" means Bain Capital, Inc. and any Affiliate thereof (or any wholly-owned Subsidiary of Holdings for purposes of the definition of "Change of Control"). 83 "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (iii) cash, Cash Equivalents and Temporary Cash Investments; (iv) receivables owing to the Company or any Restricted Subsidiary created or acquired in the ordinary course of business; (v) payroll, travel and similar advances made in the ordinary course of business; (vi) loans or advances to employees and officers made in the ordinary course of business; (vii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; and (viii) Currency Agreements and Interest Rate Agreements entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and otherwise in compliance with the Indenture; (ix) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (x) the Subsidiary Guarantees and guarantees by the Company of Indebtedness otherwise permitted to be incurred by Restricted Subsidiaries of the Company under the Indenture; (xi) Investments the payment for which consists exclusively of Capital Stock (other than Disqualified Stock) of the Company; provided that the fair market value of such Investments shall not be counted under clause (3)(B) of paragraph (a) of "Limitation on Restricted Payments"; (xii) Investments received by the Company or its Restricted Subsidiaries as consideration for asset dispositions, including Asset Dispositions; provided in the case of an Asset Disposition, such Asset Disposition is effected in compliance with the covenant described under "Limitation on Sales of Assets and Subsidiary Stock;" and (xiii) other Investments in an aggregate amount outstanding at any time not to exceed the greater of (A) $7.5 million and (B) 5% of Total Consolidated Assets. "Permitted Liens" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof. (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens not giving rise to an Event of Default; (v) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (vi) any interest or title of a lessor under any Capitalized Lease Obligation; 84 (vii) purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business, provided, however, that (A) the related purchase money Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired and (B) the Lien securing such Indebtedness shall be created within 90 days of such acquisition; (viii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment, or storage of such inventory or other goods; (ix) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; (x) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set- off; (xi) Liens securing Hedging Obligations that are otherwise permitted under the Indenture; (xii) Liens securing Indebtedness of foreign Restricted Subsidiaries of the Company incurred in reliance on clause (b)(vii) of "Limitation on Indebtedness"; (xiii) Liens securing acquired Indebtedness incurred in reliance on clause (b) of "Limitation on Indebtedness"; provided that such Liens do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries other than the property or assets that secured the acquired Indebtedness prior to the time such Indebtedness became acquired Indebtedness of the Company or a Restricted Subsidiary of the Company; (xiv) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries; (xv) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (xvi) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties in connection with the importation of goods; and (xvii) Liens existing on the Issue Date, together with any Liens securing Indebtedness incurred in reliance on clause (b) of "Limitation on Indebtedness" in order to refinance the Indebtedness secured by Liens existing on the Issue Date; provided that the Liens securing Refinancing Indebtedness shall not extend to property other than that pledged under the Liens securing the Indebtedness being refinanced. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision hereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. A "Public Market" exists at any time with respect to the common stock of the Company or Holdings, as the case may be, if the common stock of the Company or Holdings, as the case may be, 85 is then registered with the Securities Exchange Commission pursuant to Section 12(b) or 12(g) of Exchange Act and traded either on a national securities exchange or in the National Association of Securities Dealers Automated Quotation System. "Refinancing Indebtedness" means Indebtedness that is Incurred to refund, refinance, replace, renew, repay or extend (including pursuant to any defeasance or discharge mechanism) (collectively, "refinance", "refinances," and "refinanced" shall have a correlative meaning) any Indebtedness existing on the date of the Indenture or Incurred in compliance with the Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness, provided, however, that (i) only with respect to Indebtedness described under subclause (y) of clause (b)(iv) in the covenant "Limitation on Indebtedness," the Refinancing Indebtedness has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of the Indebtedness being refinanced (other than Indebtedness which is Senior Indebtedness referred to in clause (iv) under the covenant "Limitation on Indebtedness") and (ii) such Refinancing Indebtedness is Incurred in an aggregate principal amount (or if issued with original issue discount, an aggregate issue price) that is equal to or less than the sum of the aggregate principal amount (or if issued with original issue discount, the aggregate accreted value) then outstanding (plus fees and expenses, including any premium and defeasance costs) of the Indebtedness being refinanced. "Related Business" means any business which is the same as or related, ancillary or complementary to any of the businesses in which the Company and its Restricted Subsidiaries are primarily engaged on the date of the Indenture. "Representative" means any trustee, agent or representative (if any) of an issue of Senior Indebtedness. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Subsidiary leases it from such Person. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Senior Credit Agreement" means (i) the Senior Secured Credit Agreement to be entered into among the Company, The Chase Manhattan Bank, as Administrative Agent, and the lenders parties thereto from time to time, as the same may be amended, supplemented or otherwise modified from time to time and any guarantees issued thereunder and (ii) any renewal, extension, refunding, restructuring, replacement or refinancing thereof (whether with the original Administrative Agent and lenders or another administrative agent or agents or other lenders and whether provided under the original Senior Credit Agreement or any other credit or other agreement or indenture). "Senior Subordinated Indebtedness" means the Notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness. "Significant Subsidiary" means any Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S- X promulgated by the SEC. 86 "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision. "Subordinated Obligation" means, as to any Person, any Indebtedness of such Person (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Notes pursuant to a written agreement. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. Unless otherwise specified herein, each reference to a Subsidiary shall refer to a Subsidiary of the Company. "Subsidiary Guarantee" means, individually, any Guarantee of payment of the Exchange Notes by a Subsidiary Guarantor pursuant to the terms of the Indenture, and, collectively, all such Guarantees. Each such Subsidiary Guarantee will be in the form prescribed in the Indenture. "Subsidiary Guarantor" means any Restricted Subsidiary which Guarantees the Bank Indebtedness after the Issue Date. "Temporary Cash Investments" means any of the following: (i) any Investment in direct obligations of the United States of America or any agency thereof or obligations Guaranteed by the United States of America or any agency thereof, (ii) Investments in time deposit accounts, certificates of deposit and money market deposits maturing within 180 days of the date of acquisition thereof issued by a bank or trust company which is organized under the laws of the United States of America, any state thereof or any foreign country recognized by the United States of America having capital, surplus and undivided profits aggregating in excess of $250 million (or the foreign currency equivalent thereof) and whose long-term debt, or whose parent holding company's long-term debt, is rated "A" (or such similar equivalent rating) or higher by at least one nationally recognized statistical rating organization (as defined in Rule 436 under the Securities Act), (iii) repurchase obligations with a term of not more than 30 days for underlying securities of the types described in clause (i) above entered into with a bank meeting the qualifications described in clause (ii) above, (iv) Investments in commercial paper, maturing not more than 180 days after the date of acquisition, issued by a corporation (other than an Affiliate of the Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group, (v) Investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. and (vi) Investments in mutual funds whose investment guidelines restrict such funds' investments to those satisfying the provisions of clauses (i) through (v) above. "Total Consolidated Assets" means, as of any date of determination, the total assets shown on the balance sheet of the Company and its Restricted Subsidiaries as of the most recent date for which such balance sheet is available, determined on a consolidated basis in accordance with GAAP. "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may 87 designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total consolidated assets of $10,000 or less or (B) if such Subsidiary has consolidated assets greater than $10,000, then such designation would be permitted under "Limitation on Restricted Payments." The Board of Directors may designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided, however, that immediately after giving effect to such designation (x) the Company could Incur $1.00 of additional Indebtedness under the covenant described in "Limitation on Indebtedness" and (y) no Default shall have occurred and be continuing. Any such designation by the Board of Directors shall be evidenced to the Trustee by promptly filing with the Trustee a copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing provisions. "Voting Stock" of a corporation means all classes of Capital Stock of such corporation then outstanding and normally entitled to vote in the election of directors. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying (i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by (ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment. "Wholly-Owned Subsidiary" means a Restricted Subsidiary of the Company, all of the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary. 88 CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following is a summary of certain United States federal income tax consequences associated with the acquisition, ownership, and disposition of the Exchange Notes by holders who exchange Original Notes for Exchange Notes. The following summary does not discuss all of the aspects of United States federal income taxation that may be relevant to a prospective holder of the Exchange Notes in light of his or her particular circumstances, or to certain types of holders (including dealers in securities, insurance companies, tax- exempt organizations, financial institutions, broker-dealers, S corporations, persons who hold the Exchange Notes as part of a hedge, straddle, "synthetic security" or other integrated investment and except as discussed below, foreign corporations, and persons who are not citizens or residents of the United States) which are subject to special treatment under the federal income tax laws. This discussion also does not address the tax consequences to nonresident aliens or foreign corporations that are subject to United States federal income tax on a net basis on income with respect to a Note because such income is effectively connected with the conduct of a U.S. trade or business. Such holders generally are taxed in a similar manner to U.S. Holders (as defined below); however, certain special rules apply. In addition, this discussion is limited to holders who hold the Exchange Notes as capital assets within the meaning of Section 1221 of the Code. This summary also does not describe any tax consequences under state, local, or foreign tax laws. The discussion is based upon currently existing provisions of the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations promulgated thereunder, Internal Revenue Service ("IRS") rulings and pronouncements and judicial decisions all in effect as of the date hereof, all of which are subject to change at any time by legislative, judicial or administrative action. Any such changes may be applied retroactively in a manner that could adversely affect a holder of the Exchange Notes. There can be no assurance that the IRS will not take positions concerning the tax consequences of the purchase, ownership or disposition of the Notes which are different from those discussed herein. PROSPECTIVE HOLDERS OF EXCHANGE NOTES SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL INCOME TAX CONSEQUENCES THAT MAY APPLY TO THEM, AS WELL AS THE APPLICATION OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. CERTAIN FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS A U.S. Holder is any holder who or which, for United States federal income tax purposes, is (i) a citizen or resident of the United States; (ii) a domestic corporation or domestic partnership; (iii) an estate other than a "foreign estate" as defined in Section 7701(a)(31) of the Code; or (iv) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States fiduciaries have the authority to control all substantial decisions of the trust. EXCHANGE OF ORIGINAL NOTES FOR EXCHANGE NOTES. The exchange by a U.S. Holder of an Original Note for an Exchange Note pursuant to the Exchange Offer will not constitute a taxable exchange of the Original Note if the economic terms of the Exchange Note (including the interest rate) are identical to the economic terms of the Original Note. Under recently promulgated Treasury regulations relating to modifications and exchanges of debt instruments (the "Section 1001 Regulations"), with certain exceptions, an alteration of a legal right or obligation that occurs by operation of the terms of a debt instrument is not a modification of the debt instrument and thus does not result in a taxable exchange. Therefore, even if Liquidated Damages were payable with respect to the Original Notes but not with respect to the Exchange Notes, the exchange of an Original Note for an Exchange Note would not be treated as a taxable exchange. Accordingly, the Company intends to take the position that in the circumstances described in the preceding sentence, the exchange will not constitute a taxable exchange of the Original Notes. As a result, there should be no U.S. Federal income tax consequences to U.S. Holders exchanging the Original Notes for the Exchange Notes. 89 TAXATION OF STATED INTEREST. In general, U.S. Holders of the Exchange Notes will be required to include interest received thereon in taxable income as ordinary income at the time it accrues or is received, in accordance with the holder's regular method of accounting for United States federal income tax purposes. SALE OR OTHER TAXABLE DISPOSITION OF THE NOTES. The sale, exchange, redemption, retirement or other taxable disposition of an Exchange Note will result in the recognition of taxable gain or loss to a U.S. Holder in an amount equal to the difference between (a) the amount of cash and fair market value of property received in exchange therefor (except to the extent attributable to the payment of accrued but unpaid stated interest) and (b) the holder's adjusted tax basis in such Exchange Note. A holder's initial tax basis in an Exchange Note purchased by such holder will be equal to such holder's adjusted tax basis in the Original Note exchange therefor. Any gain or loss recognized on the sale or other taxable disposition of an Exchange Note generally will be capital gain or loss and will be long-term capital gain or loss if the Exchange Note had been held for more than one year (the maximum rate of tax on any such long-term capital gain being further reduced if the Exchange Note were held for more than eighteen months) and otherwise will be short-term capital gain or loss. Payments on such disposition for accrued interest not previously included in income will be treated as ordinary interest income. The holding period of an Exchange Note will include the holding period of the Original Note exchanged therefor. BACKUP WITHHOLDING. Certain holders of the Exchange Notes may be subject to backup withholding at the rate of 31% with respect to interest and cash received in certain circumstances upon the disposition of an Exchange Note. Generally, backup withholding will apply if (i) the payee fails to furnish a taxpayer identification number ("TIN") in the prescribed manner, (ii) the IRS notifies the payor that the TIN furnished by the payee is incorrect, (iii) the payee has failed to report properly the receipt of "reportable payments" and the IRS has notified the payor that withholding is required, or (iv) the payee fails to certify under the penalty of perjury that such payee is not subject to backup withholding. Any amounts withheld from a payment to a holder under the backup withholding rules will be allowed as a refund or credit against such holder's United States federal income tax liability, provided that the required information is furnished to the IRS. Certain holders (including, among others, corporations and certain tax-exempt organizations) are not subject to backup withholding. CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES FOR NON-U.S. HOLDERS This section discusses special rules applicable to a Non-U.S. Holder of Exchange Notes. For purposes hereof, a "Non-U.S. Holder" is any person who is not a U.S. Holder and is not subject to U.S. federal income tax on a net basis on income with respect to an Exchange Note because such income is effectively connected with the conduct of a U.S. trade or business. INTEREST. Payments of interest to a Non-U.S. Holder that do not qualify for the portfolio interest exception discussed below will be subject to withholding of U.S. federal income tax at a rate of 30% unless a U.S. income tax treaty applies to reduce the rate of withholding. To claim a treaty reduced rate, the beneficial owner of the Exchange Note must provide a properly executed Form 1001 (or successor form). Interest that is paid to a Non-U.S. Holder on an Exchange Note will not be subject to U.S. income or withholding tax if the interest qualified as "portfolio interest". Generally, interest on the Exchange Notes that is paid by the Company will qualify as portfolio interest if (i) the Non-U.S. Holder does not own, actually or constructively, 10% or more of the total combined voting power of all classes of stock of the Company entitled to vote; (ii) the Non-U.S. Holder is not a controlled foreign corporation that is related to the Company actually or constructively through stock ownership for U.S. federal income tax purposes; (iii) the Non-U.S. Holder is not a bank within the meaning of Section 881(c)(3)(A) of the Code; and (iv) either (x) the beneficial owner of the Exchange Note provides the Company or its paying 90 agent, a properly executed certification on IRS Form W-8 (or a suitable substitute form) signed under penalties of perjury that the beneficial owner is not a "U.S. person" for U.S. federal income tax purposes and that provides the beneficial owner's name and address, or (y) a securities clearing organization, bank or other financial institution that holds a customers' securities in the ordinary course of its business holds the Exchange Note and certifies to the Company or its agent under penalties of perjury that the IRS Form W-8 (or a suitable substitute) has been received by it from the beneficial owner of the Note or a qualifying intermediary and furnishes the payor a copy thereof. SALE, EXCHANGE OR RETIREMENT OF EXCHANGE NOTES. Any gain realized by a Non- U.S. Holder on the sale, exchange or retirement of the Exchange Notes, will generally not be subject to U.S. federal income tax or withholding unless (i) the Non-U.S. Holder is an individual who was present in the U.S. for 183 days or more in the taxable year of the disposition and meets certain other requirements; or (ii) the Non-U.S. Holder is an individual who is a former citizen of the United States who lost such citizenship within the preceding ten year period (or former long-term permanent resident of the United States who relinquished residency on or after February 6, 1995) whose loss of citizenship or residency had as one of its principal purposes the avoidance of United States tax. If a Non-U.S. Holder falls under (ii) above, the holder will be taxed on the net gain derived from the sale under the graduated U.S. federal income tax rates that are applicable to U.S. citizens and resident aliens, and may be subject to withholding under certain circumstances. If a Non-U.S. Holder falls under (i) above, the holder generally will be subject to U.S. federal income tax at a rate of 30% on the gain derived from the sale (or reduced treaty rate) and may be subject to withholding in certain circumstances. U.S. INFORMATION REPORTING AND BACKUP WITHHOLDING TAX. Back-up withholding and information reporting generally will not apply to payments made on a Note issued in registered form that is beneficially owned by a Non-U.S. Holder if the certification of Non-U.S. Holder status is provided to the Company or its agent as described above in "Certain Federal Income Tax Consequences to Non- U.S. Holders--Interest", provided that the payor does not have actual knowledge that the holder is a U.S. person. The Company may be required to report annually to the IRS and to each Non-U.S. Holder the amount of interest paid to, and the tax withheld, if any, with respect to each Non-U.S. Holder. If payments of principal, and interest are made to the beneficial owner of an Exchange Note outside the United States by or through the foreign office of a foreign custodian, foreign nominee or other foreign agent of such beneficial owner, or if the proceeds of the sale of Exchange Notes are paid to the beneficial owner of a Note through a foreign office of a "broker" (as defined in the pertinent United States Treasury Regulations), the proceeds will not be subject to backup withholding or information reporting (absent actual knowledge that the payee is a U.S. person). Information reporting (but not backup withholding) will apply, however, to a payment by a foreign office of a custodian, nominee, agent or broker that is (i) a U.S. person, (ii) a controlled foreign corporation for U.S. federal income tax purposes, or (iii) derives 50% or more of its gross income from the conduct of a U.S. trade or business for a specified three year period; unless the broker has in its records documentary evidence that the holder is a Non-U.S. Holder and certain other conditions are met (including that the broker has no actual knowledge that the holder is a U.S. Holder) or the holder otherwise establishes an exemption. Payment through the U.S. office of a custodian, nominee, agent or broker is subject to both backup withholding at a rate of 31% and information reporting, unless the holder certifies that it is a Non-U.S. Holder under penalties of perjury or otherwise establishes an exemption. Any amount withheld under the backup withholding rules from a payment to a Non-U.S. Holder will be allowed as a credit against, or refund of, such holder's U.S. federal income tax liability, provided that certain required information is provided by the holder to the IRS. On October 6, 1997, the IRS released Treasury regulations that revise the procedures for withholding tax and the associated backup withholding and information reporting rules described above for payment of interest and gross proceeds made after December 31, 1998. The regulations modify the requirements imposed on a Non-U.S. Holder or certain intermediaries for establishing the recipient's status as a Non-U.S. Holder eligible for exemption from withholding and backup withholding. 91 In particular, the final regulations impose more stringent conditions on the ability of financial intermediaries acting for a Non-U.S. Holder to provide certifications on behalf of the Non-U.S. Holder, which may include entering into an agreement with the IRS to audit certain documentation with respect to such certifications. Non-U.S. Holders should consult their tax advisors to determine how the regulations will affect their particular circumstances. 92 THE EXCHANGE OFFER At the closing of the Initial Offering, the Company and the Initial Purchaser entered into the Registration Rights Agreement, pursuant to which the Company agreed to (i) file with the Commission on or prior to 90 days after the date of issuance of the Original Notes (the "Issue Date") a registration statement on Form S-1 or Form S-4, (the "Exchange Offer Registration Statement') relating to the Exchange Offer for the Original Notes under the Securities Act and (ii) use its reasonable best efforts to cause the Exchange Offer Registration Statement to be declared effective under the Securities Act within 180 days after the Issue Date. As soon as practicable after the effectiveness of the Exchange Offer Registration Statement, the Company will offer to the holders of Transfer Restricted Securities (as defined below) who are not prohibited by any law or policy of the Commission from participating in the Exchange Offer the opportunity to exchange their Transfer Restricted Securities (the Exchange Notes) The Company agreed to keep the Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Exchange Offer is mailed to the holders of the Original Notes. If (i) because of any change in law or applicable interpretations thereof by the staff of the Commission, the Company is not permitted to effect the Exchange Offer as contemplated hereby, (ii) any Securities (as defined herein) validly tendered pursuant to the Exchange Offer are not exchanged for Exchange Securities within 210 days after the Issue Date, (iii) the Initial Purchaser so requests with respect to Original Notes not eligible to be exchanged for Exchange Notes in the Exchange Offer, (iv) any applicable law or interpretations do not permit any holder of Original Notes to participate in the Exchange Offer, (v) any holder of Original Notes that participates in the Exchange Offer does not receive freely transferable Exchange Notes in exchange for tendered Original Notes, or (vi) the Company so elects, then the Company will file with the Commission a shelf registration statement (the "Shelf Registration Statement") to cover resales of Transfer Restricted Securities by such holders who satisfy certain conditions relating to the provision of information in connection with the Shelf Registration Statement. For purposes of the foregoing, "Transfer Restricted Securities" means each Original Note until (i) the date on which such Original Note has been exchanged for a freely transferable Exchange Note in the Exchange Offer; (ii) the date on which such Original Note has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) the date on which such Original Note is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. The Company has agreed to use its reasonable best efforts to have the Exchange Offer Registration Statement or, if applicable, the Shelf Registration Statement (each, a "Registration Statement") declared effective by the Commission as promptly as practicable after the filing thereof. Unless the Exchange Offer would not be permitted by a policy of the Commission, the Company will commence the Exchange Offer and will use its reasonable best efforts to consummate the Exchange Offer as promptly as practicable, but in any event prior to 210 days after the Issue Date. If applicable, the Company will use its reasonable best efforts to keep the Shelf Registration Statement effective for a period of two years after the Issue Date. If (i) the Exchange Offer Registration Statement or a Shelf Registration Statement, if applicable, is not declared effective within 180 days after the Issue Date; (ii) the Exchange Offer is not consummated on or prior to 210 days after the Issue Date or (iii) a Shelf Registration Statement is filed and declared effective within 180 days after the Issue Date but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded within 60 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iii), a "Registration Default"), the Company will be obligated to pay liquidated damages to each holder of Transfer Restricted Securities, during the period of one or more such Registration Defaults, in an amount equal to $0.192 per week per $1,000 principal amount of the Notes 93 constituting Transfer Restricted Securities held by such holder until the applicable Registration Statement is filed, the Exchange Offer Registration Statement is declared effective and the Exchange Offer is consummated or the Shelf Registration Statement is declared effective or again becomes effective, as the case may be. All accrued liquidated damages shall be paid to holders in the same manner as interest payments on the Notes on semi-annual payment dates which correspond to interest payment dates for the Notes. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. The Registration Rights Agreement also provides that the Company (i) shall, if required under applicable securities laws, upon written request make available for a period of 90 days after the consummation of the Exchange Offer a prospectus meeting the requirements of the Securities Act to any broker- dealer for use in connection with any resale of any such Exchange Notes and (ii) shall pay all expenses incident to the Exchange Offer (including the expense of one counsel to the holders of the Notes) and will indemnify certain holders of the Notes (including any broker-dealer) against certain liabilities, including liabilities under the Securities Act. A broker-dealer which delivers such a prospectus to purchasers in connection with such resales will be subject to certain of the civil liability provisions under the Securities Act and will be bound by the provisions of the Registration Rights Agreement (including certain indemnification rights and obligations). Each holder of Notes who wishes to exchange such Original Notes for Exchange Notes in the Exchange Offer will be required to make certain representations, including representations that (i) any Exchange Notes to be received by it will be acquired in the ordinary course of its business; (ii) it has no arrangement or understanding with any person to participate in the distribution of the Exchange Notes and (iii) it is not an "affiliate" (as defined in Rule 405 under the Securities Act) of the Company, or if it is an affiliate, that it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the holder is not a broker-dealer, it will be required to represent that it is not engaged in, and does not intend to engage in, the distribution of the Exchange Notes. If the holder is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market-making activities or other trading activities (an "Exchanging Dealer"), it will be required to acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. Holders of the Original Notes will be required to make certain representations to the Company (as described above) in order to participate in the Exchange Offer and will be required to deliver information to be used in connection with the Shelf Registration Statement in order to have their Original Notes included in the Shelf Registration Statement and benefit from the provisions regarding liquidated damages set forth in the preceding paragraphs. A holder who sells Original Notes pursuant to the Shelf Registration Statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act in connection with such sales and will be bound by the provisions of the Exchange and Registration Rights Agreement which are applicable to such a holder (including certain indemnification obligations). The summary herein of certain provisions of the Registration Rights Agreement is a description of the material provisions of the Registration Rights Agreement, a copy of which is filed as an exhibit to the Exchange Offer Registration Statement. Except as set forth herein, after consummation of the Exchange Offer, holders of Original Notes have no registration or exchange rights under the Registration Rights Agreement. See "--Consequences of Failure to Exchange," and "--Resales of Exchange Notes; Plan of Distribution." 94 CONSEQUENCES OF FAILURE TO EXCHANGE The Original Notes which are not exchanged for Exchange Notes pursuant to an Exchange Offer and are not included in a resale prospectus will remain Transfer Restricted Securities. Accordingly, such Original Notes may not be offered, sold or otherwise transferred prior to the date which is two years after the later of the date of original issue and the last date that the Company or any affiliate of the Company was the owner of such securities (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company (b) pursuant to a registration statement which has been declared effective under the Securities Act, (c) for so long as the Original Notes are eligible for resale pursuant to rule 144A, to a person the owner reasonably believes is a qualified institutional buyer that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that the transfer is being made in reliance on Rule 144A, (d) to an "accredited investor" within the meaning of subparagraph (1), (2), (3) or (7) of paragraph (a) of Rule 501 under the Securities Act that is purchasing for his own or for the account of such an "accredited investor" in each case in a minimum of Original Notes with a purchase price of $500,000 or (c) pursuant to any other available exemption from the registration requirements of the Securities Act, subject in each of the foregoing cases to any requirement of law that the disposition of its property or the property of such investor account or accounts be at all times within its or their control. The foregoing restrictions on resale will not apply subsequent to the Resale Restriction Termination Date. If any resale or other transfer of the Original Notes is proposed to be made pursuant to clause (d) above prior to the Resale Restriction Termination Date, the transferor shall deliver a letter from the transferee to the Company and the Trustee, which shall provide, among other things, that the transferee is an "accredited investor" within the meaning of subparagraphs (1), (2), (3) or (7) of paragraph (a) of Rule 501 under the Securities Act and that it is acquiring such Securities for investment purposes and not for distribution in violation of the Securities Act. Prior to any offer, sale or other transfer of Original Notes prior to the Resale Restriction Termination Date pursuant to clauses (d) or (e) above, the issuer and the Trustee may require the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in the Prospectus and in the Letter of Transmittal, the form of which is included as Exhibit 99.1 to the Registration Statement of which this prospectus is a part, the Company will accept any and all Original Notes validly tendered and not withdrawn prior to the applicable Expiration Date. The Company will issue $1,000 principal amount of Exchange Notes in exchange for each $1,000 principal amount of Original Notes accepted in the Exchange Offer. Holders may tender some or all of their Original Notes pursuant to the Exchange Offer. However, Original Notes may be tendered only in integral multiples of $1,000 principal amount. The form and terms of the Exchange Notes are the same as the form and terms of the Original Notes, except that (i) the Exchange Notes have been registered under the Securities act and therefore will not bear legends restricting their transfer pursuant to the Securities Act, and (ii) the holders of Exchange Notes will not be entitled to rights under the Registration Rights Agreement (except under certain limited circumstances). The exchange Notes will evidence the same debt as the Original Notes (which they replace), and will be issued under, and be entitled to the benefits of, the Indenture. Solely for reasons of administration (and for no other purpose) the Company has fixed the close of business on , 1997 as the record date for the Exchange Offer for purpose of determining the persons to whom this Prospectus and the Letter of Transmittal will be mailed initially. Only a registered holder of Original Notes (or such holder's legal representative or attorney- in-fact) as reflected on the records of the trustee under the governing indenture may participate in the Exchange Offer. There will be no fixed record date for determining registered holders of the Original Notes entitled to participate in the relevant Exchange Offer. 95 Holders of the Original Notes do not have any appraisal or dissenters' rights under the General Corporation Law of California or under the Indenture in connection with the Exchange Offer. The Company intends to conduct the Exchange Offer in accordance with the applicable requirements of the Exchange Act and the rules and regulations of the Commission thereunder. The Company shall be deemed to have accepted validly tendered Original Notes when, as and if it has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders of the Original Notes for the purposes of receiving the Exchange Notes. If any tendered Original Notes are not accepted for exchange because of an invalid tender, the occurrence of certain other events set forth herein or otherwise, certificates for any such unaccepted Original Notes will be returned without expense, to the tendering holder thereof as promptly as practicable after the Expiration Date. Holders who tender Original Notes in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the Instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of the Original Notes pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with their Exchange Offer. See "--Fees and Expenses." EXPIRATION DATE; EXTENSION; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time on , 1998, unless the Company extends the Exchange Offer, in which case the term "Expiration Date" shall mean the latest date and time to which such Exchange Offer is extended. In order to extend the Exchange Offer, the Company will notify the Exchange Agent of any extension by oral or written notice and will make a public announcement thereof, prior to 9:00 a.m., New York City time, on the next Business Day after the previously scheduled Expiration Date. The Company reserves the right, in its sole discretion, (i) to delay accepting any Original Notes, (ii) extend the Exchange Offer, (iii) if the condition set forth below under "--Conditions of the Exchange Offer" shall not have been satisfied, to terminate the Exchange Offer, by giving oral or written notice of such delay, extension or termination to the Exchange Agent, or (iv) to amend the terms of the Exchange Offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by a public announcement thereof. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, it will promptly disclose such amendment by means of a prospectus supplement that will be distributed to the registered holders of the Original Notes and the Exchange Offer will be extended for a period of five to ten business days, as required by law, depending upon the significance of the amendment and the manner of disclosure to the registered holders, if the Exchange Offer would otherwise expire during such five to ten business day period. Without limiting the manner in which the Company may choose to make public announcement of any delay, extension, termination or amendment of its Exchange Offer, the Company shall not have an obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release thereof to the Dow Jones News Service. PROCEDURES FOR TENDERING Only a registered holder of Original Notes may tender such Original Notes in the Exchange Offer. To tender in the Exchange Offer, a holder must complete, sign and date the Letter of Transmittal, have the signatures thereon guaranteed if required by such Letter of Transmittal, and mail or otherwise 96 deliver such Letter of Transmittal to the Exchange Agent at the address set forth below under "--Exchange Agent" for receipt prior to the applicable Expiration Date. In addition, either (i) certificates for such Original Notes must be received by the Exchange Agent along with the Letter of Transmittal, or (ii) a timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such Original Notes into the Exchange Agent's account at The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry transfer described below, must be received by the Exchange Agent prior to the applicable Expiration Date, or (iii) the Holder must comply with the guaranteed delivery procedures described below. To be tendered effectively, the Letter of Transmittal and all other required documents must be received by the Exchange Agent at the address set forth below under "--Exchange Agent" prior to the applicable Expiration Date. The tender by a Holder will constitute an agreement between such Holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal applicable to such Exchange Offer. THE METHOD OF DELIVERY OF THE ORIGINAL NOTES AND THE APPLICABLE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE APPLICABLE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS. Any beneficial owner whose Original Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct such registered Holder to tender on such beneficial owner's behalf. If such beneficial owner wishes to tender on such owner's behalf, such owner must, prior to completing and executing the Letter of Transmittal and delivering such owner's Original Notes, either make appropriate arrangements to register ownership of the Original Notes in such beneficial owner's name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time. Signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed by an Eligible Institution (as defined below) unless the Original Notes tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Delivery Instructions" on the Letter of Transmittal designated for such Original Notes, or (ii) for the account of an Eligible Institution. In the event that signatures on a Letter of Transmittal or a notice of withdrawal, as the case may be, are required to be guaranteed, such guarantee must be by a participant in a recognized signature guarantee program within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution"). If a Letter of Transmittal is signed by a person other than the registered holder of any Original Notes listed therein, such Original Notes must be endorsed or accompanied by a properly completed bond power, signed by such registered holder as such registered holder's name appears on such Original Notes, with signature guaranteed by an Eligible Institution. If a Letter of Transmittal or any Original Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and evidence satisfactory to the Company, as applicable, of their authority to so act must be submitted with the Letter of Transmittal designated for such Original Notes. 97 All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered Original Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Original Notes not properly tendered or any Original Notes the issuer's acceptance of which would, in the opinion of counsel for such Issuer, be unlawful. The Company also reserves the right to waive any defects, irregularities or conditions of tender as to particular Original Notes. The interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) by the Company will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Original Notes must be cured within such time as the Company shall determine. Although the Company intends to notify holders of defects or irregularities with respect to tenders of Original Notes issued by it, neither the Company, the Exchange Agent nor any other person shall incur any liability for failure to give such notification. Tenders of Original Notes will not be deemed to have been made until such defects or irregularities have been cured or waived. Any Original Notes received by the Exchange Agent that are not validly tendered and as to which the defects or irregularities have not been cured or waived, or if Original Notes are submitted in a principal amount greater than the principal amount of Original Notes being tendered by such tendering holder, such unaccepted or non-exchanged Original Notes will be returned by the Exchange Agent to the tendering holders (or, in the case of Original Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures described below, such unaccepted or non-exchanged Original Notes will be credited to an account maintained with such Book-Entry Transfer Facility), unless otherwise provided in the Letter of Transmittal designated for such Original Notes, as soon as practicable following the applicable Expiration Date. By tendering Original Notes in the Exchange Offer, each registered holder will represent to the issuer of such Original Notes that, among other things, (i) the Exchange Notes to be acquired by the holder and any beneficial owner(s) of such Original Notes ("Beneficial Owner(s)") in connection with the Exchange Offer are being acquired by the holder and any Beneficial Owner(s) in the ordinary course of business of the holder and any Beneficial Owner(s), (ii) the holder and each Beneficial Owner are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in a distribution of the Exchange Notes, (iii) the holder and each Beneficial Owner acknowledge and agree that (x) any person participating in an Exchange Offer for the purpose of distributing the Exchange Notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction with respect to the Exchange Notes acquired by such person and cannot rely on the position of the Staff of the Commission set forth in no-action letters that are discussed herein under "--Resales of the Exchange Notes," and (y) any Participating Broker-Dealer that receives Exchange Notes for its own account in exchange for Original Notes pursuant to an Exchange Offer must deliver a prospectus in connection with any resale of such Exchange Notes, but by so acknowledging, the holder shall not be deemed to admit that, by delivering a prospectus, it is an "underwriter" within the meaning of the Securities Act, (iv) neither the holder nor any Beneficial Owner is an "affiliate," as defined under Rule 405 of the Securities Act, of the Company except as otherwise disclosed to the Company in writing, and (v) the holder and each Beneficial Owner understands that a secondary resale transaction described in clause (iii) above should be covered by an effective registration statement containing the selling securityholder information required by Item 507 of Regulation S-K of the Commission. BOOK-ENTRY TRANSFER The Exchange Agent will make a request to establish an account with respect to the Original Notes at the Book-Entry Transfer Facility, for purposes of the Exchange Offers, within two business days after the date of this Prospectus, and any financial institution that is a participant in the Book-Entry Transfer Facility's system may make book-entry delivery of Original Notes by causing the Book-Entry Transfer Facility to transfer such Original Notes into the Exchange Agent's account at the 98 Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for transfer. However, although delivery of Original Notes may be effected through book-entry transfer at the Book-Entry Transfer Facility, the applicable Letter of Transmittal, with any required signature guarantees and any other documents, must be transmitted to and received by the Exchange Agent at the address set forth below under "--Exchange Agent" on or prior to the applicable Expiration Date or the guaranteed delivery procedures described below must be complied with. GUARANTEED DELIVERY PROCEDURES Holders who wish to tender their Original Notes and (i) whose Original Notes are not immediately available, or (ii) who cannot deliver their Original Notes, the Letter of Transmittal or any other required documents to the Exchange Agent prior to the applicable Expiration Date, may effect a tender if: (1) The tender is made through an Eligible Institution; (2) Prior to the applicable Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by mail, hand delivery or facsimile transmission) setting forth the name and address of the Holder, the certificate number(s) of such Original Notes and the principal amount of the Original Notes being tendered, stating that the tender is being made thereby and guaranteeing that, within five business days after the applicable Expiration Date, the applicable Letter of Transmittal together with the certificate(s) representing the Original Notes (or a Book-Entry Confirmation) and any other documents required by the applicable Letter of Transmittal will be delivered by the Eligible Institution to the Exchange Agent; and (3) Such properly completed and executed Letter of Transmittal, as well as the certificate(s) representing all tendered Original Notes in proper form for transfer (or a Book-Entry Confirmation) and all other documents required by the Letter of Transmittal are received by the Exchange Agent within five business days after the applicable Expiration Date. WITHDRAWAL OF TENDERS Except as otherwise provided herein, tenders of Original Notes pursuant to an Exchange Offer may be withdrawn, unless theretofore accepted for exchange as provided in the applicable Exchange Offer, at any time prior to the Expiration Date of that Exchange Offer. To be effective, a written or facsimile transmission notice of withdrawal must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having deposited the Original Notes to be withdrawn (the "Depositor"), (ii) identify the Original Notes to be withdrawn (including the certificate number or numbers and aggregate principal amount of such Original Notes), and (iii) be signed by the holder in the same manner as the original signature on the applicable Letter of Transmittal (including any required signature guarantees). All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company in its sole respective discretion, which determination shall be final and binding on all parties. Any Original Notes so withdrawn will be deemed not to have been validly tendered for purposes of the Exchange Offer and no Exchange Notes will be issued with respect thereto unless the Original Notes so withdrawn are retendered. Properly withdrawn Original Notes may be retendered by following one of the procedures described above under "--Procedures for Tendering" at any time prior to the applicable Expiration Date. Any Original Notes which have been tendered but which are not accepted for exchange due to the rejection of the tender due to uncured defects or the prior termination of the applicable Exchange Offer, or which have been validly withdrawn, will be returned to the holder thereof (unless otherwise provided in the Letter of Transmittal), as soon as practicable following the applicable Expiration Date 99 or, if so requested in the notice of withdrawal, promptly after receipt by the issuer of the Original Notes of notice of withdrawal without cost to such holder. CONDITIONS OF THE EXCHANGE OFFER The Exchange Offer is subject to the condition that the Exchange Offer, or the making of any exchange by a holder, does not violate applicable law or any applicable interpretation of the staff of the Commission. If there has been a change in commission policy such that there is a substantial question whether the Exchange Offer is permitted by applicable federal law, the Company has agreed to seek a no-action letter or other favorable decision from the Commission allowing the Company to consummate the Exchange Offer. If the Company determines that the Exchange Offer is not permitted by applicable Federal law, it may terminate the Exchange Offer. In connection therewith the Company may (i) refuse to accept any Original Notes and return any Original Notes that have been tendered by the holders thereof, (ii) extend the Exchange Offer and retain all Original Notes tendered prior to the Expiration of the Exchange Offer, subject to the rights of such holders of tendered Original Notes to withdraw their tendered Original Notes, or (iii) waive such termination event with respect to the Exchange Offer and accept all properly tendered Original Notes that have not been withdrawn. If such waiver constitutes a material change in the Exchange Offer, the Company will disclose such change by means of a supplement to this Prospectus that will be distributed to each registered holder of Original Notes, and the Company will extend the Exchange Offer for a period of five to ten business days, depending upon the significance of the waiver and the manner of disclosure to the registered holders of the Original Notes, if the Exchange Offer would otherwise expire during such period. EXCHANGE AGENT State Street Bank and Trust Company has been appointed as "Exchange Agent" for the Exchange Offer, Questions and request for assistance, requests for additional copies of this Prospectus or of the Letter of Transmittal and other documents should be directed to the Exchange Agent addressed as follows: By Registered or Certified Mail or Hand or Overnight Delivery: State Street Bank and Trust Company Two International Place 4th Floor Boston, MA 02110 Attention: Earl Dennison Confirm by Telephone: (617) 664-5670 Facsimile Transmissions: (ELIGIBLE INSTITUTIONS ONLY) Delivery to other than the above addresses or facsimile numbers will not constitute a valid delivery. FEES AND EXPENSES The expenses of soliciting tenders will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitation may be made by telegraph, telephone or in person by officers and regular employees of the Company and its affiliates. 100 No dealer-manager has been retained in connection with the Exchange Offer and no payments will be made to brokers, dealers or others soliciting acceptance of the Exchange Offer. However, reasonable and customary fees will be paid to the Exchange Agent for its service and it will be reimbursed for its reasonable out-of-pocket expenses in connection therewith. The cash expenses to be incurred in connection with the Exchange Offer will be paid by the Company and are estimated in the aggregate to be approximately [$ .] Such expenses include fees and expenses of the Exchange Agent and the Trustee under the indenture, accounting and legal fees and printing costs, among others. The Company will pay all transfer taxes, if any, applicable to the exchange of the Original Notes pursuant to the Exchange Offer. If, however, a transfer tax is imposed for any reason other than the exchange of the Original Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with the Letter of Transmittal, the amount of such transfer taxes will be billed directly to such tendering holder. ACCOUNTING TREATMENT The carrying values of the Original Notes are not expected to be materially different from the fair value of the Exchange Notes at the time of the exchange. Accordingly, no gain or loss for accounting purposes will be recognized. The expenses of the Exchange Offer will be amortized over the term of the Exchange Notes. RESALES OF THE EXCHANGE NOTES; PLAN OF DISTRIBUTION Based on no-action letters issued by the staff of the Commission to third parties, the Company believes the Exchange Notes issued pursuant to the Exchange Offer in exchange for the Original Notes may be offered for resale, resold and otherwise transferred by any holder thereof (other than (i) a broker-dealer who purchased such Original Notes directly from the Company to resell pursuant to Rule 144A or any other available exemption under the Securities Act or (ii) a person that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act) without compliance with the registration and prospectus delivery provisions of the Securities Act provided that the holder is acquiring the Exchange Notes in its ordinary course of business and is not participating, and has no arrangement or understanding with any person to participate, in the distribution of the Exchange Notes. Holders of Original Notes wishing to accept the Exchange Offer must represent to the Company that such conditions have been met. In the event that the Company's belief is inaccurate, holders of Exchange Notes who transfer Exchange Notes in violation of the prospectus delivery provisions of the Securities Act and without an exemption from registration thereunder may incur liability under the Securities Act. The Company does not assume or indemnify holders against such liability. Each affiliate of the Company must acknowledge that such person will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. Each Participating Broker-Dealer that receives Exchange Notes in exchange for Original Notes held for its own account, as a result of market-making or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. Although a Participating Broker-Dealer may be an "underwriter" within the meaning of the Securities Act, the Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a Participating Broker-Dealer in connection with resales of Exchange Notes received in exchange for Original Notes. 101 PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Company will not receive any proceeds from any sales of the Exchange Notes by Participating Broker-Dealers. Exchange Notes received by Participating Broker-Dealers for their own account pursuant to the Exchange Offer may be sold from time to time in one or more transactions in the over- the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to the purchaser or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such Participating Broker- Dealer and/or the purchasers of any such Exchange Notes. Any Participating Broker-Dealer that resells the Exchange Notes that were received by it for its own account pursuant to the Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that by acknowledging that it will deliver any by delivering a prospectus, a Participating Broker-Dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. LEGAL MATTERS Certain legal matters in connection with the Exchange Notes offered hereby will be passed upon for the Company by its counsel, Ropes & Gray, One International Place, Boston, Massachusetts and its special California counsel Stradling Yocca Carlson & Rauth, a Professional Corporation, 660 Newport Center Drive, Newport Beach, California. INDEPENDENT AUDITORS The consolidated financial statements of the Company as of December 31, 1996 and 1995 and for each of the three years in the period ended December 31, 1996 included in this Offering Memorandum, have been audited by McGladrey & Pullen, LLP, independent auditors, as stated in their report appearing herein. 102 INDEX TO FINANCIAL STATEMENTS Independent Auditor's Report.............................................. F-3 Consolidated Balance Sheets as of December 31, 1996 and 1995 and as of September 30, 1997 (unaudited)........................................... F-4 Consolidated Statements of Income for the Years Ended December 31, 1996, 1995 and 1994 and for the Nine Months Ended September 30, 1997 and 1996 (unaudited).............................................................. F-5 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1996, 1995 and 1994 and for the Nine Months Ended Sep- tember 30, 1997 (unaudited).............................................. F-6 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 and the Nine Months Ended September 30, 1997 and 1996 (unaudited).............................................................. F-8 Notes to Consolidated Financial Statements................................ F-9
F-1 [This page intentionally left blank] F-2 INDEPENDENT AUDITOR'S REPORT To the Board of DirectorsDetails, Inc.Anaheim, California We have audited the accompanying consolidated balance sheets of Details, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the related consolidated statements of income, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Details, Inc. and Subsidiaries as of December 31, 1995 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. McGladrey & Pullen, LLP Anaheim, California February 14, 1997 F-3 DETAILS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------- SEPTEMBER 30, 1995 1996 1997 ----------- ------------- ------------- (UNAUDITED) ASSETS (NOTE 4) Current Assets Cash (Note 7)...................... $ 472,200 $ 168,900 $ 942,300 Trade receivables, less allowance for doubtful accounts 1995 $330,000; 1996 $300,000; 1997 $400,000 (Note 7)................. 6,921,600 9,511,000 10,148,100 Inventories (Note 2)............... 874,900 1,237,800 2,413,700 Prepaid expenses................... 48,500 217,000 196,600 Prepaid income taxes............... -- 648,000 160,300 Deferred income taxes (Note 5)..... -- 690,000 690,000 ----------- ------------- ------------- Total current assets............. 8,317,200 12,472,700 14,551,000 ----------- ------------- ------------- Property and Equipment, net (Note 3). 4,701,800 12,846,900 14,931,000 ----------- ------------- ------------- Unamortized Debt Issue Costs, net.... -- 2,057,500 1,542,300 Other Assets......................... 62,200 125,400 661,500 ----------- ------------- ------------- 62,200 2,182,900 2,203,800 ----------- ------------- ------------- $13,081,200 $ 27,502,500 $ 31,685,800 =========== ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Current maturities of long-term debt (Note 4)..................... $ 1,981,900 $ 9,500,000 $ 10,625,000 Current maturities of capital leases with stockholder (Note 4).. -- 410,900 364,700 Accounts payable................... 3,280,200 3,560,600 3,505,500 Accrued commissions................ 504,900 587,100 1,002,800 Other accrued expenses............. 729,600 1,799,500 1,858,400 Accrued bonus payable.............. -- -- 2,958,500 Dividends payable.................. 4,084,500 128,200 128,200 ----------- ------------- ------------- Total current liabilities........ 10,581,100 15,986,300 20,443,100 ----------- ------------- ------------- Long-Term Debt (Note 4).............. -- 78,350,300 70,229,200 Capital Leases with stockholder (Note 4).................................. -- 5,839,700 6,191,200 ----------- ------------- ------------- Total liabilities (Note 6)....... 10,581,100 100,176,300 96,863,500 ----------- ------------- ------------- Commitments and Contingencies (Notes 4, 6 and 10) Temporary Stockholders' Equity (Note 6) Redeemable common stock, 1996 6,959 shares; 1997 6,873 shares......... -- 38,906,000 77,000,000 Redeemable common stock warrants... -- 3,200,000 6,350,000 ----------- ------------- ------------- Total temporary stockholders' equity.......................... -- 42,106,000 83,350,000 ----------- ------------- ------------- Other Stockholders' Equity (Deficit) (Notes 4 and 6) Common stock, no par value, authorized 100,000 shares, issued and outstanding 1995 15,300 shares; 1996 and 1997 2,758 shares............................ 15,300 5,300,500 5,300,500 Convertible preferred stock, no par value, authorized 1995 none; 1996 and 1997 100,000 shares, issued and outstanding 1996 and 1997 6,601 shares...................... -- 13,531,900 13,531,900 Additional paid-in-capital......... -- -- 2,922,000 Retained earnings (deficit)........ 2,484,800 (133,612,200) (170,282,100) ----------- ------------- ------------- Total other stockholders' equity (deficit)....................... 2,500,100 (114,779,800) (148,527,700) ----------- ------------- ------------- $13,081,200 $ 27,502,500 $ 31,685,800 =========== ============= =============
See Notes to Consolidated Financial Statements. F-4 DETAILS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------- ------------------------ 1994 1995 1996 1996 1997 ----------- ----------- ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) Net Sales (Note 7)...... $44,085,800 $59,370,200 $67,515,000 $49,086,000 $55,420,800 Cost of Goods Sold, including rent paid to stockholders 1994 $452,200; 1995 $558,700 (Note 4)............... 20,415,100 25,156,400 30,504,800 21,899,100 27,018,700 ----------- ----------- ----------- ----------- ----------- Gross profit........ 23,670,700 34,213,800 37,010,200 27,186,900 28,402,100 Operating Expenses (Note 4) Compensation to CEO... 411,900 417,900 1,055,100 836,000 811,000 General and administration including rent paid to stockholder 1994 $85,200; 1995 $63,500.............. 1,384,600 1,789,700 1,929,000 1,377,500 1,624,800 Sales and marketing... 3,542,700 5,292,800 5,989,800 4,502,900 5,337,700 Stock compensation and related bonuses...... -- -- -- -- 5,283,000 ----------- ----------- ----------- ----------- ----------- Operating income.... 18,331,500 26,713,400 28,036,300 20,470,500 15,345,600 Interest Income (Expense) Interest income....... 13,100 41,800 102,300 71,100 55,500 Interest expense, including interest paid to stockholder of $774,000 for 1996 year................. (180,900) (370,600) (9,517,800) (6,973,600) (7,427,000) ----------- ----------- ----------- ----------- ----------- Income before income taxes.............. 18,163,700 26,384,600 18,620,800 13,568,000 7,974,100 Income Tax Expense (Note 5)..................... 272,400 396,000 6,265,000 4,270,000 3,400,000 ----------- ----------- ----------- ----------- ----------- Net income.......... 17,891,300 25,988,600 12,355,800 9,298,000 4,574,100 =========== =========== =========== =========== =========== Pro forma income tax adjustment (Note 4)............... 7,175,000 10,425,000 1,295,000 1,295,000 ----------- ----------- ----------- ----------- Pro forma net income (Note 5)............... $10,716,300 $15,563,600 $11,060,800 $ 8,003,000 =========== =========== =========== ===========
See Notes to Consolidated Financial Statements. F-5 DETAILS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
CONVERTIBLE COMMON STOCK PREFERRED STOCK ------------------ ------------------- SHARES AMOUNT SHARES AMOUNT ------ ---------- ------ ----------- Balance, December 31, 1993............. 15,300 $ 15,300 -- $ -- Net income........................... -- -- -- -- Dividends declared................... -- -- -- -- ------ ---------- ----- ----------- Balance, December 31, 1994............. 15,300 15,300 -- -- Net income........................... -- -- -- -- Dividends declared................... -- -- -- -- ------ ---------- ----- ----------- Balance, December 31, 1995............. 15,300 15,300 -- -- Retirement of common stock (Note 6).. (8,162) (8,200) -- -- Transfer common stock subject to put option (Note 6)..................... (6,959) (7,000) -- -- Issuance of common stock (Note 6).... 2,509 5,147,900 -- -- Issuance of preferred stock (Note 6). -- -- 6,671 13,684,400 Transfer of preferred stock to common stock............................... 70 152,500 (70) (152,500) Issuance of redeemable common stock warrants (Note 6)................... -- -- -- -- Net income........................... -- -- -- -- Accretion of temporary stockholders' equity to estimated fair value (Note 6)............................ -- -- -- -- Dividends declared................... -- -- -- -- ------ ---------- ----- ----------- Balance, December 31, 1996............. 2,758 5,300,500 6,601 13,531,900 Net income (unaudited)............... -- -- -- -- Accretion of temporary stockholders' equity to estimated fair value (unaudited) (Note 6)................ -- -- -- -- Stock compensation expense (unaudited) (Note 6)................ -- -- -- -- ------ ---------- ----- ----------- Balance, September 30, 1997 (unaudited)........................... 2,758 $5,300,500 6,601 $13,531,900 ====== ========== ===== ===========
See Notes to Consolidated Financial Statements. F-6 DETAILS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
TEMPORARY STOCKHOLDERS' EQUITY ---------------------------------- ADDITIONAL RETAINED REDEEMABLE COMMON PAID-IN- EARNINGS COMMON STOCK CAPITAL (DEFICIT) TOTAL STOCK WARRANTS TOTAL - ---------- ------------- ------------- ----------- ---------- ----------- $ -- $ 2,790,700 $ 2,806,000 $ -- $ -- $ -- -- 17,891,300 17,891,300 -- -- -- -- (17,891,300) (17,891,300) -- -- -- - ---------- ------------- ------------- ----------- ---------- ----------- -- 2,790,700 2,806,000 -- -- -- -- 25,988,600 25,988,600 -- -- -- -- (26,294,500) (26,294,500) -- -- -- - ---------- ------------- ------------- ----------- ---------- ----------- -- 2,484,800 2,500,100 -- -- -- -- (104,991,800) (105,000,000) -- -- -- -- (14,967,000) (14,974,000) 14,974,000 -- 14,974,000 -- -- 5,147,900 -- -- -- -- -- 13,684,400 -- -- -- -- -- -- -- -- -- -- -- -- -- 1,300,000 1,300,000 -- 12,355,800 12,355,800 -- -- -- -- (25,832,000) (25,832,000) 23,932,000 1,900,000 25,832,000 -- (2,662,000) (2,662,000) -- -- -- - ---------- ------------- ------------- ----------- ---------- ----------- -- (133,612,200) (114,779,800) 38,906,000 3,200,000 42,106,000 -- 4,574,100 4,574,100 -- -- -- -- (41,244,000) (41,244,000) 38,094,000 3,150,000 41,244,000 2,922,000 -- 2,922,000 -- -- -- - ---------- ------------- ------------- ----------- ---------- ----------- $2,922,000 $(170,282,100) $(148,527,700) $77,000,000 $6,350,000 $83,350,000 ========== ============= ============= =========== ========== ===========
See Notes to Consolidated Financial Statements. F-7 DETAILS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30, ----------------------------------------- -------------------------- 1994 1995 1996 1996 1997 ------------ ------------ ------------- ------------- ----------- (UNAUDITED) (UNAUDITED) Cash Flows from Operating Activities Net income................ $ 17,891,300 $ 25,988,600 $ 12,355,800 $ 9,298,000 $ 4,574,100 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............. 881,800 1,054,200 2,047,100 1,494,500 1,828,800 Amortization............. -- -- 844,800 619,500 644,100 Stock compensation expense................. -- -- -- -- 2,922,000 Deferred taxes........... -- -- (690,000) (297,000) -- Bad debt expense (recovery).............. 164,200 (21,400) (27,100) (27,100) 95,300 Change in assets and liabilities: (Increase) decrease in: Receivables............ (837,000) (1,975,200) (2,562,300) (1,327,000) (732,400) Inventories............ (142,400) (421,000) (362,900) (519,000) (1,175,900) Prepaid expenses and other assets.......... (46,500) 28,900 (879,700) (221,600) (28,000) Increase (decrease) in: Accounts payable....... 259,200 1,747,000 280,400 (309,600) (55,100) Accrued expenses....... (76,400) (259,900) 1,152,100 2,171,400 3,433,100 ------------ ------------ ------------- ------------- ----------- Net cash provided by operating activities. 18,094,200 26,141,200 12,158,200 10,882,100 11,506,000 ------------ ------------ ------------- ------------- ----------- Cash Flows from Investing Activities Proceeds from sale of equipment................ -- -- 89,600 7,800 -- Purchase of equipment..... (844,100) (2,945,900) (3,666,400) (2,719,900) (3,266,600) ------------ ------------ ------------- ------------- ----------- Net cash (used in) investing activities. (844,100) (2,945,900) (3,576,800) (2,712,100) (3,266,600) ------------ ------------ ------------- ------------- ----------- Cash Flows from Financing Activities Principal payments on notes payable............ (1,716,300) (752,200) (7,982,000) (5,982,000) (7,125,000) Principal payments on stockholder loan......... (1,000,000) -- -- -- -- Borrowings on notes payable.................. 585,800 1,418,600 95,000,000 95,000,000 -- Principal payments on capital lease to stockholder........... -- -- (364,700) (266,400) (341,000) Cash dividends paid....... (13,025,800) (27,075,500) (6,618,300) (6,618,300) -- Proceeds from the issuance of common and preferred stock.................... -- -- 20,000,000 20,000,000 -- Stock issuance costs...... -- -- (1,167,700) (1,167,700) -- Debt issue costs incurred. -- -- (2,752,000) (2,752,000) -- Retirement of common stock.................... -- -- (105,000,000) (105,000,000) -- ------------ ------------ ------------- ------------- ----------- Net cash (used in) financing activities. (15,156,300) (26,409,100) (8,884,700) (6,786,400) (7,466,000) ------------ ------------ ------------- ------------- ----------- Net increase (decrease) in cash... 2,093,800 (3,213,800) (303,300) 1,383,600 773,400 Cash Beginning................. 1,592,200 3,686,000 472,200 472,200 168,900 ------------ ------------ ------------- ------------- ----------- Ending.................... $ 3,686,000 $ 472,200 $ 168,900 $ 1,855,800 $ 942,300 ============ ============ ============= ============= ===========
See Notes to Consolidated Financial Statements. F-8 DETAILS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Nature of business: The Company manufactures and sells printed circuit boards (PCB) to the electronics industry throughout the United States on credit terms that the Company establishes for individual customers. A majority of the Company's sales are for the time critical segment (quick turn) of the PCB industry. Quick turn PCB's are manufactured within 10 days. Subsequent to the Recapitalization discussed in Note 10, the Company changed its name to Details Holdings Corp. and incorporated Details, Inc. as a wholly- owned subsidiary and contributed substantially all of its assets, subject to certain liabilities to Details, Inc. Environmental matters: The Company's operations are regulated under a number of federal, state, local and foreign environmental laws and regulations, which govern, among other things, the discharge of hazardous materials into the air and water as well as the handling, storage and disposal of such materials. Compliance with these environmental laws are major considerations for all PCB manufacturers because metals and other hazardous materials are used in the manufacturing process. In addition, because the Company is a generator of hazardous wastes, the Company, along with any other person who arranges for the disposal of such wastes, may be subject to potential financial exposure for costs associated with an investigation and remediation of sites at which it has arranged for the disposal of hazardous wastes, if such sites become contaminated. This is true even if the Company fully complies with applicable environmental laws. In addition, it is possible that in the future new or more stringent requirements could be imposed. Management believes it has complied with all applicable environmental laws and regulations. There have been no claims asserted nor is management aware of any unasserted claims for environmental matters. Interim financial information: The financial information presented as of and for the periods ending September 30, 1996 and 1997 has been prepared from the books and records without audit. Such financial information does not include all disclosures required by generally accepted accounting principles. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of financial information for the periods indicated have been included. The results of the Company's operations for any interim period are not necessarily indicative of the results attained for a full fiscal year. The data disclosed in these notes to financial statements related to the interim information is also unaudited. A summary of the Company's significant accounting policies is as follows: Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and their reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of consolidation: In December 1996, the Company incorporated Details Europe Limited in the United Kingdom and a foreign sales corporation. These subsidiaries had no transactions during 1996. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market. F-9 DETAILS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Property and equipment: Property and equipment are stated at cost. Depreciation is provided over the estimated useful lives of the assets using both the straight-line and declining balance methods. For leasehold improvements, depreciation is provided over the shorter of the estimated useful lives of the assets or the lease term. Amortization of capitalized lease payments are included with depreciation expense. Unamortized debt issue costs: Unamortized debt issue costs represent the portion of costs incurred in connection with Company financing. These costs are being amortized over the term of the credit agreement using the interest method. Accumulated amortization as of December 31, 1996 was $692,500. Revenue recognition: The Company recognizes revenue from the sale of its products upon delivery of its products to its customers. The Company provides a normal warranty on its products and accrues an estimated amount for this expense at the time of the sale. Income taxes: Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Fair value of financial instruments: The methods and assumptions used to estimate the fair value of the following classes of financial instruments were as follows: Debt--For fixed-rate instruments with a maturity in excess of one year, the fair value of the debt is estimated using discounted cash flow analysis based on the Company's current incremental borrowing rates for similar types of borrowing arrangements. The carrying value of these fixed rate instruments approximates their fair value. For variable-rate instruments, the carrying amount approximates fair value. Interest rate cap agreement--The carrying amount approximates the fair value based on the fair value of instruments with similar remaining terms. NOTE 2. INVENTORIES Inventories as of December 31, 1995 and 1996 and September 30, 1997 consist of the following:
SEPTEMBER 30, 1995 1996 1997 -------- ---------- ------------- (UNAUDITED) Raw materials.............................. $498,300 $ 800,000 $ 985,000 Work-in-process............................ 376,600 437,800 1,428,700 -------- ---------- ---------- $874,900 $1,237,800 $2,413,700 ======== ========== ==========
F-10 DETAILS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 3. PROPERTY AND EQUIPMENT The components of property and equipment at December 31, 1996 and 1995 are as follows:
1995 1996 ----------- ----------- Buildings and leasehold improvements................ $ 1,003,700 $ 5,845,600 Machinery and equipment............................. 7,733,200 12,053,500 Office furniture and equipment...................... 1,487,100 2,136,600 Waste treatment system.............................. 262,100 288,700 Vehicles............................................ 384,400 378,600 ----------- ----------- 10,870,500 20,703,000 Less accumulated depreciation....................... 6,168,700 7,856,100 ----------- ----------- $ 4,701,800 $12,846,900 =========== ===========
Buildings and leasehold improvements include buildings under a capitalized lease of approximately $4,496,500 with related accumulated depreciation of $449,600 at December 31, 1996. Machinery and equipment include a capitalized lease of $2,118,900 with related accumulated depreciation of $211,900 at December 31, 1996. NOTE 4. LONG-TERM DEBT Long-term debt at December 31, 1996 consists of the following: Term A senior debt(A)........................................... $53,000,000 Term B senior debt(A)........................................... 21,000,000 Subordinated debt, net of discount(B)........................... 13,850,300 Capital leases(C)............................................... 6,250,600 ----------- 94,100,900 Less current maturities......................................... 9,910,900 ----------- $84,190,000 ===========
- -------- (A) The Term A senior debt requires quarterly principal payments at increasing amounts (ranging from $2,375,000 to $5,000,000) plus interest through December 2000. The Term B senior debt requires quarterly interest only payments with the principal due in January 2002. All interest is calculated based upon LIBOR (5.53% at December 31, 1996) plus 3% or the prime rate (8.25% at December 31, 1996) plus 1.75% at the Company's option. The loans also contain a mandatory prepayment provision which requires 100% of the cash proceeds upon the sale of stock or certain asset sales and recoveries; and 75% of the "Excess Cash Flow Payment Periods", as defined, through December 1997 and 50% thereafter. Included in the credit facility with the Term A and B senior debt, is a $7,500,000 revolving note available to the Company. The revolving note bears interest at similar rates to the Term notes as discussed above and is due and payable in January 2002. At December 31, 1996 there is no balance outstanding on this revolving note. (B) The subordinated debt requires monthly interest payments at 12%. Principal is due in two installments of $7,500,000 in February 2003 and 2004. The debt is subordinate to the senior debt discussed above. In the event the Company prepays the principal amount of this debt prior to maturity, the Company is subject to a prepayment penalty ranging from 5% in year 1 to 0% after year five. This prepayment penalty is reduced by 50% upon an Initial Public Offering (IPO) and is F-11 DETAILS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) eliminated upon the attainment of a certain internal rate of return by the note holder. The subordinated debt holders also received warrants to purchase 706.3 shares of the Company's common stock for a nominal price. Management determined the fair value of the warrants and allocated the proceeds to the subordinated debt and the warrants issued based upon their relative fair value. The resulting discount is being amortized over the life of the note using the interest method (Note 6). Both the senior and the subordinated debt are secured by substantially all assets of the Company, contain certain debt covenants which the Company is required to meet and include restrictions on the payment of dividends. (C) On January 1, 1996, the Company and its major stockholder renegotiated the two existing operating leases for its facilities and certain equipment. The terms of the new leases require monthly payments totaling approximately $95,000 over the ten-year term of the leases. The leases contain an option for the Company to renew the leases for an additional ten years at the end of the initial term. The leases also contain an option for the Company to purchase the buildings and the machinery at its fair value at the end of the initial term and at the end of the second term. The building lease requires the Company to pay maintenance, insurance and taxes and contains a provision to adjust the lease rate for increases in the Consumer Price Index rate. These leases have been accounted for as capital leases with an implicit interest rate of 12%. Rent expense for 1994 and 1995 was $541,400 and $622,200, respectively under the previous operating leases. Floating-rate hedge: The Company has entered into interest rate cap and interest rate floor agreements having notional principal amounts of $40 million to reduce the impact of changes in interest rates on its floating-rate debt. This agreement effectively limits the Company's interest rate exposure on $40 million of floating-rate debt should the three-month LIBOR rate exceed 8.5% or fall below 4.7% through April 1998, the term of the agreement. The Company is exposed to credit loss in the event of nonperformance by the counterparties to the agreements. However, the Company does not anticipate nonperformance by the counterparties. Aggregate maturities of long-term debt are as follows:
CAPITAL LEASE ------------------------------------- PRESENT TOTAL LESS VALUE OF NET MINIMUM AMOUNT MINIMUM OTHER YEAR ENDING LEASE REPRESENTING LEASE LONG-TERM DECEMBER 31, PAYMENTS INTEREST PAYMENTS DEBT TOTAL ------------ ----------- ------------ ------------ ----------- ----------- 1997.................... $ 1,138,900 $ 728,000 $ 410,900 $ 9,500,000 $ 9,910,900 1998.................... 1,138,900 675,800 463,100 11,000,000 11,463,100 1999.................... 1,138,900 617,100 521,800 12,500,000 13,021,800 2000.................... 1,138,900 550,900 588,000 20,000,000 20,588,000 2001.................... 1,138,900 476,300 662,600 -- 662,600 Thereafter.............. 4,555,800 951,600 3,604,200 36,000,000 39,604,200 ----------- ---------- ---------- ----------- ----------- $10,250,300 $3,999,700 $6,250,600 $89,000,000 95,250,600 =========== ========== ========== =========== Less discount on subordinated debt........................................ 1,149,700 ----------- $94,100,900 ===========
F-12 DETAILS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 5. INCOME TAX MATTERS AND CHANGE IN TAX STATUS For the year ended December 31, 1995 and prior years, the Company, with the consent of its stockholder, elected to be taxed under sections of federal and state income tax law, which provide that, in lieu of corporation income taxes, the stockholder separately accounts for his pro rata share of the Company's income, deductions, losses and credits. An additional state income tax is imposed at a 1.5% rate. The Company's stockholder terminated this election effective on February 1, 1996. The Company has presented pro forma net income as if the Company had been a taxable entity. As a result of this termination, the Company recorded a net deferred tax asset of $297,000 on February 1, 1996 by a credit against income tax expense, for temporary differences between the financial reporting and the income tax basis of assets and liabilities. Current deferred tax assets consist of the following components as of December 31, 1996: Receivables........................................................ $120,000 Other.............................................................. 91,000 California Franchise tax........................................... 479,000 -------- $690,000 ========
The provision for income taxes charged to income consists of the following:
1994 1995 1996 -------- -------- ---------- Current income tax expense..................... $272,400 $396,000 $6,955,000 Deferred income tax (benefit).................. -- -- (690,000) -------- -------- ---------- $272,400 $396,000 $6,265,000 ======== ======== ==========
The income tax provision differs from the amount of income tax determined by applying the U.S. Federal income tax rate to income before income taxes due to the following:
1994 1995 1996 ----------- ----------- ---------- Computed "expected" tax expense...... $ 6,357,000 $ 9,235,000 $6,517,000 Increase (decrease) in income taxes resulting from: State taxes, net of credits........ 272,400 396,000 981,000 Effect of change in tax status..... -- -- (297,000) Income not subject to federal corporate tax..................... (6,357,000) (9,235,000) (996,000) Other.............................. -- -- 60,000 ----------- ----------- ---------- $ 272,400 $ 396,000 $6,265,000 =========== =========== ==========
NOTE 6. STOCKHOLDERS' EQUITY In January 1996, the Company declared a dividend of $2,662,000 payable to its sole stockholder. On January 31, 1996, the Company redeemed 8,162 shares of its common stock from this stockholder for $105 million. The Company funded this redemption through the issuance of $95 million of debt and F-13 DETAILS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) the sale of stock. In addition, the Company granted this stockholder the right to put back to the Company, for cash, his remaining 6,959 shares of stock at its fair value upon the earlier of January 2002 or 90 days after the full payment of the Senior Debt (Note 4). The put expires upon a qualified public offering, as defined. The Company also granted this stockholder certain antidilution rights in connection with his remaining shares of stock. The stockholder agreed to forfeit to the Company .64 shares of common stock for each share of the common stock warrants and Tranche I options which are canceled (up to a maximum of 1,018 shares). During the period ended September 30, 1997, 86 shares were forfeited (unaudited). Due to the existence of the put option, the estimated fair value of these shares have been classified as temporary stockholders' equity. On January 31, 1996, the Company issued 6,671 shares of convertible preferred stock for $14,533,338. In addition, the Company issued 2,509 shares of common stock for $5,466,662. In connection with these issuances, the Company incurred costs of $1,167,700. These costs have been applied against the proceeds from the sale of stock. In order to accomplish the sale of stock, the Company amended its articles of incorporation to authorize the Company to issue up to 100,000 shares of convertible preferred stock. The preferred stock is convertible into an equal number of common shares of stock at the option of the holders. The holders of the convertible preferred stock cast two votes for each share of stock held; share equally with common stockholders as to dividends and have a preference in the event of liquidation. Upon the occurrence of an Initial Public Offering, the preferred stock will automatically convert to common stock. Common stock warrants: In connection with the issuance of $15 million of subordinated debt (Note 4), the Company issued warrants to acquire 706.3 shares of common stock at a nominal price. Management estimated the value of these warrants at $1,300,000 at the time of issuance. The warrants contain certain antidilution provisions and are exercisable through 2004. After five years, the warrant holders may require the Company to repurchase the warrants or the stock purchased with the warrants for fair value. The warrants also contain a "clawback" provision which requires the holders of the warrants to surrender up to 282 of the warrants upon the attainment of certain earnings targets by the Company in 1996 and 1997. The Company met the earnings target in 1996 and anticipates that 141 of the warrants will be canceled. Due to the put provisions in the warrants, the Company adjusts the recorded amount of the warrants to their estimated fair value by a charge or credit to retained earnings. At December 31, 1996, management estimated the fair value of the remaining 565.3 warrants at $3,200,000. Due to the existence of the put option, the estimated fair value of these warrants has been classified as temporary stockholders' equity. Stock options: On February 1, 1996, the Company granted stock options to various employees under two programs. All options expire 10 years after the date they are granted and contain a provision which requires the option holder to return the option or the related stock purchased under the option to the Company at no gain or a reduced gain should their employment with the Company be terminated prior to five years from the date of grant. The options with senior management include a provision which requires the Company to pay the optionee a bonus in an amount sufficient to cover taxes that the optionee will incur upon exercise of the option. Senior management was granted options to purchase a total of 1,809 shares of common stock at an exercise price of $2,179 per share. Options to purchase 880 shares of common stock (Tranche I) vest at the rate of 176 shares per year through 2000 upon the attainment of certain annual earnings F-14 DETAILS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) targets. If the earnings target for a specific year is not met, the options related to that year are canceled. Any future unearned options will become 100% vested upon the sale of the Company or an initial public offering of the Company's stock. During 1996, the Company met the 1996 earnings target and 176 common stock options vested on May 1, 1997. The remaining options to purchase 929 shares of common stock (Tranche II) vest 185 shares in 1996 and 186 shares in 1997 through 2000 upon the attainment of certain annual or cumulative earnings targets which are higher than the targets discussed above. Any future unearned options become 100% vested upon the sale of the Company. Tranche II option to purchase 106 shares of common stock were transferred to middle management. During 1996, the Company did not meet the earnings target for the Tranche II options and no options were vested. Further, the Company does not believe that it is likely that the Tranche II earnings targets will be met in the future. The Company also issued to middle management options to purchase 247 shares of common stock (including the 106 shares discussed above) at an exercise price of $2,179 per share. The options vest based on the discretion of the Compensation Committee. No options have been exercised. The Company accounts for these stock options using APB Opinion No. 25 and related interpretations. All stock options are accounted for as a variable awards. Accordingly, the difference between the exercise price and the estimated market price of the stock is recorded as compensation when the number of shares is known. Although there is no established market for the Company's stock, management estimated that the exercise price was at or above the estimated market price for the common stock of the Company for the options earned in 1996, and no compensation expense was recorded. However, options which are earned in the future may result in a charge to earnings. Had compensation cost for the stock options been determined based on the grant date fair values as required by FASB Statement No. 123, there would have been the following effect on the Company's reported net income for the year ended December 31, 1996: As reported.................................................... $12,355,800 =========== Pro forma...................................................... $12,355,800 ===========
Fair value was estimated using the minimum-value method, a risk-free interest rate of 7.1% and an expected life of five years. No dividends were assumed to be declared. Although there is no established market for the Company's common stock, management believes the exercise price of the options was at or above the fair value of the Company's stock on the grant date. The weighted average value per option (computed using the minimum value method) of the stock options granted in 1996 was $-0-. F-15 DETAILS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) NOTE 7. CONCENTRATIONS Major customers: The Company had sales to the following customers that individually accounted for more than 10% of the Company's total revenue. Revenue from these customers and accounts receivable as of December 31, 1996 and 1995 are as follows:
NET REVENUE ACCOUNTS RECEIVABLE ----------------------------------- ------------------- 1994 1995 1996 1995 1996 ----------- ----------- ----------- --------- --------- Customer A.............. $12,573,156 $11,484,195 $ 5,889,401 $ 879,238 $ 528,927 Customer B.............. 4,737,816 4,939,054 10,709,947 989,091 931,130
- -------- * Under 10% of sales Cash concentration: The Company has approximately $1,003,500 at December 31, 1996 invested with one fund. NOTE 8. EMPLOYEE BENEFIT PLAN The Company has adopted a 401(k) plan subsequent to year end which is effective January 1997. All employees of the Company over the age of 21 and having at least one year of service, are eligible to participate in the plan. The eligible employees may contribute 1% to 15% of their annual compensation and there is currently no matching contribution required to be made by the Company. At the discretion of the board of directors, they may elect to make a nonelective contribution which vests at various rates depending on the years of service until after six years when an employee would be 100% vested. NOTE 9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
DECEMBER 31, SEPTEMBER 30, ---------------------------- ----------------------- 1994 1995 1996 1996 1997 -------- -------- ---------- ----------- ----------- (UNAUDITED) (UNAUDITED) Cash payments for: Income taxes.......... $ -- $632,523 $7,638,914 $6,036,800 $7,437,600 ======== ======== ========== ========== ========== Interest.............. $112,800 $401,500 $7,774,034 $3,732,900 $2,912,300 ======== ======== ========== ========== ========== Supplemental Schedule of Investing and Financing Activities, capital leases incurred for acquisition of property and equipment.......... $ -- $ -- $6,615,400 $6,615,400 $ 646,300 ======== ======== ========== ========== ==========
NOTE 10. SUBSEQUENT EVENTS (UNAUDITED) On or about October 4, 1997, Holdings and Holdings' stockholders entered into the Recapitalization Agreement with DIA which provided for the Recapitalization by means of the Merger of DIA with and into Holdings. F-16 DETAILS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) On October 28, 1997, the Merger was consummated. In connection with the Recapitalization, (i) certain stockholders and optionholders of Holdings received an aggregate amount of cash equal to approximately $184.3 million, (ii) Chase Manhattan Capital, L.P., an affiliate of the Initial Purchaser, retained a portion of their investment in Holdings, representing approximately 7.7%, and certain other stockholders of Holdings retained a portion of their investments in Holdings representing approximately 2.8%, of the fully-diluted equity of Holdings (in each case after giving effect to the Recapitalization and related transactions) (collectively, the "Existing Owner Rollover"), and (iii) management retained certain shares and certain options to acquire shares of common stock of Holdings representing approximately 17.1% of the fully- diluted equity of Holdings (after giving effect to the Recapitalization and related transactions), (the "Management Rollover Equity"). In addition, in connection with the Recapitalization, management acquired additional shares and options to acquire additional shares representing 10.4% of the fully- diluted equity of Holdings (after giving effect to the Recapitalization and related transactions). After the Recapitalization, management held shares and options representing approximately 27.5% of the fully-diluted equity of Holdings. Financing for the Recapitalization, and the related fees and expenses, consisted of (i) $46.3 million of equity capital provided by investment funds associated with Bain Capital, Inc. (the "Bain Capital Funds"); (ii) $11.2 million of equity capital provided by an affiliate of CMC; (iii) $4.9 million of equity capital provided by certain other investors; (iv) the $16.1 Management Rollover Equity; (v) the $10.5 million Existing Owner Rollover; (v) a senior subordinated loan facility of up to $85 million; (vi) a senior unsecured credit facility of up to $55 million of Holdings; and (vii) a syndicated senior secured Tranche A term loan facility of up to $41.4 million as of the Recapitalization closing date, a syndicated senior secured Tranche B term loan facility of up to $50 million and a senior secured revolving credit facility of up to $30 million. The effect of the above Recapitalization and related transaction increased stockholders' (deficit) to approximately $196.2 million and resulted in charges to earnings of $23 million, net of estimated income tax of $16 million, in the fourth quarter of 1997 related to accelerated vesting of stock options under variable awards and related cash bonuses, write-off of deferred financing fees, amortization of remaining debt discount on existing debt and other fees and expenses related to the Recapitalization. Because the merger has been accounted for as a recapitalization, the historical basis of the Company's assets and liabilities was not affected. F-17 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. - ------------------------------------------------------------------------------- TABLE OF CONTENTS Summary.................................................................... 1 Risk Factors............................................................... 15 Use of Proceeds............................................................ 22 Capitalization............................................................. 23 Unaudited Pro Forma Financial Data......................................... 24 Selected Historical Consolidated Financial Data............................ 33 Management's Discussion and Analysis of Financial Condition and Results of Operations................................................................ 34 The Industry............................................................... 39 Business................................................................... 41 Management................................................................. 48 Principal Stockholders..................................................... 54 Certain Relationships and Related Transactions............................. 56 Description of Senior Credit Facilities.................................... 58 Description of Exchange Notes.............................................. 60 Certain Federal Income Tax Consequences.................................... 89 The Exchange Offer......................................................... 93 Plan of Distribution....................................................... 102 Legal Matters.............................................................. 102 Independent Auditors....................................................... 102 Index to Financial Statements.............................................. F-1
- ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- DETAILS, INC. EXCHANGE OFFER $100,000,000 10% SENIOR SUBORDINATED NOTES DUE 2005 -------------------------- LOGO -------------------------- ----------------- PROSPECTUS ----------------- , 1998 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. As permitted by Section 204(a) of the California General Corporation Law, the Registrant's Articles of Incorporation eliminate a director's personal liability for monetary damages to the Registrant and its shareholders arising from a breach or alleged breach of the director's fiduciary duty, except for liability for (i) acts or omissions that involve intentional misconduct or knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contrary to the best interests of the Registrant or its shareholders or that involve the absence of good faith on the part of the director, (iii) any transaction from which a director derived an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director's duty to the Registrant or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the Registrant or its shareholders, (v) acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the Registrant or its shareholders, (vi) any improper transactions between the corporation and a director in which a director has a material financial interest, and (vii) liability for unlawful distributions, loans or guarantees. This provision does not eliminate the directors' duty of care, and in appropriate circumstances equitable remedies such as an injunction or other forms of non-monetary relief would remain available under California law. Sections 204(a) and 317 of the California General Corporation Law authorize a corporation to indemnify its directors, officers, employees and other agents in terms sufficiently broad to permit indemnification (including reimbursement for expenses) under certain circumstances for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"). The Registrant's Articles of Incorporation and By-laws contain provisions covering indemnification to the maximum extent permitted by the California General Corporation Law of corporate directors, officers and other agents against certain liabilities and expenses incurred as a result of proceedings involving such persons in their capacities as directors, officers, employees or agents, including proceedings under the Securities Act or the Securities Exchange Act of 1934, as amended. At present, there is no pending litigation or proceeding involving a director, officer, employee or other agent of the Registrant in which indemnification is being sought, nor is the Registrant aware of any threatened litigation that may result in a claim for indemnification by any director, officer, employee or other agent of the Registrant. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS
EXHIBIT NUMBER DESCRIPTION ------- ----------- 3.1 Details, Inc. Articles of Incorporation, as amended. 3.2 Details, Inc. By-laws. 4.1 Indenture dated as of November 18, 1997. 4.2 Exchange and Registration Rights Agreement dated as of November 18, 1997. 5.1 Opinion of Ropes & Gray re: legality. 5.2 Opinion of Stradling Yocca Carlson & Rauth re: legality.
II-1
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.1 Credit Agreement dated as of October 28, 1997. 10.2* Management Agreement dated October 28, 1997. 10.3* Amended and Restated Recapitalization Agreement dated as of October 4, 1997 10.4 Stockholders Agreement dated October 28, 1997 10.5 1997 Details, Inc. Equity Incentive Plan 10.6 1996 Employee Stock Option Plan dated December 31, 1996 10.7 1996 Performance Stock Option Plan dated December 31, 1996 10.8 Real Property Master Lease Agreement dated January 1, 1996 10.9 Personal Property Master Lease Agreement dated January 1, 1996 10.10 McMaster Employment Agreement dated September 1, 1995, as amended October 28, 1997. 10.11 Gisch Employment Agreement dated September 19, 1995 as amended October 28, 1997. 10.12 Muse Employment Agreement dated September 1, 1995, as amended October 28, 1997. 10.13 Wright Employment Agreement dated September 1, 1995, as amended October 28, 1997. 12.1 Statement regarding computation of ratio of earnings to fixed charges. 23.1 Consent of McGladrey & Pullen LLP. 23.2 Consent of Ropes & Gray (included in Exhibit 5.1). 23.3 Consent of Stradling Yocca Carlson & Rauth (included in Exhibit 5.2). 24.1 Powers of Attorney (included on signature page). 25.1 Statement of Eligibility on Form T-1 of State Street Bank and Trust Company as Trustee under the Indenture. 27.1 Financial Data Schedules. 99.1* Form of Letter of Transmittal used in connection with the Exchange Offer. 99.2* Form of Notice of Guaranteed Delivery used in connection with The Exchange Offer. 99.3* Exchange Agent Agreement.
- -------- * To be filed separately by amendment. (B) FINANCIAL STATEMENT SCHEDULES. Not applicable. ITEM 22. UNDERTAKINGS. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant, pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by any such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of their counsel the matter has been settled by II-2 controlling precedent, submit to a court of appropriate jurisdiction the question of whether or not such indemnification is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes: (1) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. (2) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933. (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post- effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high and of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (3) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (4) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Anaheim, state of California, on the 26th day of November, 1997. DETAILS, INC. /s/ Bruce D. McMaster By: _________________________________ NAME: BRUCE D. MCMASTER TITLE: PRESIDENT We, the undersigned officers and directors of Details, Inc., hereby severally constitute Bruce D. McMaster, Joseph P. Gisch, Edward Conard, Stephen M. Zide and Prescott Ashe, and each of them singly, our true and lawful attorneys-in-fact with full power of substitution and resubstitution, for them, and each of them singly, to sign for us and in our names in the capacities indicated below, the Registration Statement filed herewith and any and all amendments to said Registration Statement (including pre-effective and post-effective amendments), and generally to do all such things in our name and behalf in our capacities as officers and directors to enable Details, Inc. to comply with the provisions of the Securities Act of 1933, and all requirements of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys-in-fact, or any of them, to said Registration Statement and any and all amendments thereto. Witness our hands and common seal on the dates set forth below. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE /s/ Bruce D. McMaster President (principal November 26, - ------------------------------------- executive officer) 1997 BRUCE D. MCMASTER /s/ Joseph P. Gisch Vice President and November 26, - ------------------------------------- Chief Financial 1997 JOSEPH P. GISCH Officer (principal financial and accounting officer) /s/ Stephen M. Zide Vice President and November 26, - ------------------------------------- Director 1997 STEPHEN M. ZIDE /s/ Edward Conard Director November 26, - ------------------------------------- 1997 EDWARD CONARD /s/ Prescott Ashe Director November 26, - ------------------------------------- 1997 PRESCOTT ASHE /s/ Christopher Behrens Director November 26, - ------------------------------------- 1997 CHRISTOPHER BEHRENS II-4 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION PAGE ------- ----------- ---- 3.1 Details, Inc. Articles of Incorporation, as amended. 3.2 Details, Inc. By-laws. 4.1 Indenture dated as of November 18, 1997. 4.2 Exchange and Registration Rights Agreement dated as of November 18, 1997. 5.1 Opinion of Ropes & Gray re: legality. 5.2 Opinion of Stradling Yocca Carlson & Rauth re: legality. 10.1 Credit Agreement dated as of October 28, 1997. 10.2* Management Agreement dated October 28, 1997. 10.3* Amended and Restated Recapitalization Agreement dated as of October 4, 1997 10.4 Stockholders Agreement dated October 28, 1997 10.5 1997 Details, Inc. Equity Incentive Plan 10.6 1996 Employee Stock Option Plan dated December 31, 1996 10.7 1996 Performance Stock Option Plan dated December 31, 1996 10.8 Real Property Master Lease Agreement dated January 1, 1996 10.9 Personal Property Master Lease Agreement dated January 1, 1996 10.10 McMaster Employment Agreement dated September 1, 1995, as amended October 28, 1997. 10.11 Gisch Employment Agreement dated September 19, 1995 as amended October 28, 1997. 10.12 Muse Employment Agreement dated September 1, 1995, as amended October 28, 1997. 10.13 Wright Employment Agreement dated September 1, 1995, as amended October 28, 1997. 12.1 Statement regarding computation of ratio of earnings to fixed charges. 23.1 Consent of McGladrey & Pullen LLP. 23.2 Consent of Ropes & Gray (included in Exhibit 5.1). 23.3 Consent of Stradling Yocca Carlson & Rauth (included in Exhibit 5.2). 24.1 Powers of Attorney (included on signature page). 25.1 Statement of Eligibility on Form T-1 of State Street Bank and Trust Company as Trustee under the Indenture. 27.1 Financial Data Schedules. 99.1* Form of Letter of Transmittal used in connection with the Exchange Offer. 99.2* Form of Notice of Guaranteed Delivery used in connection with The Exchange Offer. 99.3* Exchange Agent Agreement.
- -------- * To be filed separately by amendment. EX-3.1 2 DETAILS, INC. ARTICLES OF INCORPORATION EXHIBIT A ARTICLES OF INCORPORATION OF DETAILS, INC. ARTICLE ONE: NAME The name of this Corporation is: Details, Inc. ARTICLE TWO: PURPOSE The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code. ARTICLE THREE: LIMITATION OF DIRECTORS' LIABILITY The liability of the directors of this Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law. ARTICLE FOUR: INDEMNIFICATION This Corporation is authorized to indemnify the directors and officers of this Corporation to the fullest extent permissible under California law and in excess of that otherwise permitted under Section 317 of the California Corporations Code. ARTICLE FIVE: AUTHORIZED SHARES The total number of shares which the Corporation is authorized to issue is 1,000 shares, all of the same class, designated "Common Stock". ARTICLE SIX: AGENT FOR SERVICE The name and address in the State of California of the Corporation's initial agent for service of process is K.C. Schaaf, 660 Newport Center Drive, Suite 1600, Newport Beach, California 92660. IN WITNESS WHEREOF, the undersigned has executed these Articles of Incorporation on October 31, 1997. /s/ Lisa Busalacchi ------------------------------------ Lisa Busalacchi, Incorporator EX-3.2 3 DETAILS, INC. BY-LAWS DETAILS, INC. BY-LAWS DETAILS, INC. BY-LAWS TABLE OF CONTENTS ----- -- --------
ARTICLE 1 CORPORATE OFFICES............................................................ 5 1.1. PRINCIPAL OFFICE.................................................. 5 1.2. OTHER OFFICES..................................................... 5 ARTICLE II MEETINGS OF SHAREHOLDERS..................................................... 5 2.1. PLACE OF MEETINGS................................................. 5 2.2. ANNUAL MEETING.................................................... 5 2.3. SPECIAL MEETING................................................... 5 2.4. NOTICE OF SHAREHOLDERS' MEETINGS.................................. 6 2.5. MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE...................... 6 2.6. QUORUM............................................................ 7 2.7. ADJOURNED MEETING; NOTICE......................................... 7 2.8. VOTING............................................................ 7 2.9. VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT................. 8 2.10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING........... 9 2.11. RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS....... 10 2.12. PROXIES........................................................... 10 2.13. INSPECTORS OF ELECTION............................................ 11 ARTICLE III DIRECTORS.................................................................... 11 3.1. POWERS............................................................ 11 3.2. NUMBER OF QUALIFICATION OF DIRECTORS.............................. 12 3.3. ELECTION AND TERM OF OFFICE OF DIRECTORS.......................... 12 3.4. RESIGNATION AND VACANCIES......................................... 12 3.5. PLACE OF MEETINGS; MEETINGS BY TELEPHONE.......................... 13 3.6. REGULAR MEETINGS.................................................. 13 3.7. SPECIAL MEETINGS; NOTICE.......................................... 13
-2- 3.8. QUORUM............................................................ 13 3.9. WAIVER OF NOTICE.................................................. 14 3.10. ADJOURNMENT....................................................... 14 3.11. NOTICE OF ADJOURNMENT............................................. 14 3.12. BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................. 14 3.13. FEES AND COMPENSATION OF DIRECTORS................................ 14 3.14. APPROVAL OF LOANS TO OFFICERS..................................... 14 ARTICLE IV COMMITTEES................................................................... 15 4.1. COMMITTEES OF DIRECTORS............................................ 15 4.2. MANAGEMENT AND COMPENSATION COMMITTEES............................. 15 4.3. MEETINGS AND ACTION OF COMMITTEES.................................. 16 4.4. ADVISORY DIRECTORS................................................. 16 ARTICLE V OFFICERS..................................................................... 17 5.1. OFFICERS........................................................... 17 5.2. ELECTION OF OFFICERS............................................... 17 5.3. SUBORDINATE OFFICERS............................................... 17 5.4. REMOVAL AND RESIGNATION OF OFFICERS................................ 17 5.5. VACANCIES OF OFFICES............................................... 17 5.6. CHAIRMAN OF THE BOARD.............................................. 17 5.7. PRESIDENT.......................................................... 18 5.8. VICE PRESIDENTS.................................................... 18 5.9. SECRETARY.......................................................... 18 ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS.......... 19 6.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS.......................... 19 6.2. INDEMNIFICATION OF OTHERS.......................................... 19 6.3. PAYMENT OF EXPENSES IN ADVANCE..................................... 19 6.4. INDEMNITY NOT EXCLUSIVE............................................ 19 6.5. INSURANCE INDEMNIFICATION.......................................... 20 6.6. CONFLICTS.......................................................... 20 ARTICLE VII RECORDS AND REPORTS.......................................................... 20 7.1. MAINTENANCE AND INSPECTION OF SHARE REGISTER....................... 20
-3- 7.2. MAINTENANCE AND INSPECTION OF BY-LAWS.............................. 21 7.3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS.............. 21 7.4. INSPECTION BY DIRECTORS............................................ 21 7.5. ANNUAL REPORT TO SHAREHOLDERS; WAIVER.............................. 22 7.6. FINANCIAL STATEMENTS............................................... 22 7.7. REPRESENTATION OF SHARES OF OTHER CORPORATIONS..................... 22 ARTICLE VIII GENERAL MATTERS.............................................................. 23 8.1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING.............. 23 8.2. CHECKS; DRAFTS; EVIDENCE OF INDEBTEDNESS........................... 23 8.3. CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED.................. 23 8.4. CERTIFICATE FOR SHARES............................................. 24 8.5. LOST CERTIFICATES.................................................. 24 8.6. CONSTRUCTION; DEFINITIONS.......................................... 24 ARTICLE IX AMENDMENTS................................................................... 24 9.1. AMENDMENT BY SHAREHOLDERS.......................................... 24 9.2. AMENDMENT BY DIRECTORS............................................. 25
-4- DETAILS, INC. BY-LAWS ARTICLE I CORPORATE OFFICES 1.1. PRINCIPAL OFFICE. The board of directors shall fix the location of ---------------- the principal executive office of the corporation at any place within or outside the State of California. If the principal executive office is located outside such state and the corporation has one or more business offices in such state, then the board of directors shall fix and designate a principal business office in the State of California. 1.2. OTHER OFFICES. The board of directors may at any time establish ------------- branch or subordinate offices at any place or places where the corporation is qualified to do business. ARTICLE II MEETINGS OF SHAREHOLDERS 2.1. PLACE OF MEETINGS. Meetings of shareholders shall be held at any ----------------- place within or outside the State of California designated by the board of directors. In the absence of any such designation, shareholders' meetings shall be held at the principal executive office of the corporation. 2.2. ANNUAL MEETING. The annual meeting of shareholders shall be held -------------- each year on a date and at a time designated by the board of directors. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, directors shall be elected, and any other proper business may be transacted. 2.3. SPECIAL MEETING. A special meeting of the shareholders may be called --------------- at any time by the board of directors, or by the chairman of the board, or by the president, or by one or more shareholders holding shares in the aggregate entitled to cast not less than ten percent (10%) of the votes at that meeting. If a special meeting is called by any person or persons other than the board of directors or the president or the chairman of the board, then the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause notice to be promptly given to -5- the shareholders entitled to vote, in accordance with the provisions of Sections 2.4 and 2.5 of these by-laws, that a meeting will be held at the time requested by the person or persons calling the meeting, so long as that time is not less than 25 nor more than 45 days after the receipt of the request. If the notice is not given within 10 days after receipt of the request, then the person or persons requesting the meeting may give the notice. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board of directors may be held. 2.4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of -------------------------------- shareholders shall be sent or otherwise given in accordance with Section 2.5 of these by-laws not less than 10 (or, if sent by third-class mail pursuant to Section 2.5 of these by-laws, 30) nor more then 60 days before the date of the meeting. The notice shall specify the place, date and hour of the meeting and (i) in the case of a special meeting, the general nature of the business to be transacted (no business other than that specified in the notice may be transacted) or (ii) in the case of the annual meeting, those matters which the board of directors, at the time of giving the notice, intends to present for action by the shareholders (but subject to the provisions of the next paragraph of this Section 2.4 any proper matter may be presented at the meeting for such action). The notice of any meeting at which directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the board intends to present for election. If action is proposed to be taken at any meeting for approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the General Corporation Law of the State of California (the "Code"), (ii) an amendment of the articles of incorporation, pursuant to Section 902 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to Section 1900 of the Code, or (v) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, then the notice shall also state the general nature of that proposal. 2.5. MANNER OF GIVING NOTICE: AFFIDAVIT OF NOTICE. Written notice of any -------------------------------------------- meeting of shareholders shall be given either (i) personally or (ii) by first-class mail or (iii) by third-class mail but only if the corporation has outstanding shares held of record by 500 or more persons (determined as provided in Section 605 of the Code) on the record date for the shareholders' meeting, or (iv) by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the shareholder at the address of that shareholder appearing on the books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on the corporation's books or is given, notice shall be deemed to have been given if sent to that shareholder by mail or telegraphic or other written communication to the corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have -6- been given at the time when delivered personally or deposited in the mail or sent by telegraph or other means of written communication. If any notice addressed to a shareholder at the address of that shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the Shareholder on written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any shareholders' meeting, executed by the secretary, assistant secretary or any transfer agent of the corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.6. QUORUM. The presence in person or by proxy of the holders of a ------ majority of the shares entitled to vote thereat constitutes a quorum for the transaction of business at all meetings of shareholders. The shareholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 2.7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual or ------------------------- special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.6 of these by-laws. When any meeting of shareholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than 45 days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting shall be given to each shareholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Section 2.4 and 2.5 of these by-laws. At any adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. 2.8. VOTING. The shareholders entitled to vote at any meeting of ------ shareholders shall be determined in accordance with the provisions of Section 2.11 of these by-laws, subject to the provisions of Sections 702 through 704 of the Code (relating to voting shares held by a fiduciary, in the name of a corporation or in joint ownership). -7- The shareholders' vote may be by voice vote or by ballot; provided, -------- however, that any election for directors must be by ballot if demanded by any - ------- shareholder at the meeting and before the voting has begun. Except as provided in the last paragraph of this Section 2.8, or as may be otherwise provided in the articles of incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the shareholders. Any shareholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of directors, may vote them against the proposal; but, if the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed that the shareholder's approving vote is with respect to all shares which the shareholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the shareholders, unless the vote of a greater number or a vote by classes is required by the Code or by the articles of incorporation. Each shareholder entitled to vote at any election of directors shall have the right to cumulate his votes and give candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which his shares are normally entitled, or to distribute his votes on the same principle among as many candidates as he desires. No shareholder shall be entitled to cumulate votes unless the candidate's or candidates' names for whom he desires to vote have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of his intention to cumulate his votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. In any election of directors, the candidates receiving the highest number of affirmative votes of the shares entitled to be voted for them, up to the number of directors to be elected by such shares, shall be elected; votes against the director and votes withheld shall have no legal effect. In voting on all other matters submitted to a vote of the shareholders, each shall be entitled to one vote, unless provided otherwise in the Articles of Incorporation. 2.9. VALIDATION OF MEETINGS; WAIVER OF NOTICE: CONSENT. The transactions of ------------------------------------------------- any meeting of shareholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or -8- special meeting of shareholders, except that if action is taken or proposed to be taken for approval of any of those matters specified in the second paragraph of Section 2.4 of these by-laws, the waiver of notice or consent or approval shall state the general nature of the proposal. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of a presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the Code to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. 2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action ------------------------------------------------------- which may be taken at any annual or special meeting of shareholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action to be taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted. In the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled to vote for the election of directors. However, a director may be elected at any time to fill any vacancy on the board of directors, provided that it was not created by removal of a director and that it has not been filled by the directors, by the written consent of the holders of a majority of the outstanding shares entitled to vote for the election of directors. All such consents shall be maintained in the corporate records. Any shareholder giving a written consent, or the shareholder's proxy holders, or a transferee of the shares, or a personal representative of the shareholder, or their respective proxy holders, may revoke the consent by a writing received by the secretary of the corporation before written consents of the number of shares required to authorize the proposed action have been filed with the secretary. If the consents of all shareholders entitled to vote have not been solicited in writing and if the unanimous written consent of all such shareholders has not been received, then the secretary shall give prompt notice of the corporate action approved by the shareholders without a meeting. Such notice shall be given to those shareholders entitled to vote who have not consented in writing and shall be given in the manner specified in Section 2.5 of these by-laws. In the case of approval of (i) a contract or transaction in which a director has a direct or indirect financial interest, pursuant to Section 310 of the Code, (ii) indemnification of a corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization of the corporation, pursuant to Section 1201 of the Code, and (iv) a distribution in dissolution other than in accordance with the rights of outstanding preferred shares, pursuant to Section 2007 of -9- the Code, the notice shall be given at least 10 days before the consummation of any action authorized by that approval. 2.11. RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS. For purposes of determining the shareholders entitled to notice of any meeting or to vote thereat or entitled to give consent to corporate action without a meeting, the board of directors may fix, in advance, a record date, which shall not be more than 60 days nor less than 10 days before the date of any such meeting nor more than 60 days before any such action without a meeting, and in such event only shareholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date, except as otherwise provided in the Code. If the board of directors does not so fix a record date: (a) the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the business day next preceding the day on which notice is given or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (b) the record date for determining shareholders entitled to give consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the board has been taken, shall be at the close of business on the date on which the board adopts the resolution relating to that action, or the 60th day before the date of such other action, whichever is later. The record date for any other purpose shall be as provided in Article VIII of these by-laws. 2.12. PROXIES. Every person entitled to vote for directors, or on any ------- other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the secretary of the corporation. A proxy shall be deemed signed if the shareholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the shareholder or the shareholder's attorney-in-fact. A validly executed proxy which does not state that it is irrevocable shall continue in full force and effect unless (i) the person who executed the proxy revokes it prior to the time of voting by delivering a writing to the corporation stating that the proxy is revoked or by executing a subsequent proxy and presenting it to the meeting or by voting in person at the meeting, or (ii) written notice of the death or incapacity of the maker of that proxy is received by the corporation before the vote pursuant to the proxy is counted; provided, however, that no proxy shall be valid after the -------- ------- expiration of eleven (11) months from the date of the proxy, unless otherwise provided in the proxy. The dates contained on the forms of -10- proxy presumptively determine the order of execution, regardless of the postmark date on the envelopes in which they are mailed. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Sections 705(e) and 705(f) of the Code. 2.13 INSPECTORS OF ELECTION. Before any meeting of shareholders, the ---------------------- board of directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, then the chairman of the meeting may, and on the request of any shareholder or a shareholder's proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (1) or more shareholders or proxies, then the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any shareholder or a shareholder's proxy shall, appoint a person to fill that vacancy. Such inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all shareholders. ARTICLE III DIRECTORS 3.1. POWERS. Subject to the provisions of the Code and any limitations in ------ the articles of incorporation and these by-laws relating to action required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be -11- managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER AND QUALIFICATION OF DIRECTORS. As provided in the articles of ------------------------------------- incorporation of the corporation, the authorized number of directors shall be five. Directors need not be residents of the State of California nor shareholders of the Corporation. No reduction of the authorized number of directors shall have the effect of removing any director before that director's term of office expires. 3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be elected ---------------------------------------- at each annual meeting of shareholders to hold office until the next annual meeting. Each director, including a director elected to fill a vacancy, shall hold office until the expiration of the term for which elected and until a successor has been elected and qualified. 3.4 RESIGNATION AND VACANCIES. Any director may resign effective on giving ------------------------- written notice to the chairman of the board, the president, the secretary or the board of directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the board of directors may elect a successor to take office when the resignation becomes effective. Vacancies in the board of directors may be filled by a majority of the remaining directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the shareholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the shareholders and until a successor has been elected and qualified. Whenever the holders of any class or series of the corporation's stock are entitled to elect one or more directors by the provisions of the articles of incorporation, the provisions of this section shall apply, with respect to the removal without cause of a director or directors so elected, to the vote of the holders of the outstanding shares of that class or series and not to the vote of the outstanding shares as a whole. A vacancy or vacancies in the board of directors shall be deemed to exist (i) in the event of the death, resignation or removal of any director, (ii) if the board of directors by resolution declares vacant the office of a director who has been declared of unsound mind by an order of court or convicted of a felony, (iii) if the authorized number of directors is increased, or (iv) if the shareholders fail, an any meeting of shareholders at which any director or directors are elected, to elect the number of directors to be elected at that meeting. -12- The shareholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors, but any such election other than to fill a vacancy created by removal, if by written consent, shall require the consent of the holders of a majority of the outstanding shares entitled to vote thereon. 3.5. PLACE OF MEETINGS; MEETINGS BY TELEPHONE. Regular meetings of the ---------------------------------------- board of directors may be held at any place within or outside the State of California that have been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the corporation. Special meetings of the board may be held at any place within or outside the State of California that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all directors participating in the meeting can hear one another; and all such directors shall be deemed to be present in person at the meeting. 3.6. REGULAR MEETINGS. Regular meetings of the board of directors may ---------------- be held without notice if the times of such meetings are fixed by the board of directors. 3.7. SPECIAL MEETINGS; NOTICE. Special meetings of the board of ------------------------ directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two directors. Notice of the time and place of special meetings shall be delivered personally, by facsimile or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least 48 hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation. 3.8. QUORUM. A majority of the authorized number of directors shall ------ constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.10 of these by-laws. Every act or decision done or made by a majority of the directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a director or indirect material financial interest), Section -13- 311 of the Code (as to appointment of committees), Section 317(e) of the code (as to indemnification of directors), the articles of incorporation, and other applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9. WAIVER OF NOTICE. Notice of a meeting need not be given to any ---------------- director (i) who signs a waiver of notice or a consent to holding the meeting or any approval of the minutes thereof, whether before or after the meeting or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the board of directors. 3.10. ADJOURNMENT. A majority of the directors present, whether or not ----------- constituting a quorum, may adjourn any meeting to another time and place. 3.11. NOTICE OF ADJOURNMENT. Notice of the time and place of holding an --------------------- adjourned meeting need not be given unless the meeting is adjourned for more than 24 hours. If the meeting is adjourned for more than 24 hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.7 of these by-laws, to the directors who were not present at the time of the adjournment. 3.12. BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any action ------------------------------------------------- required or permitted to be taken by the board of directors may be taken without a meeting, provided that all members of the Board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the board of directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. 3.13. FEES AND COMPENSATION OF DIRECTORS. Directors and members of ---------------------------------- committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the board of directors. This Section 3.13 shall not be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. 3.14. APPROVAL OF LOANS TO OFFICERS. The corporation may, upon the ----------------------------- approval of the board of directors alone, make loans of money or property to, or guarantee the obligations of, any officer of the corporation or its parent or subsidiary, whether or not a director, or adopt an employee benefit plan or plans authorizing such loans or guaranties -14- provided that (i) the board of directors determines that such a loan or guaranty or plan may reasonably be expected to benefit the corporation, (ii) the corporation has outstanding shares held of record by 100 or more persons (determined as provided in Section 605 of the Code) on the date of approval by the board of directors, and (iii) the approval of the board of directors is by a vote sufficient without counting the vote of any interested director or directors. ARTICLE IV COMMITTEES 4.1. COMMITTEES OF DIRECTORS. The board of directors may, by ----------------------- resolution adopted by a majority of the authorized number of directors, designate one (1) or more committees, each consisting of two or more directors, to serve at the pleasure of the board. The board may designate one (1) or more directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, except with respect to: (a) the approval of any action which, under the Code, also requires shareholders' approval or approval of the outstanding shares; (b) the filling of vacancies on the board of directors or in any committee; (c) the fixing of compensation of the directors for serving on the board or any committee; (d) the amendment or repeal of these by-laws or the adoption of new by-laws; (e) the amendment or repeal of any resolution of the board of directors which by its express terms is not so amendable or repealable; (f) a distribution to the shareholders of the corporation (except at a rate or in a periodic amount or within a price range determined by the board of directors); or (g) the appointment of any other committees of the board of directors or the members of such committees. 4.2. MANAGEMENT AND COMPENSATION COMMITTEES. Without limiting the -------------------------------------- generality of Section 4.1, there shall be a committee comprised of the two directors specified in the next sentence to be known as the "Management and Compensation Committee." The Management and Compensation Committee shall be comprised of the two -15- Class I Directors. The Management and Compensation Committee will have exclusive authority over all aspects of the employment and compensation (cash and non-cash) of all members of senior management of the corporation, including, without limitation, the administration of the corporation's employee stock purchase, stock option and other equity incentive plans (including, the grant of awards, options or benefits thereunder and the determination of the terms and conditions of such awards, options and benefits, including particularly those under the Performance Stock Option Plan of the corporation) and the corporation's management bonus program and other employee benefit plans and programs. All determinations of the Management and Compensation Committee shall be conclusive with respect to the corporation. 4.3. MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees --------------------------------- shall be governed by, and held and taken in accordance with, the bylaw provisions applicable to meetings and actions of the board of directors as provided in Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section 3.12 (action without meeting), with such changes in the context of those by-laws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that -------- ------- the time of regular meetings of committees may be determined either by resolution of the board of directors (other than the Management and Compensation Committee) or by resolution of the committee, that special meetings of committees (other than the Management and Compensation Committee) may also be called by resolution of the board of directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee (other than the Management and Compensation Committee). The board of directors may adopt rules for the government of any committee not inconsistent with the provisions of these by-laws. 4.4. ADVISORY DIRECTORS. The board of directors may, in its discretion, ------------------ designate by resolution one or more individuals as advisory directors of the corporation (the "Advisory Directors"). The Advisory Directors shall from time to time render such advice to the board of directors as it may request with respect to the business and affairs of the corporation and shall serve such other purposes as the board of directors may, by resolution, lawfully determine. ARTICLE V OFFICERS 5.1. OFFICERS. The officers of the corporation shall be a president, a -------- secretary, and a chief financial officer. The corporation may also have, at the discretion of the board of directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in -16- accordance with the provisions of Section 5.3 of these by-laws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS. The officers of the corporation, except such -------------------- officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these by-laws, shall be chosen by the board, subject to the rights, if any, an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS. The board of directors may appoint, or may -------------------- empower the president to appoint, such other officers as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these by-laws or as the board of directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, ----------------------------------- of an officer under any contract of employment, any officer may be removed, either with or without cause, by the board of directors at any regular or special meeting of the board or, except in the case of an officer chosen by the board of directors, by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES. A vacancy in any office because of death, -------------------- resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these by-laws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD. The chairman of the board, if such an officer --------------------- be elected, shall, if present, preside at all meetings of the shareholders and at meetings of the board of directors and exercise and perform such other powers and duties as may from time to time be assigned to him by the board of directors or as may be prescribed by these by-laws. He shall have the general powers and duties of management usually vested in the office of the chairman of the board of a corporation, and shall have such other powers and duties as may be prescribed by the board of directors or these by-laws. 5.7 PRESIDENT. The President shall be the chief operating officer of the --------- corporation and shall, subject to the control of the board of directors, have general responsibility for the operation of the business of the corporation. The President shall be the chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and the officers of the -17- corporation. In the absence or disability of the chairman of the board, the President shall perform all of the duties of the chairman of the board and when so acting shall have all the powers of, and be subject to all the restrictions upon, the chairman of the board. 5.8. VICE PRESIDENTS. In the absence or disability of the president, the --------------- vice presidents, if any, in order of their rank as fixed by the board of directors or, if not ranked, a vice president designated by the board of directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the board of directors, these by-laws, the president or the chairman of the board. 5.9. SECRETARY. The secretary shall keep or cause to be kept, at the --------- principal executive office of the corporation or such other place as the board of directors may direct, a book of minutes of all meetings and actions of directors, committees of directors and shareholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at directors' meetings or committee meetings, the number of shares present or represented at shareholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation's transfer agent or registrar, as determined by resolution of the board of directors, a share register, or a duplicate share register, showing the names of all shareholders and their addresses, the number and classes of shares held by each, the number and date of certificate evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the shareholders and of the board of directors required to be given by law or by these by-laws. He shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or these by-laws. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS 6.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall, to ----------------------------------------- the maximum extent and in the manner permitted by the Code, indemnify each of its directors and officers against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such -18- person is or was an agent of the corporation. For purposes of this Article VI, a "director" or "officer" of the corporation includes any person (i) who is or was a director of officer of the corporation (ii) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2. INDEMNIFICATION OF OTHERS. The corporation shall have the power, to ------------------------- the extent and in the manner permitted by the Code, to indemnify each of its employees and agents (other than directors and officers) against expenses (as defined in Section 317(a) of the Code), judgments, fines, settlements, and other amounts actually and reasonably incurred in connection with any proceeding (as defined in Section 317(a) of the Code), arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Article VI, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3. PAYMENT OF EXPENSE IN ADVANCE. Expenses incurred in defending any ----------------------------- civil or criminal action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors may be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on be half of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4. INDEMNITY NOT EXCLUSIVE. The indemnification provided by this ----------------------- Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitles under any bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Articles of Incorporation. 6.5. INSURANCE INDEMNIFICATION. The corporation shall have the power to ------------------------- purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation against any liability asserted against or incurred by such person in such capacity or arising out of such person's status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article VI. -19- 6.6. CONFLICTS. No indemnification or advance shall be made under this --------- Article VI, except where such indemnification or advance is mandated by law or other order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (a) That it would be inconsistent with a provision of the Articles of Incorporation, these by-laws, a resolution of the shareholders or an agreement in effect at the time the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving settlement. ARTICLE VII RECORDS AND REPORTS 7.1 Maintenance And Inspection Of Share Register. The corporation shall -------------------------------------------- keep either at its principal executive office or at the office of its transfer agent or registrar (if either be appointed), as determined by resolution of the board of directors, a record of its shareholders listing the names and addresses of all shareholders and the number and class of shares held by each shareholder. A shareholder or shareholders of the corporation who holds at least five percent in the aggregate of the outstanding voting shares of the corporation or who holds at least one percent of such voting shares and has filed a Schedule 14B with the Securities and Exchange Commission relating to the election of directors, may (i) inspect and copy the records of shareholders' names, addresses, and shareholdings during usual business hours on five days' prior written demand on the corporation, (ii) obtain from the transfer agent of the corporation, on written demand and on the tender of such transfer agent's usual charges for such list, a list of the names and addresses of the shareholders who are entitled to vote for the election of directors, and their shareholdings, as of the most recent record date, for which that list has been compiled or as of a date specified by the shareholder after the date of demand. Such list shall be made available to any such shareholder by the transfer agent on or before the later of five days after the demand is received or five days after the date specified in the demand as the date as of which the list is to be compiled. The record of shareholders shall also be open to inspection on the written demand of any shareholder or holder of a voting trust certificate, at any time during usual business hours, for a purpose reasonably related to he holder's interests as a shareholder or as the holder of a voting trust certificate. -20- Any inspection and copying under this Section 7.1 may be made in person or by an agent or attorney of the shareholder or holder of a voting trust certificate making the demand. 7.2. MAINTENANCE AND INSPECTION OF BY-LAWS. The corporation shall keep at ------------------------------------- its principal executive office or, if its principal executive office is not in the State of California, at its principal business office in California the original or a copy of these by-laws as amended to date, which by-laws shall be open to inspection by the shareholders at all reasonable times during office hours. If the principal executive office of the corporation is outside the State of California and the corporation has no principal business office in such state, then the secretary shall, upon the written request of any shareholder, furnish to that shareholder a copy of these by-laws as amended to date. 7.3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The accounting ----------------------------------------------------- books and records and the minutes of proceedings of the shareholders, of the board of directors, and of any committee or committees of the board of directors shall be kept at such place or places as are designated by the board of directors or, in absence of such designation, at the principal executive office of the corporation. The minutes shall be kept in written form, and the accounting books and records shall be kept either in written form or in any other form capable of being converted into written form. The minutes and accounting books and records shall be open to inspection upon the written demand of any shareholder or holder of a voting trust certificate, at any reasonable time during usual business hours, for a purpose reasonably related to the holder's interests as a shareholder or as the holder of a voting trust certificate. The inspection may be made in person or by an agent or attorney and shall include the right to copy and make extracts. Such rights of inspection shall extend to the records of each subsidiary corporation of the corporation. 7.4. INSPECTION BY DIRECTORS. Every director shall have the absolute right ----------------------- at any reasonable time to inspect all books, records, and documents of every kind as well as the physical properties of the corporation and each of its subsidiary corporations. Such inspection by a director may be made in person or by an agent or attorney. The right of inspection includes the right to copy and make extracts of documents. 7.5. ANNUAL REPORT TO SHAREHOLDERS; WAIVER. The board of directors shall ------------------------------------- cause an annual report to be sent to the shareholders not later than 120 days after the close of the fiscal year adopted by the corporation. Such report shall be sent at least 15 days (or, if sent by third-class mail, 35 days) before the annual meeting of shareholders to be held during the next fiscal year and in the manner specified in Section 2.5 of these by-laws for giving notice to shareholders of the corporation. The annual report shall contain (i) a balance sheet as of the end of the fiscal year, (ii) an income statement, (iii) a statement of changes in financial position for the fiscal year, and (iv) -21- any report of independent accountants or, if there is no such report, the certificate of an authorized officer of the corporation that the statements were prepared without audit from the books and records of the corporation. The foregoing requirement of an annual report shall be waived so long as the shares of the corporation are held by fewer than 100 holders of record. 7.6. FINANCIAL STATEMENTS. If no annual report for the fiscal year has -------------------- been sent to shareholders, then the corporation shall, upon the written request of any shareholder made more than 120 days after the close of such fiscal year, deliver or mail to the person making the request, within 30 days thereafter, a copy of a balance sheet as of the end of such fiscal year and an income statement and statement of changes in financial position for such fiscal year. If a shareholder or shareholders holding at least five percent of the outstanding shares of any class of stock of the corporation makes a written request to the corporation for an income statement of the corporation for the three-month, six-month or nine-month period of the then current fiscal year ended more than 30 days before the date of the request, and for a balance sheet of the corporation as of the end of that period, then the chief financial officer shall cause that statement to be prepared, if not already prepared, and shall deliver personally or mail that statement or statements to the person making the request within 30 days after the receipt of the request. If the corporation has not sent to the shareholders its annual report for the last fiscal year, the statements referred to in the first paragraph of this Section 7.6 shall likewise be delivered or mailed to the shareholder or shareholders within 30 days after the request. The quarterly income statements and balance sheets referred to in this section shall be accompanied by the report, if any, of the independent accountants engaged by the corporation or by the certificate of an authorized officer of the corporation that the financial statements were prepared without audit from the books and records of the corporation. 7.7. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of ---------------------------------------------- the board, the president or any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the board of directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. ARTICLE VIII GENERAL MATTERS -22- 8.1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For ----------------------------------------------------- purposes of determining the shareholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the shareholders entitled to exercise any rights in respect of any lawful action (other than action by shareholders by written consent without a meeting), the board of directors may fix, in advance, a record date, which shall not be more than 60 days before any such action. In that case, only shareholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the corporation after the record date so fixed, except as otherwise provided in the Code. If the board of directors does not so fix a record date, the record date for determining shareholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the 60th day before the date of that action, whichever is later. 8.2. CHECKS; DRAFTS; EVIDENCE OF INDEBTEDNESS. From time to time, the ---------------------------------------- board of directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The board of ------------------------------------------------- directors, except as otherwise provided in these by-laws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the board of directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4. CERTIFICATE FOR SHARES. A certificate or certificates for shares ---------------------- of the corporation shall be issued to each shareholder when any of such shares are fully paid. The board of directors may authorize the issuance of certificates for shares partly paid provided that these certificates shall state the total amount of the consideration to be paid for them and the amount actually paid. All certificates shall be signed in the name of the corporation by the chairman of the board or the president or a vice president and by the chief financial officer or an assistant treasurer or the secretary or an assistant secretary, certifying the number of shares and the class or series of shares owned by the shareholder. Any or all of the signatures on the certificate may be facsimile. -23- In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed on a certificate ceases to be that officer, transfer agent or registrar before that certificate is issued, it may be issued by the corporation with the same effect as if that person were an officer, transfer agent or registrar at the date of issue. 8.5. LOST CERTIFICATES. Except as provided in this Section 8.5, no new ----------------- certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. The board of directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the corporation secured by a bond or other adequate security sufficient to protect the corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. 8.6. CONSTRUCTION; DEFINITIONS. Unless the context requires -------------------------- otherwise, the general provisions, rules of construction, and definitions in the Code shall govern the construction of these by-laws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. ARTICLE IX AMENDMENTS 9.1. AMENDMENT BY SHAREHOLDERS. New by-laws may be adopted or these ------------------------- by-laws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that -------- ------- if the articles of incorporation of the corporation set forth the number of authorized directors of the corporation, then the authorized number of directors may be changed only by an amendment of the articles of incorporation. 9.2. AMENDMENT BY DIRECTORS. Subject to the rights of the shareholders ---------------------- as provided in Section 9.1 of these by-laws, by-laws, other than a bylaw or an amendment of a bylaw changing the authorized number of directors (except to fix the authorized number of directors pursuant to a bylaw providing for a variable number of directors), may be adopted, amended or repealed by the board of directors. -24- EX-4.1 4 INDENTURE DATED AS OF 11/18/97 EXECUTION COPY ================================================================================ DETAILS, INC., as Issuer and STATE STREET BANK AND TRUST COMPANY, as Trustee -------------------- Indenture Dated as of November 18, 1997 -------------------- 10% Senior Subordinated Notes due 2005 ================================================================================ Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of November 18, 1997 *
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. TABLE OF CONTENTS* ARTICLE ONE. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 101. Definitions................................................... 1 SECTION 102. Compliance Certificates and Opinions.......................... 18 SECTION 103. Form of Documents Delivered to Trustee........................ 18 SECTION 104. Acts of Holders............................................... 19 SECTION 105. Notices, Etc., to Trustee, the Company and any Subsidiary Guarantor................................................... 20 SECTION 106. Notice to Holders; Waiver..................................... 20 SECTION 107. Effect of Headings and Table of Contents...................... 21 SECTION 108. Successors and Assigns........................................ 21 SECTION 109. Separability Clause........................................... 21 SECTION 110. Benefits of Indenture......................................... 21 SECTION 111. Governing Law................................................. 21 SECTION 112. Legal Holidays................................................ 21 SECTION 113. No Personal Liability of Directors, Officers, Employees, Stockholders or Incorporators............................... 22 SECTION 114. Counterparts.................................................. 22 SECTION 115. Communications by Holders with Other Holders.................. 22 ARTICLE TWO. NOTE FORMS SECTION 201. Forms Generally............................................... 22 SECTION 202. Restrictive Legends........................................... 24 SECTION 203. Form of Note.................................................. 26 SECTION 204. Form of Trustee's Certificate of Authentication............... 40 SECTION 205. Form of Regulation S Certificate.............................. 40 ARTICLE THREE. THE NOTES SECTION 301. Title and Terms............................................... 41 SECTION 302. Denominations................................................. 42 SECTION 303. Execution, Authentication, Delivery and Dating................ 42 SECTION 304. Temporary Notes............................................... 43 SECTION 305. Registration, Registration of Transfer and Exchange........... 43 SECTION 306. Book-Entry Provisions for Global Notes........................ 44 SECTION 307. Special Transfer Provisions................................... 45 SECTION 308. Form of Certificate to Be Delivered in Connection with Transfers to Institutional Accredited Investors............. 48 SECTION 309. Form of Certificate to Be Delivered in Connection with Transfers Pursuant to Regulation S.......................... 49 SECTION 310. Mutilated, Destroyed, Lost and Stolen Notes................... 50 SECTION 311. Payment of Interest; Interest Rights Preserved................ 51 SECTION 312. Persons Deemed Owners......................................... 52 SECTION 313. Cancellation.................................................. 52
- -------------------------- * Note: This table of contents shall not, for any purpose, be deemed to be a part of the Indenture.
Page ---- SECTION 314. Computation of Interest....................................... 52 SECTION 315. CUSIP Numbers................................................. 53 ARTICLE FOUR. SATISFACTION AND DISCHARGE SECTION 401. Satisfaction and Discharge of Indenture....................... 53 SECTION 402. Application of Trust Money.................................... 54 ARTICLE FIVE. REMEDIES SECTION 501. Events of Default............................................. 55 SECTION 502. Acceleration of Maturity; Rescission and Annulment............ 56 SECTION 503. Collection of Indebtedness and Suits for Enforcement by Trustee..................................................... 57 SECTION 504. Trustee May File Proofs of Claim.............................. 57 SECTION 505. Trustee May Enforce Claims Without Possession of Notes........ 58 SECTION 506. Application of Money Collected................................ 58 SECTION 507. Limitation on Suits........................................... 59 SECTION 508. Unconditional Right of Holders to Receive Principal, Premium and Interest................................................ 59 SECTION 509. Restoration of Rights and Remedies............................ 59 SECTION 510. Rights and Remedies Cumulative................................ 60 SECTION 511. Delay or Omission Not Waiver.................................. 60 SECTION 512. Control by Holders............................................ 60 SECTION 513. Waiver of Past Defaults....................................... 60 SECTION 514. [Intentionally Omitted]....................................... 61 SECTION 515. Undertaking for Costs......................................... 61 ARTICLE SIX. THE TRUSTEE SECTION 601. Certain Duties and Responsibilities........................... 61 SECTION 602. Notice of Defaults............................................ 62 SECTION 603. Certain Rights of Trustee..................................... 62 SECTION 604. Trustee Not Responsible for Recitals or Issuance of Notes..... 64 SECTION 605. May Hold Notes................................................ 64 SECTION 606. Money Held in Trust........................................... 64 SECTION 607. Compensation and Reimbursement................................ 64 SECTION 608. Corporate Trustee Required; Eligibility....................... 65 SECTION 609. Resignation and Removal; Appointment of Successor............. 65 SECTION 610. Acceptance of Appointment by Successor........................ 66 SECTION 611. Merger, Conversion, Consolidation or Succession to Business... 67 SECTION 612. Trustee's Application for Instructions from the Company....... 67 ARTICLE SEVEN. HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Company to Furnish Trustee Names and Addresses................ 68 SECTION 702. Disclosure of Names and Addresses of Holders.................. 68 SECTION 703. Reports by Trustee............................................ 68 ARTICLE EIGHT. MERGER, CONSOLIDATION, OR SALE OF ASSETS SECTION 801. Company May Consolidate, Etc., Only on Certain Terms.......... 68 SECTION 802. Successor Substituted......................................... 69
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Page ---- ARTICLE NINE. SUPPLEMENTS AND AMENDMENTS TO INDENTURE SECTION 901. Supplemental Indentures Without Consent of Holders............ 70 SECTION 902. Supplemental Indentures with Consent of Holders............... 70 SECTION 903. Execution of Supplemental Indentures.......................... 71 SECTION 904. Effect of Supplemental Indentures............................. 71 SECTION 905. Conformity with Trust Indenture Act........................... 71 SECTION 906. Reference in Notes to Supplemental Indentures................. 72 SECTION 907. Notice of Supplemental Indentures............................. 72 SECTION 908. Effect on Senior Indebtedness................................. 72 ARTICLE TEN. COVENANTS SECTION 1001. Payment of Principal, Premium, if any, and Interest.......... 72 SECTION 1002. Maintenance of Office or Agency.............................. 72 SECTION 1003. Money for Note Payments to Be Held in Trust.................. 73 SECTION 1004. Corporate Existence.......................................... 74 SECTION 1005. Payment of Taxes and Other Claims............................ 74 SECTION 1006. [Intentionally Omitted]...................................... 74 SECTION 1007. [Intentionally Omitted]...................................... 74 SECTION 1008. [Intentionally Omitted]...................................... 74 SECTION 1009. Limitation on Restricted Payments............................ 74 SECTION 1010. Limitation on Indebtedness................................... 77 SECTION 1011. Limitation on Layering....................................... 78 SECTION 1012. Limitation on Affiliate Transactions......................... 78 SECTION 1013. Limitation on Restrictions on Distributions from Restricted Subsidiaries............................................... 79 SECTION 1014. Limitation on Liens.......................................... 80 SECTION 1015. Change of Control............................................ 80 SECTION 1016. Limitation on Sales of Assets and Subsidiary Stock........... 81 SECTION 1017. SEC Reports.................................................. 82 SECTION 1018. Future Subsidiary Guarantors................................. 82 SECTION 1019. Limitation on Lines of Business.............................. 83 SECTION 1020. Statement by Officers as to Default.......................... 83 ARTICLE ELEVEN. REDEMPTION OF NOTES SECTION 1101. Optional Redemption.......................................... 84 SECTION 1102. Applicability of Article..................................... 84 SECTION 1103. Election to Redeem; Notice to Trustee........................ 84 SECTION 1104. Selection by Trustee of Notes to Be Redeemed................. 84 SECTION 1105. Notice of Redemption......................................... 84 SECTION 1106. Deposit of Redemption Price.................................. 85 SECTION 1107. Notes Payable on Redemption Date............................. 85 SECTION 1108. Notes Redeemed in Part....................................... 86 ARTICLE TWELVE. LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 1201. Company's Option to Effect Legal Defeasance or Covenant Defeasance................................................. 86 SECTION 1202. Legal Defeasance and Discharge............................... 86 SECTION 1203. Covenant Defeasance.......................................... 87 SECTION 1204. Conditions to Legal Defeasance or Covenant Defeasance........ 87
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Page ---- SECTION 1205. Deposited Money and Government Obligations to Be Held in Trust; Other Miscellaneous Provisions..................... 88 SECTION 1206. Reinstatement................................................ 89 ARTICLE THIRTEEN. SUBORDINATION OF NOTES SECTION 1301. Notes Subordinate to Senior Indebtedness..................... 89 SECTION 1302. Payment over of Proceeds upon Dissolution, Etc............... 89 SECTION 1303. Suspension of Payment When Senior Indebtedness in Default.... 90 SECTION 1304. Acceleration of Notes........................................ 90 SECTION 1305. When Distribution Must Be Paid Over.......................... 91 SECTION 1306. Notice by Company............................................ 91 SECTION 1307. Payment Permitted If No Default.............................. 91 SECTION 1308. Subrogation to Rights of Holders of Senior Indebtedness...... 91 SECTION 1309. Provisions Solely to Define Relative Rights.................. 92 SECTION 1310. Trustee to Effectuate Subordination.......................... 92 SECTION 1311. Subordination May Not Be Impaired by Company................. 92 SECTION 1312. Distribution or Notice to Representative..................... 92 SECTION 1313. Notice to Trustee............................................ 93 SECTION 1314. Reliance on Judicial Order or Certificate of Liquidating Agent..................................................... 93 SECTION 1315. Rights of Trustee as a Holder of Senior Indebtedness; Preservation of Trustee's Rights.......................... 93 SECTION 1316. Article Applicable to Paying Agents.......................... 94 SECTION 1317. No Suspension of Remedies.................................... 94 SECTION 1318. Modification of Terms of Senior Indebtedness................. 94 SECTION 1319. [Intentionally Omitted]...................................... 94 SECTION 1320. Trust Moneys Not Subordinated................................ 94
iv INDENTURE, dated as of November 18, 1997, between DETAILS, INC., a California corporation (the "Company"), having its principal office at 1231 Simon Circle, Anaheim, California 92806, and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as trustee (the "Trustee"), having its principal corporate trust office at Two International Place, 4th Floor, Boston, Massachusetts 02110. RECITALS OF THE COMPANY The Company has duly authorized the creation of and issuance of (i) the Company's 10% Senior Subordinated Notes due 2005 (the "Senior Subordinated Notes" or the "Initial Notes") and (ii) if and when issued in exchange for Senior Subordinated Notes as provided in the Registration Rights Agreement (as defined herein), the Company's 10% Series B Senior Subordinated Notes due 2005 (the "Exchange Notes") (collectively, the Senior Subordinated Notes and the Exchange Notes are referred to herein as the "Notes"), of substantially the tenor and amount hereinafter set forth, and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. Upon the issuance of the Exchange Notes, if any, or the effectiveness of the Shelf 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 Notes, when executed and duly issued by the Company and authenticated and delivered hereunder by the Trustee or the Authenticating Agent, the valid obligations of the Company and to make this Indenture a valid agreement of the Company in accordance with their and its terms. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Notes by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Notes, as follows: ARTICLE ONE. DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION 100. 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; 2 (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, Twelve and Thirteen, are defined in those Articles. "Additional Assets" means (i) any property or assets (other than Indebtedness and Capital Stock) to be used by the Company or a Restricted Subsidiary in a Related Business; (ii) the Capital Stock of a Person that becomes a Restricted Subsidiary as a result of the acquisition of such Capital Stock by the Company or a Restricted Subsidiary of the Company; or (iii) Capital Stock constituting a minority interest in any Person that at such time is a Restricted Subsidiary of the Company; provided, however, that, in the case of clauses (ii) and (iii), such Restricted Subsidiary is primarily engaged in a Related Business. "Administrative Agent" means the Chase Manhattan Bank and any and all successors thereto. "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. "Applicable Premium" means, with respect to a Note at any Redemption Date, the greater of (i) 1.0% of the principal amount of such Note and (ii) the excess of (A) the present value at such time of (1) the redemption price of such Note at November 15, 2001 (such redemption price being specified in the Form of Note) plus (2) all required interest payments due on such Note through November 15, 2001, computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the principal amount of such Note. "Asset Disposition" means any sale, lease (other than operating leases entered into in the ordinary course of business), transfer, issuance or other disposition (or series of related sales, leases, transfers, issuances or dispositions that are part of a common plan) of shares of Capital Stock of a Restricted Subsidiary (other than directors' qualifying shares), property or other assets (each referred to for the purposes of this definition as a "disposition") by the Company or any of its Restricted Subsidiaries (including any disposition by means of a merger, consolidation or similar transaction) other than (i) a disposition by a Restricted Subsidiary to the Company or by the Company or a Restricted Subsidiary to a Wholly-Owned Subsidiary, (ii) the sale of Cash Equivalents or Temporary Cash Investments in the ordinary course of business, (iii) a disposition of inventory or a licensing of intellectual property in the ordinary course of business, (iv) a disposition of obsolete or worn out equipment or equipment that is no longer useful or to be used in the conduct of the business of the Company and its Restricted Subsidiaries and that is disposed of in each case in the ordinary course of business, (v) transactions permitted under 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 Notes, in each case, compounded semi- 3 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. "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 Company or Holdings (or its successor by merger, consolidation or 4 purchase of all or substantially all of its assets) (for the purposes of this clause, such person shall be deemed to beneficially own any Voting Stock of the Company or Holdings held by a parent corporation, if such person "beneficially owns" (as defined above), directly or indirectly, more than 50% of the voting power of the Voting Stock of such parent corporation); (ii) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company or Holdings (together with any new directors whose election by such Board of Directors or whose nomination for election by the shareholders of the Company or Holdings was approved by a vote of at least a majority of the directors of the Company then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved or is a designee of the Permitted Holders or was nominated or elected by such Permitted Holders or any of their designees) cease for any reason to constitute a majority of the Board of Directors of the Company or Holdings then in office; (iii) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole to any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a Permitted Holder or Holdings; or (iv) the adoption by the stockholders of a plan for the liquidation or dissolution of the Company or Holdings. "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 most recent four consecutive fiscal quarters ending prior to the date of such determination to (ii) Consolidated Interest Expense for such four fiscal quarters (in each case, determined, for each fiscal quarter (or portion thereof) of the four fiscal quarters ending prior to or including the Issue Date, on a pro forma basis to give effect to the Transactions, the Offering and the application of proceeds thereof as if they had occurred at the beginning of such four quarter period adjusted for any pro forma expense and cost reductions and related adjustments that are directly attributable to the Transactions and the Offering); provided, however, that (1) If the Company or any Restricted Subsidiary (x) has Incurred any Indebtedness since the beginning of such period that remains outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such Indebtedness as if such Indebtedness had been Incurred on the first day of such period (except that in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation shall be computed based on (A) the average daily balance of such Indebtedness during such four fiscal quarters or such shorter period for which such facility was outstanding or (B) if such facility was created after the end of such four fiscal quarters, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of such calculation) and the discharge of any other Indebtedness repaid, repurchased, defeased or otherwise discharged with the proceeds of such new Indebtedness as if such discharge had occurred on the first day of such period, or (y) has repaid, repurchased, defeased or otherwise discharged any Indebtedness since the beginning of the period that is no longer outstanding on such date of determination or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio involves a discharge of Indebtedness (in each case other than Indebtedness incurred under any revolving credit facility unless such Indebtedness has been permanently repaid), Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving effect on a pro forma basis to such discharge of such Indebtedness, including with the proceeds of such new Indebtedness, as if such discharge had occurred on the first day of such period, (2) if since the beginning of such period the Company or any Restricted Subsidiary shall have made any Asset Disposition or if the transaction giving rise to the need to calculate the Consolidated Coverage Ratio is an Asset Disposition, the Consolidated EBITDA for such period shall be reduced by an amount equal to the Consolidated EBITDA (if positive) directly attributable to the assets which are the subject of such Asset Disposition for such period or increased by an amount equal to the Consolidated EBITDA (if negative) directly attributable thereto for such period and Consolidated Interest Expense for such period shall be reduced by an amount equal to the 5 Consolidated Interest Expense directly attributable to any Indebtedness of the Company or any Restricted Subsidiary repaid, repurchased, defeased or otherwise discharged with respect to the Company and its continuing Restricted Subsidiaries in connection with such Asset Disposition for such period (or, if the Capital Stock of any Restricted Subsidiary is sold, the Consolidated Interest Expense for such period directly attributable to the Indebtedness of such Restricted Subsidiary to the extent the Company and its continuing Restricted Subsidiaries are no longer liable for such Indebtedness after such sale), (3) if since the beginning of such period the Company or any Restricted Subsidiary (by merger or otherwise) shall have made an Investment in any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or an acquisition of assets, including any acquisition of assets occurring in connection with a transaction causing a calculation to be made hereunder, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto (including the Incurrence of any Indebtedness) as if such Investment or acquisition occurred on the first day of such period (adjusted for any pro forma expense and cost reductions and related adjustments calculated on a basis consistent with Regulation S-X under the Act) and (4) if since the beginning of such period any Person (that subsequently became a Restricted Subsidiary or was merged with or into the Company or any Restricted Subsidiary since the beginning of such period) shall have made any Asset Disposition or any Investment that would have required an adjustment pursuant to clause (2) or (3) above if made by the Company or a Restricted Subsidiary during such period, Consolidated EBITDA and Consolidated Interest Expense for such period shall be calculated after giving pro forma effect thereto as if such Asset Disposition or Investment occurred on the first day of such period. For purposes of this definition, whenever pro forma effect is to be given to an acquisition of assets, the amount of income or earnings relating thereto and the amount of Consolidated Interest Expense associated with any Indebtedness Incurred in connection therewith, the pro forma calculations shall be determined in good faith by a responsible financial or accounting officer of the Company. If any Indebtedness bears a floating rate of interest and is being given pro forma effect, the interest expense on such Indebtedness shall be calculated as if the rate in effect on the date of determination had been the applicable rate for the entire period (taking into account any Interest Rate Agreement applicable to such Indebtedness if such Interest Rate Agreement has a remaining term in excess of 12 months). "Consolidated EBITDA" for any period means the Consolidated Net Income for such period, plus the following to the extent deducted in calculating such Consolidated Net Income: (i) income tax expense, (ii) Consolidated Interest Expense, (iii) depreciation expense, (iv) amortization of intangibles and (v) other non-cash charges reducing Consolidated Net Income (excluding any such non- cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of a prepaid cash expense that was paid in a prior period not included in the calculation) and less, to the extent added in calculating Consolidated Net Income, non-cash items increasing Consolidated Net Income (excluding such non-cash items to the extent they represent an accrual for cash receipts to be received prior to the Stated Maturity of the Notes) for such period. Notwithstanding the foregoing, the provision for taxes based on the income or profits of, and the interest, depreciation and amortization of, a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to compute Consolidated EBITDA of such Person only to the extent (and in the same proportion) that the net income of such Subsidiary was included in calculating the Consolidated Net Income of such Person. "Consolidated Interest Expense" means, for any period, the total interest expense of the Company and its Restricted Subsidiaries on a consolidated basis determined in accordance with GAAP, plus, to the extent not included in such interest expense, (i) interest expense attributable to Capitalized Lease Obligations and the interest portion of rent expense associated with Attributable Indebtedness in respect of the relevant lease giving rise thereto, determined as if such lease were a capitalized lease in accordance with GAAP, (ii) amortization of debt discount and debt issuance cost, (iii) capitalized interest, (iv) non-cash interest expense, (v) commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing, (vi) interest actually paid by the Company or any such Subsidiary under any 6 Guarantee of Indebtedness or other obligation of any other Person, (vii) net costs associated with Hedging Obligations (including amortization of fees), (viii) dividends in respect of all Disqualified Stock of the Company and any Restricted Subsidiaries, in each case, held by Persons other than the Company or a Wholly-Owned Subsidiary and (ix) the cash contributions to any employee stock ownership plan or similar trust to the extent such contributions are used by such plan or trust to pay interest or fees to any Person (other than the Company) in connection with Indebtedness Incurred by such plan or trust to purchase Capital Stock of the Company; provided, however, that there shall be excluded therefrom any such interest expense of any Unrestricted Subsidiary to the extent the related Indebtedness is not Guaranteed or paid by the Company or any Restricted Subsidiary. For purposes of the foregoing, total interest expense shall be determined after giving effect to any net payments made or received by the Company and its Subsidiaries with respect to Interest Rate Agreements. Notwithstanding the foregoing, the Consolidated Interest Expense with respect to any Restricted Subsidiary of the Company that was not a Wholly-Owned Subsidiary shall be included only to the extent (and in the same proportion) that the net income of such Restricted Subsidiary was included in calculating Consolidated Net Income and shall not include interest on the Holdings Senior Discount Notes incurred or accrued by the Company. "Consolidated Net Income" means, for any period, the net income (loss) of the Company and its Restricted Subsidiaries on a consolidated basis determined in accordance with GAAP; provided, however, that there shall not be included in such Consolidated Net Income: (i) any net income (loss) of any Person if such Person is not a Restricted Subsidiary, except that (A) subject to the limitations contained in (iv) below, the Company's equity in the net income of any such Person for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such period to the Company or a Restricted Subsidiary as a dividend or other distribution (subject, in the case of a dividend or other distribution to a Restricted Subsidiary, to the limitations contained in clause (iii) below) and (B) the Company's equity in a net loss of any such Person (other than an Unrestricted Subsidiary) for such period shall be included in determining such Consolidated Net Income to the extent such loss has been funded with cash from the Company or a Restricted Subsidiary; (ii) any net income (loss) of any Person acquired by the Company or a Subsidiary in a pooling of interests transaction for any period prior to the date of such acquisition; (iii) any net income of any Restricted Subsidiary if such Subsidiary is subject to restrictions, directly or indirectly, on the payment of dividends or the making of distributions by such Restricted Subsidiary, directly or indirectly, to the Company, except that (A) subject to the limitations contained in (iv) below the Company's equity in the net income of any such Restricted Subsidiary for such period shall be included in such Consolidated Net Income up to the aggregate amount of cash that could have been distributed by such Restricted Subsidiary during such period to the Company or another Restricted Subsidiary as a dividend (subject, in the case of a dividend to another Restricted Subsidiary, to the limitation contained in this clause) and (B) the Company's equity in a net loss of any such Restricted Subsidiary for such period shall be included in determining such Consolidated Net Income; (iv) any gain or loss realized upon the sale or other disposition of any property, plant or equipment of the Company or its consolidated Subsidiaries (including pursuant to any Sale/Leaseback Transaction) which is not sold or otherwise disposed of in the ordinary course of business and any gain or loss realized upon the sale or other disposition of any Capital Stock of any Person; (v) any extraordinary gain or loss, (vi) any non-cash compensation charge for employee stock options or other stock awards, (vii) non-cash, non-recurring charges reducing Consolidated Net Income (excluding any such non-cash charge to the extent it represents an accrual of or reserve for cash charges in any future period or amortization of prepaid cash expense that was paid in a prior period not included in the calculation); (viii) non-cash, non-recurring items increasing Consolidated Net Income (excluding such non-cash items to the extent they represent an accrual for cash receipts to be received prior to the Stated Maturity of the Notes); and (ix) the cumulative effect of a change in accounting principles. "Consolidated Net Worth" means the total of the amounts shown on the balance sheet of the Company and its Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP, as 7 of the end of the most recent fiscal quarter of the Company ending prior to the taking of any action for the purpose of which the determination is being made, as (i) the par or stated value of all outstanding Capital Stock of the Company plus (ii) paid-in capital or capital surplus relating to such Capital Stock plus (iii) any retained earnings or earned surplus less (A) any accumulated deficit and (B) any amounts attributable to Disqualified Stock. "Consolidated Tangible Assets" means, as of any date of determination, the total assets, less goodwill, deferred financing costs and other intangibles less accumulated amortization, shown on the balance sheet of the Company and its Restricted Subsidiaries as of the most recent date for which such balance sheet is available, determined on a consolidated basis in accordance with GAAP. "Consolidation" means the consolidation of the accounts of each of the Restricted Subsidiaries with those of the Company in accordance with GAAP; provided, however, that "Consolidation" will not include consolidation of the accounts of any Unrestricted Subsidiary, but the interest of the Company in any Unrestricted Subsidiary will be accounted for as an Investment. The term "Consolidated" has a correlative meaning. "Corporate Trust Office" means the office of State Street Bank and Trust Company at Two International Place, 4th Floor, Boston, Massachusetts 02110 or such other office as it may designate by written notice to the Company and the Noteholders. "Credit Facilities" means the senior subordinated loan facility of up to $85 million of the Company, the senior unsecured credit facility of up to $55 million of Holdings and the credit facilities under the Senior Credit Agreement. "Currency Agreement" means in respect of a Person any foreign exchange contract, currency swap agreement or other similar agreement as to which such Person is a party or a beneficiary. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Depositary" means The Depository Trust Company, its nominees and their respective successors and assigns, or such other depository institution hereinafter appointed by the Company. "Designated Noncash Consideration" means the fair market value of noncash consideration received by the Company or one of its Restricted Subsidiaries in connection with an Asset Disposition that is so designated as Designated Noncash Consideration pursuant to an Officers' Certificate executed by the principal executive officer and the principal financial officer of the Company or such Restricted Subsidiary, less the amount of cash or Cash Equivalents received in connection with a sale of such Designated Noncash Consideration. Such Officers' Certificate shall state the basis of such valuation, which shall be as determined by an Independent Appraiser with respect to the receipt in one or a series of related transactions of Designated Noncash Consideration with a fair market value in excess of $10 million. "Designated Senior Indebtedness" means (i) the Bank Indebtedness in the case of the Company and (ii) any other Senior Indebtedness which, at the date of determination, has an aggregate principal amount outstanding of, or under which, at the date of determination, the holders thereof are committed to lend up to, at least $10.0 million and is specifically designated in the instrument evidencing or governing such Senior Indebtedness as "Designated Senior Indebtedness" for purposes of the Indenture. "Disqualified Stock" means, with respect to any Person, any Capital Stock of such Person which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable) 8 or upon the happening of any event (i) matures or is mandatorily redeemable pursuant to a sinking fund obligation or otherwise, (ii) is convertible or exchangeable for Indebtedness or Disqualified Stock (excluding capital stock which is convertible or exchangeable solely at the option of the Company or a Restricted Subsidiary) or (iii) is redeemable at the option of the holder thereof, in whole or in part, in each case on or prior to the Stated Maturity of the Notes, provided, that only the portion of Capital Stock which so matures or is mandatorily redeemable, is so convertible or exchangeable or is so redeemable at the option of the holder thereof prior to such Stated Maturity shall be deemed to be Disqualified Stock. "Equity Offering" means an offering for cash by either of the Company or Holdings of its respective common stock, or options, warrants or rights with respect to its common stock. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Offer" means the offer by the Company to exchange all of the Initial Notes for a like aggregate principal amount of Exchange Notes, as provided in the Registration Rights Agreement and this Indenture. "Exchange Offer Registration Statement" has the meaning ascribed thereto in the Registration Rights Agreement. "GAAP" means generally accepted accounting principles in the United States of America as in effect as of the date of the Indenture, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the Indenture shall be computed in conformity with GAAP. "Guarantee" means any obligation, contingent or otherwise, of any Person directly or indirectly guaranteeing any Indebtedness of any other Person and any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness of such other Person (whether arising by virtue of partnership arrangements, or by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for purposes of assuring in any other manner the obligee of such Indebtedness of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part); provided, however, that the term "Guarantee" shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Guarantor Senior Indebtedness" means, with respect to a Subsidiary Guarantor, the following obligations, whether outstanding on the date of the Indenture or thereafter issued, without duplication: (i) any Subsidiary Guarantee of the Bank Indebtedness by such Subsidiary Guarantor and all other Subsidiary Guarantees by such Subsidiary Guarantor of Senior Indebtedness of the Company or Guarantor Senior Indebtedness for any other Subsidiary Guarantor; and (ii) all obligations consisting of the principal of and premium, if any, and accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Subsidiary Guarantor regardless of whether postfiling interest is allowed in such proceeding) on, and fees and other amount owing in respect of, all other Indebtedness of the Subsidiary Guarantor, unless, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is expressly provided that the obligations in respect of such Indebtedness are not senior in right of payment to the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee; provided, however, that Guarantor Senior Indebtedness shall not include (1) any 9 obligations of such Subsidiary Guarantor to the Subsidiary Guarantor or any other Subsidiary of the Subsidiary Guarantor, (2) any liability for Federal, state, local, foreign or other taxes owed or owing by such Subsidiary Guarantor, (3) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities), (4) any Indebtedness of such Subsidiary Guarantor that is expressly subordinate in right of payment to any of the Indebtedness of such Subsidiary Guarantor, including any Guarantor Senior Subordinated Indebtedness and Guarantor Subordinated Obligations of such Subsidiary Guarantor or (5) any Capital Stock. "Guarantor Senior Subordinated Indebtedness" means with respect to a Subsidiary Guarantor, the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee and any other Indebtedness of such Subsidiary Guarantor that specifically provides that such Indebtedness is to rank pari passu in right of payment with the obligations of such Subsidiary Guarantor under the Subsidiary Guarantee and is not expressly subordinated by its terms in right of payment to any Indebtedness of such Subsidiary Guarantor which is not Guarantor Senior Indebtedness of such Subsidiary Guarantor. "Guarantor Subordinated Obligation" means, with respect to a Subsidiary Guarantor, any Indebtedness of such Subsidiary Guarantor (whether outstanding on the Issue Date or thereafter Incurred) which is expressly subordinate in right of payment to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee pursuant to a written agreement. "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 Note is registered in the Register. "Holdings" means Details Holding Corp. (formerly known as Details, Inc.), a California corporation, and any corporation which is the direct or indirect sole stockholder of the Company or Holdings. "Holdings Senior Discount Notes" means the 12 1/2% Senior Discount Notes due 2007 issued by Holdings. "Incur" means issue, assume, Guarantee, incur or otherwise become liable for; provided, however, that any Indebtedness or Capital Stock of a Person existing at the time such person becomes a Restricted Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall be deemed to be incurred by such Restricted Subsidiary at the time it becomes a Restricted Subsidiary. "Indebtedness" means, with respect to any Person on any date of determination (without duplication), (i) the principal of and premium (if any) in respect of indebtedness of such Person for borrowed money; (ii) the principal of and premium (if any) in respect of obligations of such Person evidenced by bonds, debentures, notes or other similar instruments; (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto); (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services (except trade payables), which purchase price is due more than six months after the date of placing such property in service or taking delivery and title thereto or the completion of such services; (v) all Capitalized Lease Obligations and all Attributable Indebtedness of such Person; (vi) the amount of all obligations of such Person with respect to the redemption, repayment or other repurchase of any Disqualified Stock (but excluding, in each case, any accrued dividends); (vii) all Indebtedness of other Persons secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person; provided, however, that the amount of such Indebtedness shall be the lesser of (A) the fair market value of such asset at such date of determination and 10 (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. "Interest Rate Agreement" means with respect to any Person any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement as to which such Person is party or a beneficiary. "Investment" in any Person means any direct or indirect advance, loan (other than advances to customers in the ordinary course of business) or other extension of credit (including by way of Guarantee or similar arrangement, but excluding any debt or extension of credit represented by a bank deposit other than a time deposit) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of Capital Stock, Indebtedness or other similar instruments issued by, such Person. For purposes of Section 1009, (i) "Investment" shall include the portion (proportionate to the Company's equity interest in a Restricted Subsidiary to be designated as an Unrestricted Subsidiary) of the fair market value of the net assets of such Restricted Subsidiary of the Company at the time that such Restricted Subsidiary is designated an Unrestricted Subsidiary; provided, however, that upon a redesignation of such Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue to have a permanent "Investment" in an Unrestricted Subsidiary in an amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary at the time of such redesignation less (y) the portion (proportionate to the Company's equity interest in such Subsidiary) of the fair market value of the net assets of such Subsidiary at the time that such Subsidiary is so re-designated a Restricted Subsidiary; and (ii) any property transferred to or from an Unrestricted Subsidiary shall be valued at its fair market value at the time of such transfer, in each case as determined in good faith by the Board of Directors of the Company. If the Company or any Restricted Subsidiary of the Company sells or otherwise disposes of any Common Stock of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, the Company no longer owns, directly or indirectly, 100% of the outstanding Common Stock of such Restricted Subsidiary, the Company shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Common Stock of such Restricted Subsidiary not sold or disposed of. "Issue Date" means the date on which the Initial Notes are originally issued. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including any conditional sale or other title retention agreement or lease in the nature thereof). 11 "Merger" means the merger of DI Acquisition Corp. with and into Holdings, with Holdings as the surviving corporation on October 28, 1997. "Management Agreement" means the Management Agreement between the Company and Bain Capital, Inc. (and its permitted successors and assigns thereunder) as in effect on the Issue Date. "Net Available Cash" from an Asset Disposition means cash payments received (including any cash payments received by way of deferred payment of principal pursuant to a note or installment receivable or otherwise, but only as and when received, but excluding any other consideration received in the form of assumption by the acquiring person of Indebtedness or other obligations relating to the properties or assets that are the subject of such Asset Disposition or received in any other noncash form) therefrom, in each case net of (i) all legal, accounting, investment banking, title and recording tax expenses, commissions and other fees and expenses incurred, and all Federal, state, provincial, foreign and local taxes required to be paid or accrued as a liability under GAAP, as a consequence of such Asset Disposition, (ii) all payments made on any Indebtedness which is secured by any assets subject to such Asset Disposition, in accordance with the terms of any Lien upon such assets, or which must by its terms, or in order to obtain a necessary consent to such Asset Disposition, or by applicable law be repaid out of the proceeds from such Asset Disposition, (iii) all distributions and other payments required to be made to minority interest holders in Subsidiaries or joint ventures as a result of such Asset Disposition and (iv) the deduction of appropriate amounts to be provided by the seller as a reserve, in accordance with GAAP, against any liabilities associated with the assets disposed of in such Asset Disposition and retained by the Company or any Restricted Subsidiary after such Asset Disposition. "Offering" means the offering and sale of the Initial Notes. "Officer" means the Chairman of the Board, the President, any Vice President, the Treasurer or the Secretary of the Company. "Officers' Certificate" means a certificate signed by two Officers. "Opinion of Counsel" means a written opinion from legal counsel who is acceptable to the Trustee. The counsel may be an employee of or counsel to the Company or the Trustee. "Permitted Holders" means Bain Capital, Inc. and any Affiliate thereof (or any wholly-owned subsidiary of Holdings for purposes of the definition of "Change of Control.") "Permitted Investment" means an Investment by the Company or any Restricted Subsidiary in (i) a Restricted Subsidiary or a Person which will, upon the making of such Investment, become a Restricted Subsidiary; provided, however, that the primary business of such Restricted Subsidiary is a Related Business; (ii) another Person if as a result of such Investment such other Person is merged or consolidated with or into, or transfers or conveys all or substantially all its assets to, the Company or a Restricted Subsidiary; provided, however, that such Person's primary business is a Related Business; (iii) cash, Cash Equivalents and Temporary Cash Investments; (iv) receivables owing to the Company or any Restricted Subsidiary created or acquired in the ordinary course of business; (v) payroll, travel and similar advances made in the ordinary course of business; (vi) loans or advances to employees and officers made in the ordinary course of business; (vii) stock, obligations or securities received in settlement of debts created in the ordinary course of business and owing to the Company or any Restricted Subsidiary or in satisfaction of judgments; and (viii) Currency Agreements and Interest Rate Agreements entered into in the ordinary course of the Company's or its Restricted Subsidiaries' businesses and otherwise in compliance with the Indenture; (ix) Investments in securities of trade creditors or customers received pursuant to any plan of reorganization or similar 12 arrangement upon the bankruptcy or insolvency of such trade creditors or customers; (x) the Subsidiary Guarantees and guarantees by the Company of Indebtedness otherwise permitted to be incurred by Restricted Subsidiaries of the Company under the Indenture; (xi) Investments the payment for which consists exclusively of Capital Stock (other than Disqualified Stock) of the Company; provided that the fair market value of such Investments shall not be counted under clause (3)(B) of paragraph (a) of Section 1009; (xii) Investments received by the Company or its Restricted Subsidiaries as consideration for asset dispositions, including Asset Dispositions; provided in the case of an Asset Disposition, such Asset Disposition is effected in compliance with 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. "Permitted Liens" means the following types of Liens: (i) Liens for taxes, assessments or governmental charges or claims either (a) not delinquent or (b) contested in good faith by appropriate proceedings and as to which the Company or its Restricted Subsidiaries shall have set aside on its books such reserves as may be required pursuant to GAAP; (ii) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens imposed by law incurred in the ordinary course of business for sums not yet delinquent or being contested in good faith, if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made in respect thereof. (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, including any Lien securing letters of credit issued in the ordinary course of business consistent with past practice in connection therewith, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money); (iv) judgment Liens not giving rise to an Event of Default under Section 501; (v) easements, rights-of-way, zoning restrictions and other similar charges or encumbrances in respect of real property not interfering in any material respect with the ordinary conduct of the business of the Company or any of its Restricted Subsidiaries; (vi) any interest or title of a lessor under any Capitalized Lease Obligation; (vii) purchase money Liens to finance property or assets of the Company or any Restricted Subsidiary of the Company acquired in the ordinary course of business, provided, however, that (A) the related purchase money Indebtedness shall not exceed the cost of such property or assets and shall not be secured by any property or assets of the Company or any Restricted Subsidiary of the Company other than the property and assets so acquired and (B) the Lien securing such Indebtedness shall be created within 90 days of such acquisition; (viii) Liens upon specific items of inventory or other goods and proceeds of any Person securing such Person's obligations in respect of bankers' acceptances issued or created for the account of such Person to facilitate the purchase, shipment, or storage of such inventory or other goods; (ix) Liens securing reimbursement obligations with respect to commercial letters of credit which encumber documents and other property relating to such letters of credit and products and proceeds thereof; 13 (x) Liens encumbering deposits made to secure obligations arising from statutory, regulatory, contractual, or warranty requirements of the Company or any of its Restricted Subsidiaries, including rights of offset and set-off; (xi) Liens securing Hedging Obligations that are otherwise permitted under the Indenture; (xii) Liens securing Indebtedness of foreign Restricted Subsidiaries of the Company incurred in reliance on clause (b)(vii) of Section 1010; (xiii) Liens securing acquired Indebtedness incurred in reliance on clause (b) of Section 1010; provided that such Liens do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries other than the property or assets that secured the acquired Indebtedness prior to the time such Indebtedness became acquired Indebtedness of the Company or a Restricted Subsidiary of the Company; (xiv) leases or subleases granted to others that do not materially interfere with the ordinary course of business of the Company and its Restricted Subsidiaries; (xv) Liens arising from filing Uniform Commercial Code financing statements regarding leases; (xvi) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of custom duties in connection with the importation of goods; and (xvii) Liens existing on the Issue Date, together with any Liens securing Indebtedness incurred in reliance on clause (b) of Section 1010 in order to refinance the Indebtedness secured by Liens existing on the Issue Date; provided that the Liens securing Refinancing Indebtedness shall not extend to property other than that pledged under the Liens securing the Indebtedness being refinanced. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, government or any agency or political subdivision hereof or any other entity. "Preferred Stock", as applied to the Capital Stock of any corporation, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such corporation, over shares of Capital Stock of any other class of such corporation. A "Public Market" exists at any time with respect to the common stock of the Company or Holdings, as the case may be, if the common stock of the Company or Holdings, as the case may be, is then registered with the 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. "QIB" shall have the meaning ascribed thereto under Rule 144A of the Securities Act. "Recapitalization" means the recapitalization of Holdings pursuant to the Recapitalization Agreement dated as of October 4, 1997, as amended, among Holdings, Holdings' stockholders and DI Acquisition Corp. "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 14 date of the Indenture or Incurred in compliance with the Indenture (including Indebtedness of the Company that refinances Indebtedness of any Restricted Subsidiary and Indebtedness of any Restricted Subsidiary that refinances Indebtedness of another Restricted Subsidiary) including Indebtedness that refinances Refinancing Indebtedness, provided, however, that (i) only with respect to Indebtedness described under subclause (y) of clause (b)(iv) in Section 1010, 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 Section 1010) 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. "Registration Rights Agreement" means the Exchange and Registration Rights Agreement dated as of November 18, 1997 between the Company and Chase Securities Inc. "Regular Record Date" means, with respect to any Interest Payment Date, the May 1 or November 1 (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 Company and its Restricted Subsidiaries are primarily engaged on the date of the Indenture. "Representative" means any trustee, agent or representative (if any) of an issue of Senior Indebtedness. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Sale/Leaseback Transaction" means an arrangement relating to property now owned or hereafter acquired whereby the Company or a Restricted Subsidiary transfers such property to a Person and the Company or a Subsidiary leases it from such Person. "SEC" means the Securities and Exchange Commission. "Secured Indebtedness" means any Indebtedness of the Company secured by a Lien. "Securities Act" means the Securities Act of 1933, as amended. "Senior Credit Agreement" means (i) the senior secured Credit Agreement dated October 28, 1997, among the Company, The Chase Manhattan Bank, as Administrative Agent, and the lenders parties thereto from time to time, as the same may be amended, supplemented or otherwise modified from time to time and any guarantees issued thereunder and (ii) any renewal, extension, refunding, restructuring, replacement or refinancing thereof (whether with the original Administrative Agent and lenders or another administrative agent or agents or other lenders and whether provided under the original Senior Credit Agreement or any other credit or other agreement or indenture). "Senior 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 15 or pursuant to which the same is outstanding, it is provided that the obligations in respect of such Indebtedness are not superior in right of, or are subordinate to, payment to the Notes; provided, however, that Senior Indebtedness will not include (i) any obligation of the Company to any Subsidiary, (ii) any liability for Federal, state, foreign, local or other taxes owed or owing by the Company, (iii) any accounts payable or other liability to trade creditors arising in the ordinary course of business (including Guarantees thereof or instruments evidencing such liabilities), (iv) any Indebtedness, Guarantee or obligation of the Company that is expressly subordinate or junior in right of payment to any other Indebtedness, Guarantee or obligation of the Company, including any Senior Subordinated Indebtedness and any Subordinated Obligations or (v) any Capital Stock. "Senior Subordinated Indebtedness" means the Notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to rank pari passu with the Notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Indebtedness. "Shelf Registration Statement" has the meaning ascribed thereto in the Registration Rights Agreement. "Significant Subsidiary" means any Subsidiary that would be a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under Regulation S-X promulgated by the SEC. "Stated Maturity" means, with respect to any security, the date specified in such security as the fixed date on which the payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision. "Subordinated Obligation" means, as to any Person, any Indebtedness of such Person (whether outstanding on the Issue Date or thereafter Incurred) which is subordinate or junior in right of payment to the Notes pursuant to a written agreement. "Subsidiary" of any Person means any corporation, association, partnership or other business entity of which more than 50% of the total voting power of shares of Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. Unless otherwise specified herein, each reference to a Subsidiary shall refer to a Subsidiary of the Company. "Subsidiary Guarantee" means, individually, any Guarantee of payment of the Notes by a Subsidiary Guarantor pursuant to the terms of the Indenture, and, collectively, all such Guarantees. Each such Subsidiary Guarantee will be in the form prescribed in the Indenture. "Subsidiary Guarantor" means any Restricted Subsidiary which Guarantees the Bank Indebtedness after the Issue Date. "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 16 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 Company) organized and in existence under the laws of the United States of America or any foreign country recognized by the United States of America with a rating at the time as of which any investment therein is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or "A-1" (or higher) according to Standard and Poor's Ratings Group, (v) Investments in securities with maturities of six months or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States of America, or by any political subdivision or taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's Investors Service, Inc. and (vi) Investments in mutual funds whose investment guidelines restrict such funds' investments to those satisfying the provisions of clauses (i) through (v) above. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa- 77bbbb). "Total Consolidated Assets" means, as of any date of determination, the total assets shown on the balance sheet of the Company and its Restricted Subsidiaries as of the most recent date for which such balance sheet is available, determined on a consolidated basis in accordance with GAAP. "Transactions" means, collectively, the Recapitalization, the Merger, the initial borrowings under the Credit Facilities and all other transactions relating to the Recapitalization, the Merger or the financing thereof. "Treasury Rate" means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) which has become publicly available at least two business days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source or similar market data)) most nearly equal to the period from the Redemption Date to November 15, 2001; provided, however, that if the period from the Redemption Date to November 15, 2001 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to November 15, 2001 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used. "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. 17 "Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at the time of determination shall be designated an Unrestricted Subsidiary by the Board of Directors in the manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary of the Company (including any newly acquired or newly formed Subsidiary of the Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or Indebtedness of, or owns or holds any Lien on any property of, the Company or any Restricted Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so designated; provided, however, that either (A) the Subsidiary to be so designated has total consolidated assets of $10,000 or less or (B) if such Subsidiary has consolidated assets greater than $10,000, then such designation would be permitted under 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 1010 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 Company, all of the Capital Stock of which (other than directors' qualifying shares) is owned by the Company or another Wholly-Owned Subsidiary. SECTION 102. Compliance Certificates and Opinions. ------------------------------------ Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company and any Subsidiary Guarantor (if applicable) and any other obligor on the 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 1020(a)) shall include: 18 (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; (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 Company, any Subsidiary Guarantor or other obligor on the 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 Company, any Subsidiary Guarantor or other obligor on the Notes stating that the information with respect to such factual matters is in the possession of the Company, any Subsidiary Guarantor or other obligor on the 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 Company. 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 Company, if made in the manner provided in this Section 104. 19 ( 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 Notes held by any Person, and the date of holding the same, shall be proved by the Note Register. ( d ) If the Company shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company may, at its option, by or pursuant to a Board 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 Company 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 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 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 Note shall bind every future Holder of the same Note and the Holder of every 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 Company or any Subsidiary Guarantor in reliance thereon, whether or not notation of such action is made upon such Note. SECTION 105. Notices, Etc., to Trustee, the Company and any Subsidiary --------------------------------------------------------- Guarantor. - --------- 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 Company or any Subsidiary Guarantor or any other obligor on the Notes or the Administrative Agent or any representative of the holder of Senior Indebtedness 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-Details, Inc. 20 (2) the Company or any Subsidiary Guarantor 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 Company or such Subsidiary Guarantor 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 Company or such Subsidiary Guarantor. SECTION 106. Notice to Holders; Waiver. ------------------------- Where this Indenture provides for notice of any event to Holders by the Company 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 satisfactory to the Trustee shall be deemed to be a sufficient giving of such notice for every purpose hereunder. If the Company 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 Company 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 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 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 and, with respect to 21 any provisions hereof relating to the subordination of the Notes or the rights of holders of Senior Indebtedness, the holders of Senior Indebtedness) any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 111. Governing Law. ------------- THIS INDENTURE AND THE 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 ISSUANCE OF THE EXCHANGE NOTES OR THE EFFECTIVENESS OF THE SHELF 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 Note shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the 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. SECTION 113. No Personal Liability of Directors, Officers, Employees, -------------------------------------------------------- Stockholders or Incorporators. - ----------------------------- No director, officer, employee, incorporator or stockholders, as such, of the Company or any Subsidiary Guarantor of the Notes shall have any liability for any obligations of the Company or such Subsidiary Guarantor under the Notes, this Indenture or any Guarantee of the Notes or for any claim based on, in respect of, or by reason of, such obligations or their creations. Each Holder by accepting a Note waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the 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 Notes. The Company, the Trustee, the Note Registrar and anyone else shall have the protection of TIA (S) 312(c). 22 200. ARTICLE TWO. NOTE FORMS SECTION 201. Forms Generally. --------------- The 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 Notes, as evidenced by their execution of the Notes. Any portion of the text of any Note may be set forth on the reverse thereof, with an appropriate reference thereto on the face of the Note. Each Note shall be dated the date of its authentication. Initial Notes offered and sold to the qualified institutional buyers (as defined in Rule 144A under the Securities Act) in the United States of America ("Rule 144A Note") will be issued on the Issue Date in the form of a permanent global Note, without interest coupons, substantially in the form set forth in Sections 204 and 205 (a "Rule 144A Global Note") deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Rule 144A Global 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 Rule 144A Global 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. Initial Notes offered and sold outside the United States of America ("Regulation S Note") in reliance on Regulation S shall be issued on the Issue Date in the form of a temporary global Note, without interest coupons, substantially in the form set forth in Sections 204 and 205 (a "Regulation S Temporary Global Note"). Beneficial interests in a Regulation S Temporary Global Note will be exchangeable for beneficial interests in a single permanent global security (the "Regulation S Permanent Global Note", together with the Regulation S Temporary Global Note, the "Regulation S Global Note") on or after the expiration of the Restricted Period (the "Release Date") upon the receipt by the Trustee or its agent of a certificate certifying that the Holder of the beneficial interest in the Regulation S Temporary Global Note is a non-United States Person within the meaning of Regulation S (a "Regulation S Certificate"), substantially in the form set forth in Section 206. Upon receipt by the Trustee or Paying Agent of a Regulation S Certificate, (i) with respect to the first such Regulation S Certificate, the Company shall execute and upon receipt of a Company Order for authentication, the Authenticating Agent shall authenticate and deliver to the custodian, the applicable Regulation S Permanent Global Note and (ii) with respect to the first and all subsequent Regulation S Certificates, the custodian shall exchange on behalf of the applicable beneficial owners the portion of the applicable Regulation S Temporary Global Note covered by such Regulation S Certificates for a comparable portion of the applicable Regulation S Permanent Global Note. Upon any exchange of a portion of a Regulation S Temporary Global Note for a comparable portion of a Regulation S Permanent Global Note, the custodian shall endorse on the schedules affixed to each of such Regulation S Global Note (or on continuations of such schedules affixed to each of such Regulation S Global Note and made parts thereof) appropriate notations evidencing the date of transfer and (x) with respect to the applicable Regulation S Temporary Global Note, a decrease in the principal amount thereof equal to the amount covered by the applicable certification and (y) with respect to the applicable Regulation S Permanent Global Note, an increase in the principal amount thereof equal to the principal amount of the decrease in the applicable Regulation S Temporary Global Note pursuant to clause (x) above. The Regulation S Global Note will be deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Regulation S Global Note may be represented by more than one certificate, if so required by the Depositary's rules 23 regarding the maximum principal amount to be represented by a single certificate. The aggregate principal amount of the Regulation S Global 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. Initial Notes offered and sold to institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) and (7) under the Securities Act) in the United States of America ("Institutional Accredited Investor Note") will be issued in the form of a permanent global Note substantially in the form set forth in Sections 204 and 205 (a "Institutional Accredited Investor Global Note") deposited with the Trustee, as custodian for the Depositary, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Institutional Accredited Investor Global 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 Institutional Accredited Investor Global 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 Rule 144A Global Note, the Regulation S Global Note and the Institutional Accredited Investor Global Note are sometimes collectively herein referred to as the "Global Notes". The definitive 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 Company executing such Notes, as evidenced by their execution of such Notes. SECTION 202. Restrictive Legends. ------------------- Unless and until (i) an Initial Note is sold under an effective Registration Statement or (ii) an Initial Note is exchanged for an Exchange Note in connection with an effective Registration Statement, in each case pursuant to the Registration Rights Agreement, such Rule 144A Global Note and the Institutional Accredited Investor Global 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 THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (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 24 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 COMPANY'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 COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. The Regulation S Global Note shall bear the following legend on the face thereof: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) 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 THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (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 COMPANY'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 25 SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE COMPANY AND THE TRUSTEE. THIS LEGEND WILL BE REMOVED AFTER 40 CONSECUTIVE DAYS BEGINNING ON AND INCLUDING THE LATER OF (A) THE DAY ON WHICH THE SECURITIES ARE OFFERED TO PERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S) AND (B) THE DATE OF THE CLOSING OF THE ORIGINAL OFFERING. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION", "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. The Global Notes, whether or not an Initial Note, 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 COMPANY 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. 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 Regulation S Temporary Global Note shall also bear the following legend on the face thereof: THIS GLOBAL NOTE IS A TEMPORARY GLOBAL NOTE FOR PURPOSES OF REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). NEITHER THIS TEMPORARY GLOBAL NOTE NOR ANY INTEREST HEREIN MAY BE OFFERED, SOLD OR DELIVERED, EXCEPT AS PERMITTED UNDER THE INDENTURE REFERRED TO BELOW. NO BENEFICIAL OWNERS OF THIS TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF PRINCIPAL OR INTEREST HEREON UNLESS THE REQUIRED CERTIFICATIONS HAVE BEEN DELIVERED PURSUANT TO THE TERMS OF THE INDENTURE. SECTION 203. Form of Note. ------------ No. ___ Principal Amount $______________ CUSIP NO. ____________ 26 10% [Series B]/1/ Senior Subordinated Note due 2005 Details, Inc., a California corporation promises to pay to ___________, or registered assigns, the principal sum of __________________ Dollars on November 15, 2005. Interest Payment Dates: May 15 and November 15. Record Dates: May 1 and November 1. Additional provisions of this Note are set forth on the other side of this Note. D a t e d : N o v e m b e r _ _ , 1 9 9 7 IN WITNESS WHEREOF, the Company has caused this Note to be signed manually or by facsimile by its authorized Officers. DETAILS, INC. By: ----------------------- Name Title By: ----------------------- Name Title TRUSTEE'S CERTIFICATE OF AUTHENTICATION S T A T E S T R E E T B A N K A N D T R U S T C O M P A N Y as Trustee, certifies that this is one of the Notes referred to in the Indenture. - ------------------------------- /1/ Include only for the Exchange Notes 27 By ----------------------------- Authorized Signatory 28 [FORM OF REVERSE SIDE OF NOTE] 10% [Series B]/2/ Senior Subordinated Note due 2005 1. Interest -------- Details, Inc., a California corporation (such corporation, and its successors and assigns under the Indenture hereinafter referred to, being herein called the "Company")) promises to pay interest on the principal amount of this Note at the rate per annum shown above. The Company will pay interest semiannually in cash and in arrears on May 15 and November 15 of each year, commencing May 15, 1998 to holders of record at the close of business on the May 1 and November 1 immediately preceding the interest payment date. Interest on the Notes will accrue from the most recent date to which interest has been paid on the Notes or, if no interest has been paid, from November 18, 1997. The Company shall pay interest on overdue principal or premium, if any (plus interest on such interest to the extent lawful), at the rate borne by the Notes to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months. 2. 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 Notes is due and payable, the Company shall irrevocably deposit with the Trustee or the Paying Agent money sufficient to pay such principal, premium, if any, and/or interest. The Company will pay interest (except defaulted interest) to the Persons who are registered Holders of Notes at the close of business on the May 1 or November 1 next preceding the interest payment date even if the Notes are cancelled, repurchased or redeemed after the record date and on or before the interest payment date. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company will pay principal, premium, if any, 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 Company may pay interest by check payable in such money. It may mail an interest check to a Holder's registered address. 3. Trustee, Paying Agent and Registrar ----------------------------------- Initially, State Street Bank and Trust Company, a Massachusetts trust company (the "Trustee"), will act as Trustee, Paying Agent and Registrar. The Company may appoint and change any Paying Agent, Registrar or co-registrar without notice to any Noteholder. The Company or any of its domestically incorporated Wholly-Owned Subsidiaries may act as Paying Agent, Registrar or co- registrar. 4. Indenture --------- The Company issued the Notes under an Indenture dated as of November 18, 1997 (as it may be amended or supplemented from time to time in accordance with the terms thereof, the "Indenture"), between the Company and the Trustee. The terms of the 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. - ------------------------------- /2/ Include only for the Exchange Notes 29 The Notes are subject to all such terms, and Noteholders are referred to the Indenture and the Act for a statement of those terms. The Notes are general unsecured senior subordinated obligations of the Company limited to $100 million aggregate principal amount (subject to Section 310 of the Indenture). This Note is one of the [Initial]/3/ Notes referred to in the Indenture. The Notes include the Initial Notes and any Exchange Notes issued in exchange for the Initial Notes pursuant to the Indenture and the Registration Rights Agreement. The Initial Notes and the Exchange Notes are treated as a single class of securities under the Indenture. The Indenture imposes certain limitations on the Incurrence of Indebtedness by the Company and its Restricted Subsidiaries, the payment of dividends on, and the purchase or redemption of, Capital Stock of the Company and its Restricted Subsidiaries, certain purchases or redemptions of Subordinated Indebtedness, the sale or transfer of assets and Capital Stock of Restricted Subsidiaries, investments of the Company and its Restricted Subsidiaries and transactions with Affiliates. In addition, the Indenture limits the ability of the Company and its Subsidiaries to restrict distributions and dividends from Restricted Subsidiaries. 5. Optional Redemption ------------------- Except as set forth below, the Notes will not be redeemable at the option of the Company prior to November 15, 2001. On and after such date, the Notes will be redeemable, at the Company's option, in whole or in part, at any time upon not less than 30 nor more than 60 days prior notice mailed by first-class mail to each holder's registered address, at the following redemption prices (expressed in percentages of principal amount), plus accrued and unpaid interest to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date): If redeemed during the 12-month period commencing on November 15 of the years set forth below:
Period Redemption ----------------------------- Price ----------- 2001............................................. 105.000% 2002............................................. 103.333% 2003............................................. 101.667% 2004 and thereafter.............................. 100.000%
In addition, at any time and from time to time prior to November 15, 2000, the Company may redeem in the aggregate up to 40% of the original principal amount of the Notes with the proceeds of one or more Equity Offerings received by, or invested in, the Company so long as there is a Public Market at the time of such redemption, at a redemption price (expressed as a percentage of principal amount) of 110% plus accrued and unpaid interest, if any, to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date); provided, however, that at least 60% of the original principal amount of the Notes must remain outstanding after each such redemption. At any time on or prior to November 15, 2001, the Notes may also be redeemed as a whole at the option of the Company upon the occurrence of a Change of Control, upon not less than 30 nor more than 60 days prior notice (but in no event more than 90 days after the occurrence of such Change of Control) mailed by first-class mail to each holder's registered address, at a redemption price equal to 100% of the principal amount thereof plus the Applicable Premium as of, and accrued and unpaid interest, if any, to, the date of redemption - ------------------------------- /3/ Include only for the Initial Notes. 30 (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). 6. Selection --------- In the case of any partial redemption, selection of the Notes for redemption will be made by the Trustee on a pro rata basis, by lot or by such other method as the Trustee in its sole discretion shall deem to be fair and appropriate, although no Note of $1,000 in original principal amount or less will be redeemed in part. If any Note is to be redeemed in part only, the notice of redemption relating to such Note shall state the portion of the principal amount thereof to be redeemed. A new Note in principal amount equal to the unredeemed portion thereof will be issued in the name of the holder thereof upon cancellation of the original Note. 7. 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 Notes to be redeemed at his registered address. Notes in denominations of principal amount larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the redemption price of and accrued and unpaid interest on all 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 Notes (or such portions thereof) called for redemption. 8. Put Provisions -------------- Upon the occurrence of a Change of Control, unless the Company shall have exercised its right to redeem the Notes as described under Optional Redemption above, each holder will have the right to require the Company to repurchase all or any part of such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). 9. Subordination and Ranking ------------------------- The Notes are subordinated to Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Senior Indebtedness must be paid before the Notes may be paid. The Company agrees, and each Noteholder by accepting a Note agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give them effect and appoints the Trustee as attorney-in-fact for such purpose. The Notes will in all respects rank pari passu with all other Senior Subordinated Indebtedness of the Company. 10. Denominations; Transfer; Exchange --------------------------------- The Notes are in registered form without coupons in denominations of principal amount of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange 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 and fees required by law or permitted by the Indenture. The Registrar need 31 not register the transfer of or exchange of (i) any Note selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) for a period beginning 15 days before a selection of Notes to be redeemed and ending on the date of such selection or (ii) any 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 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 Company 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 Company and not to the Trustee for payment. 13. Defeasance ---------- Subject to certain conditions set forth in the Indenture, the Company at any time may terminate some or all of its obligations under the Notes and the Indenture if the Company deposits with the Trustee money or U.S. Government Obligations for the payment of principal and interest on the Notes to redemption or maturity, as the case may be. The Company in its sole discretion can defease the Notes. 14. Amendment, Waiver ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended with the written consent of the Holders of at least a majority in principal amount of the Notes then outstanding and (ii) any past default or noncompliance with any provision may be waived with the written consent of the Holders of a majority in principal amount of the Notes then outstanding. Without the consent of any Noteholder, the Company and the Trustee may amend the Indenture or the Notes to cure any ambiguity, omission, defect or inconsistency, or to comply with Article Eight of the Indenture, or to provide for uncertificated Notes in addition to or in place of certificated Notes, or to add guarantees with respect to the Notes or to secure the Notes, or to add additional covenants or surrender rights and powers conferred on the Company, 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, or to provide for the issuance of Exchange Notes. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. 15. Defaults and Remedies --------------------- Under the Indenture, Events of Default include (i) a default in any payment of interest on any Note when due (whether or not such payment is prohibited by Article Thirteen of the Indenture), continued for 30 days, (ii) a default in the payment of principal of any Note when due at its Stated Maturity, upon optional redemption, 32 upon required repurchase, upon declaration or otherwise, whether or not such payment is prohibited by Article Thirteen of the Indenture, (iii) the failure by the Company to comply for 30 days after written notice with any of its obligations under Section 801 of the Indenture or Sections 1009, 1010, 1011, 1012, 1013, 1014, 1015, 1016, 1017, 1018 or 1019 of the Indenture (in each case, other than a failure to purchase Notes which shall constitute an Event of Default under clause (ii) above), (iv) the failure by the Company to comply for 60 days after notice with its other agreements contained in the Indenture, (v) the failure by the Company 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 Company or a Significant Subsidiary, (vii) the rendering of any judgment or decree for the payment of money in an amount in excess of $10.0 million against the Company 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 or (viii) the failure of any Guarantee of the Notes by a Subsidiary Guarantor made pursuant to Section 1018 of the Indenture to be in full force and effect (except as contemplated by the terms thereof or of the Indenture) or the denial or disaffirmation in writing by any such Subsidiary Guarantor of its obligations under the Indenture or any such Guarantee. If a default under clauses (iii) and (iv) occurs and is continuing, 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 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. Certain events of bankruptcy or insolvency are Events of Default which will result in the 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 Notes by notice to the Company and the Trustee may declare the principal of and accrued and unpaid interest, if any, on all the Notes to be due and payable. Upon such a declaration, such principal and accrued and unpaid interest shall be due and payable immediately. Under certain circumstances, the holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. Noteholders may not enforce the Indenture or the Notes except as provided in the Indenture. The Trustee may refuse to enforce the Indenture or the Notes unless it receives reasonable indemnity or security. Subject to certain limitations, Holders of a majority in principal amount of the 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 interest) if it determines that withholding notice is in their interest. 16. Trustee Dealings with the Company --------------------------------- 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 Notes and may otherwise deal with and collect obligations owed to it by the Company or its affiliates and may otherwise deal with the Company 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 Company shall not have any liability for any 33 obligations of the Company under the 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 Note, each Noteholder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 18. Authentication -------------- This 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 Note. 19. Registration Rights ------------------- The Holder of this Note is entitled to the benefits of the Exchange and Registration Rights Agreement, dated as of November 18, 1997 (the "Registration Rights Agreement"), between the Company and the Initial Purchaser named therein. In the event that either (i) an Exchange Offer Registration Statement is not filed with the SEC on or prior to 90 days after the Issue Date, (A) an Exchange Offer Registration Statement or a Shelf Registration Statement is not declared effective within 180 days after the Issue Date, or (B) the Exchange Offer is not consummated on or prior to 210 days after the Issue Date in respect of tendered Notes and a Shelf Registration Statement has not been declared effective or a Shelf Registration Statement is filed and declared effective within 180 days after the Issue Date but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded within 60 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (A) and (B), a "Registration Default"), the Company will pay liquidated damages to each holder of Transfer Restricted Securities (as defined in the Registration Rights Agreement), during the period of one or more such Registration Defaults, in an amount equal to $.192 per week per $1,000 principal amount of the Notes constituting Transfer Restricted Securities held by such holder until the applicable Registration Statement is filed or declared effective, the Exchange Offer is consummated or the Shelf Registration Statement again becomes effective, as the case may be, provided that, except in certain limited circumstances, the Company's obligation to pay liquidated damages will terminate upon consummation of the Exchange Offer. All accrued liquidated damages shall be paid to holders in the same manner as interest payments on the Notes on semi- annual payment dates which correspond to interest payment dates for the Notes. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease.]/4/ 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 - ------------------------------ /4/ Include only for the Initial Notes 34 Procedures, the Company has caused CUSIP numbers to be printed on the 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 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 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 Company 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, Inc. 1231 Simon Circle Anaheim, California 92806 Attention of Joseph P. Gisch 35 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this 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 Note on the books of the Company. The agent may substitute another to act for him. - ------------------------------------------------------------------------------- D a t e:_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ Your Signature:___________________ Signature Guarantee:_____________________________________ (Signature must be guaranteed) - ------------------------------------------------------------------------------- Sign exactly as your name appears on the other side of this 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 Notes evidenced by this certificate occurring prior to the date that is two years after the later of the date of original issuance of such Notes and the last date, if any, on which such Notes were owned by the Company or any Affiliate of the Company, the undersigned confirms that such Notes are being: CHECK ONE BOX BELOW: 1 [_] acquired for the undersigned's own account, without transfer; or 2 [_] transferred to the Company; or 3 [_] transferred pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or 36 4 [_] transferred pursuant to an effective registration statement under the Securities Act; or 5 [_] transferred pursuant to and in compliance with Regulation S under the Securities Act of 1933; or 6 [_] 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 [_] 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 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 Company may require, prior to registering any such transfer of the Notes, in their sole discretion, such legal opinions, certifications and other information as the Trustee or the Company 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]./5/ - --------------------------- /5/ Include only for the Initial Notes 37 [TO BE ATTACHED TO GLOBAL NOTES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL NOTE The following increases or decreases in this Global Note have been made:
Amount of decrease in Amount of increase in Principal Amount of this Signature of authorized Date of Principal Amount of Principal Amount of Global Note following signatory of Trustee Exchange this Global Note this Global Note such decrease or increase or Notes Custodian
38 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Note purchased by the Company pursuant to Section 1015 or 1016 of the Indenture, check the box: [_] If you want to elect to have only part of this Note purchased by the Company pursuant to Section 1015 or 1016 of the Indenture, state the amount in principal amount (must be integral multiple of $1,000): $________. Date: __________ Your Signature _____________________________________________ (Sign exactly as your name appears on the other side of the 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. 39 [THE FOLLOWING PROVISION TO BE INCLUDED ON ALL 144A CERTIFICATES] In connection with any transfer of this Note occurring prior to the date that is the earlier of the date of an effective Registration Statement (as defined in the Registration Rights Agreement dated as of November 18, 1997) or November 18, 1999, the undersigned confirms that without utilizing any general solicitation or general advertising that: [Check One] --------- [_] (a) this 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 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 Note and the Indenture. If neither of the foregoing boxes is checked, the Trustee or other Registrar shall not be obligated to register this 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 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 Company 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. 40 SECTION 204. Form of Trustee's Certificate of Authentication. ----------------------------------------------- The Trustee's certificate of authentication shall be in substantially the following form: TRUSTEE'S CERTIFICATE OF AUTHENTICATION. This is one of the Notes referred to in the within-mentioned Indenture. State Street Bank and Trust Company, as Trustee By _____________________________ Authorized Signatory Dated: __________________ SECTION 205. Form of Regulation S Certificate. -------------------------------- [date-on or after Release Date] State Street Bank and Trust Company, as Trustee Two International Place, 4th Floor Boston, Massachusetts 02110 Attention: Corporate Trust Administration Re: Details, Inc. (the "Company") 10% Senior Subordinated Notes due 2005 (the "Notes") [CINS No. ______] [ISIN No. ____] -------------------------------------------------------- Ladies and Gentlemen: Reference is hereby made to the Indenture, dated as of November 18, 1997 (the "Indenture"), between the Company and State Street Bank and Trust Company. Capitalized terms used herein and not otherwise defined have the meanings set forth in the Indenture. [For purposes of acquiring a beneficial interest in the Regulation S Permanent Global Security upon the expiration of the Restricted Period,][For purposes of receiving payments under the Regulation S Temporary Global Security,]/1/ the undersigned holder of a beneficial interest in the Regulation S Temporary Global Security issued under the Indenture certifies that it is not a U.S. person as defined by Regulation S under the Securities Act of 1933, as amended. We understand that this certificate is required in connection with certain securities laws of the United States. In connection therewith, if administrative or legal proceedings are commenced or threatened - ------------------------------ /1/ Select, as applicable. 41 in connection with which this certificate is or would be relevant, we irrevocably authorize you to produce this certificate to any interested party in such proceeding. Very truly yours, [Name of Holder] By: -------------------------- Authorized Signatory ARTICLE THREE. THE NOTES 300. SECTION 301. Title and Terms. --------------- The aggregate principal amount of Notes which may be authenticated and delivered under this Indenture is limited to $100 million, except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes pursuant to Section 304, 305, 306, 307, 310, 906, 1015, 1016 or 1108 or pursuant to an Exchange Offer. The Initial Notes shall be known and designated as the "10% Senior Subordinated Notes due 2005," and the Exchange Notes shall be known and designated as the "10% Series B Senior Subordinated Notes due 2005," in each case, of the Company. The Stated Maturity of the Notes shall be November 15, 2005, and they shall bear interest at the rate of 10% per annum from November 18, 1997, or from the most recent interest payment date to which interest has been paid or duly provided for, payable semiannually in cash and in arrears on May 15 and November 15 of each year, commencing May 15, 1998, to the Person in whose name the Note (or any predecessor Note) is registered at the close of business on the May 1 and November 1 immediately preceding the interest payment date . 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. The principal of (and premium, if any) and interest on the Notes shall be payable at the office or agency of the Company maintained for such purpose in The City of New York, or at such other office or agency of the Company as may be maintained for such purpose; provided, however, that, at the option of the Company, interest may be paid by check mailed to addresses of the Persons entitled thereto as such addresses shall appear on the Note Register. Holders shall have the right to require the Company to purchase their Notes, in whole or in part, in the event of a Change of Control pursuant to Section 1015. The Notes shall be subject to repurchase by the Company pursuant to an Asset Disposition as provided in Section 1016. The Notes shall be redeemable as provided in Article Eleven and in the Notes. The Indebtedness evidenced by the Notes shall be subordinated in right of payment to Senior Indebtedness as provided in Article Thirteen. 42 SECTION 302. Denominations. ------------- The Notes shall be issuable only in fully registered form, without coupons, and only in denominations of $1,000 and any integral multiple thereof. SECTION 303. Execution, Authentication, Delivery and Dating. ---------------------------------------------- The Notes shall be executed on behalf of the Company by two Officers, of which at least one Officer shall be the President or the Chief Financial Officer of the Company. The signature of any Officer on the 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 Notes. Notes bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Notes or did not hold such offices at the date of such Notes. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Initial Notes executed by the Company to the Trustee for authentication, together with an order for the authentication and delivery of such Notes (the "Company Order"), and the Trustee in accordance with such Company Order shall authenticate and deliver such Initial Notes directing the Trustee to authenticate the Notes and certifying that all conditions precedent to the issuance of Notes contained herein have been fully complied with, and the Trustee in accordance with such Company Order shall authenticate and deliver such Initial Notes. Upon receipt of the Company Order, the Trustee shall authenticate for original issue Exchange Notes in an aggregate principal amount not to exceed $100,000,000; provided that such Exchange Notes shall be issuable only upon the valid surrender for cancellation of Initial Notes of a like aggregate principal amount in accordance with an Exchange Offer pursuant to the Registration Rights Agreement. The Trustee shall be entitled to receive an Officers' Certificate and an Opinion of Counsel of the Company that it may reasonably request in connection with such authentication of Notes. Such order shall specify the amount of Notes to be authenticated and the date on which the original issue of Initial Notes or Exchange Notes is to be authenticated. Each Note shall be dated the date of its authentication. No Note shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such 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 Note shall be conclusive evidence, and the only evidence, that such Note has been duly authenticated and delivered hereunder and is entitled to the benefits of this Indenture. In case the Company, 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 Company 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 hereto with the Trustee pursuant to Article Eight, any of the 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 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 Notes surrendered for such exchange and of like principal amount; and the Trustee, upon 43 Company Request of the successor Person, shall authenticate and deliver Notes as specified in such request for the purpose of such exchange. If 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 Notes, such successor Person, at the option of the Holders but without expense to them, shall provide for the exchange of all Notes at the time Outstanding for Notes authenticated and delivered in such new name. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes on behalf of the Trustee. Unless limited by the terms of such appointment, an authenticating agent may authenticate 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 Company hereunder. SECTION 304. Temporary Notes. --------------- Pending the preparation of definitive Notes, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Notes which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination. Temporary Notes shall be substantially of the tenor of the definitive Notes in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Notes may determine, as conclusively evidenced by their execution of such Notes. If temporary Notes are issued, the Company will cause definitive Notes to be prepared without unreasonable delay. After the preparation of definitive Notes, the temporary Notes shall be exchangeable for definitive Notes upon surrender of the temporary Notes at the office or agency of the Company designated for such purpose pursuant to Section 1002, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Notes, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Notes of authorized denominations. Until so exchanged, the temporary Notes shall in all respects be entitled to the same benefits under this Indenture as definitive Notes. SECTION 305. Registration, Registration of Transfer and Exchange. --------------------------------------------------- The Company 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, the Company shall provide for the registration of Notes and of transfers of 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 Notes and transfers of Notes as herein provided. Upon surrender for registration of transfer of any Note at the office or agency of the Company designated pursuant to Section 1002, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of any authorized denomination or denominations of a like aggregate principal amount. Furthermore, any Holder of a Global Note shall, by acceptance of such Global Note, agree that transfers of beneficial interest in such Global Note may be effected only through a book-entry system 44 maintained by the Holder of such Global Note (or its agent), and that ownership of a beneficial interest in the Note shall be required to be reflected in a book entry. At the option of the Holder, Notes may be exchanged for other Notes of any authorized denomination (not less than $1,000) and of a like aggregate principal amount, upon surrender of the Notes to be exchanged at such office or agency. Whenever any Notes are so surrendered for exchange (including an exchange of Initial Notes for Exchange Notes), the Company shall execute, and the Trustee shall authenticate and deliver, the Notes which the Holder making the exchange is entitled to receive; provided that no exchange of Initial Notes for Exchange Notes shall occur until an Exchange Offer Registration Statement shall have been declared effective by the SEC, the Trustee shall have received an Officers' Certificate confirming that the Exchange Offer Registration Statement has been declared effective by the SEC and the Initial Notes to be exchanged for the Exchange Notes shall be cancelled by the Trustee. All Notes issued upon any registration of transfer or exchange of Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Notes surrendered upon such registration of transfer or exchange. Every Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Note Registrar) be duly endorsed, or be accompanied by a written instrument of transfer, in form satisfactory to the Company 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 Notes, but the Company 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 Notes, other than exchanges pursuant to Section 304, 906, 1015, 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 Notes. -------------------------------------- (a) Each Global Note initially shall (i) be registered in the name of the Depositary for such global 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 Note held on their behalf by the Depositary, or the Trustee as its custodian, or under the Global Note, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company 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 Note. (b) Transfers of a Global Note shall be limited to transfers of such Global Note in whole, but not in part, to the Depositary, its successors or their respective nominees. Interests of beneficial owners in a Global 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 Notes in definitive form ("Physical Notes") in exchange for their beneficial interests in a Global 45 Note upon written request in accordance with the Depositary's and the Registrar's procedures. In addition, Physical Notes shall be transferred to all beneficial owners in exchange for their beneficial interests in a Global Note if (i) the Depositary notifies the Company that it is unwilling or unable to continue as Depositary for such Global 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 Company within 90 days of such notice or, (ii) the Company executes and delivers to the Trustee and Note Registrar an Officers' Certificate stating that such Global 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 Note pursuant to subsection (b) of this Section to beneficial owners who are required to hold Physical Notes, the Note Registrar shall reflect on its books and records the date and a decrease in the principal amount of such Global Note in an amount equal to the principal amount of the beneficial interest in the Global Note to be transferred, and the Company shall execute, and the Trustee shall authenticate and deliver, one or more Physical Notes of like tenor and amount. (d) In connection with the transfer of an entire Global Note to beneficial owners pursuant to subsection (b) of this Section, such Global Note shall be deemed to be surrendered to the Trustee for cancellation, and the Company 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 Note, an equal aggregate principal amount of Physical Notes of authorized denominations. (e) Any Physical Note delivered in exchange for an interest in a Global 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 Note set forth in Section 202. (f) The registered holder of a Global 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 Notes. SECTION 307. Special Transfer Provisions. --------------------------- (a) The following provisions shall apply with respect to any proposed transfer of a Rule 144A Note or an Institutional Accredited Investor Note prior to the expiration of the Resale Restriction Termination Date (as defined in Section 202 hereof): (i) a transfer of a Rule 144A Note or an Institutional Accredited Investor Note or a beneficial interest therein to a QIB (as defined herein) shall be made upon the representation of the transferee that it is purchasing the 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 Company 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 a Rule 144A Note or an Institutional Accredited Investor Note or a beneficial interest therein to an institutional accredited investor shall be made upon receipt by the 46 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 Company 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 Rule 144A Note or an Institutional Accredited Investor 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 set forth in Section 309 hereof from the proposed transferee and, if requested by the Company or the Trustee, the delivery of an opinion of counsel, certification and/or other information satisfactory to each of them. (b) The following provisions shall apply with respect to any proposed transfer of a Regulation S Note prior to the expiration of the Restricted Period: (i) a transfer of a Regulation S Note or a beneficial interest therein to a QIB shall be made upon the representation of the transferee that it is purchasing the 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 Company 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 a Regulation S 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 Company 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 Regulation S Note or a beneficial interest therein to a Non-U.S. Person shall be made upon, if requested by the Company or the Trustee, receipt by the Trustee or its agent of an opinion of counsel, certification and/or other information satisfactory to each of them. Prior to or on the expiration of the Restricted Period, beneficial interests in a Regulation S Global Note may only be held through Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the Euroclear System ("Euroclear") or Cedel Bank, societe anonyme ("Cedel") (as indirect participants in DTC) or another agent member of Euroclear and Cedel acting for and on behalf of them, unless exchanged for interests in the Rule 144A Global Note or the Institutional Accredited Investor Global Note in accordance with the certification requirements hereof. During the Restricted Period, interests in the Regulation S Global Note, if any, may be exchanged for interests in the Rule 144A Global Note, the Institutional Accredited Investor Global Note or for Physical Notes only in accordance with the certification requirements described in Section 201. After the expiration of the Restricted Period, interests in the Regulation S Note may be transferred without requiring certification set forth in Section 308 or any additional certification. (c) Private Placement Legend. Upon the transfer, exchange or ------------------------ replacement of Notes not bearing the Private Placement Legend, the Note Registrar shall deliver Notes that do not bear the Private Placement Legend. Upon the transfer, exchange or replacement of Notes bearing the Private Placement Legend, the Note Registrar shall deliver only Notes that bear the Private Placement Legend unless there is 47 delivered to the Note Registrar an Opinion of Counsel reasonably satisfactory to the Company 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. (d) General. By its acceptance of any Note bearing the Private ------- Placement Legend, each Holder of such a Note acknowledges the restrictions on transfer of such Note set forth in this Indenture and in the Private Placement Legend and agrees that it will transfer such Note only as provided in this Indenture. (e) The Company 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 Company 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. (f) No Obligation of the Trustee: (i) The Trustee shall have no ---------------------------- responsibility or obligation to any beneficial owner of a Global Note, a member of, or a participant in the Depository or other Person with respect to any ownership interest in the 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 Notes. All notices and communications to be given to the Holders and all payments to be made to Holders under the 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 Note). The rights of beneficial owners in any Global 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 Note (including without limitation any transfers between or among Depository participants, members or beneficial owners in any Global 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, INC. c/o State Street Bank and Trust Company, as Trustee Two International Place, 4th Floor Boston, Massachusetts 02110 Attention: Corporate Trust Administration Ladies and Gentlemen: 48 This certificate is delivered to request a transfer of $______ principal amount of the 10% Senior Subordinated Notes due 2005 (the "Notes") of Details, Inc. (the "Company"). Upon transfer, the 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 of the Notes, and we are acquiring the 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 Notes and invest in or purchase securities similar to the 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 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 Notes to offer, sell or otherwise transfer such 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 Company or any affiliate of the Company was the owner of such Notes (or any predecessor thereto) (the "Resale Restriction Termination Date") only (a) to the Company, (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 Notes 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 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 Company 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 Notes for investment purposes and not for distribution in violation of the Securities Act. Each purchaser acknowledges that the Company and the Trustee reserve the right prior to any offer, sale or other transfer prior to the Resale Termination Date of the 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 Company and the Trustee. 49 TRANSFEREE: BY: Upon transfer the 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] State Street Bank and Trust Company, as Trustee Two International Place, 4th Floor Boston, Massachusetts 02110 Attention: Corporate Trust Administration Re: Details, Inc. (the "Company") 10% Senior Subordinated Notes due 2005 (the "Notes") ---------------------------------------------------- Ladies and Gentlemen: In connection with our proposed sale of $ aggregate principal -------- amount of the 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 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 50 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 (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 Company 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. Very truly yours, [Name of Transferor] By: ---------------------------- ------------------------------- Authorized Signature Signature Medallion Guaranteed SECTION 310. Mutilated, Destroyed, Lost and Stolen Notes. ------------------------------------------- If (i) any mutilated Note is surrendered to the Trustee, or (ii) the Company and the Trustee receive evidence to their satisfaction of the destruction, loss or theft of any Note, and there is delivered to the Company, any Subsidiary Guarantor (if applicable) 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 Company, any Subsidiary Guarantor (if applicable) or the Trustee that such Note has been acquired by a bona fide purchaser, the Company shall execute and upon Company Order the Trustee shall authenticate and deliver, in exchange for any such mutilated Note or in lieu of any such destroyed, lost or stolen Note, a new Note of like tenor and principal amount, bearing a number not contemporaneously outstanding. In case any such mutilated, destroyed, lost or stolen Note has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Note, pay such Note. Upon the issuance of any new Note under this Section, the Company 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 Note issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Note shall constitute an original additional contractual obligation of the Company, any Subsidiary Guarantor (if applicable) and any other obligor upon the Notes, whether or not the mutilated, destroyed, lost 51 or stolen 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 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 Notes. SECTION 311. Payment of Interest; Interest Rights Preserved. ---------------------------------------------- Interest on any 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 Note (or one or more Predecessor Notes) is registered at the close of business on the Regular Record Date for such interest at the office or agency of the Company maintained for such purpose pursuant to Section 1002; provided, however, that each installment of interest may at the Company'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 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 Notes (such defaulted interest and interest thereon herein collectively called "Defaulted Interest") shall be paid by the Company, at its election in each case, as provided in clause (a) or (b) below: (a) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Notes (or their respective Predecessor 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 Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each 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 Company 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 Company of such Special Record Date, and in the name and at the expense of the Company, 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 Notes (or their respective Predecessor 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 Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Notes may be listed, and upon such notice as may be required by such exchange, if, after notice given by the 52 Company 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 Note delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Note shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Note. SECTION 312. Persons Deemed Owners. --------------------- Prior to the due presentment of a Note for registration of transfer, the Company, the Trustee and any agent of the Company, any Subsidiary Guarantor (if applicable) or the Trustee may treat the Person in whose name such Note is registered as the owner of such Note for the purpose of receiving payment of principal of (and premium, if any) and (subject to Sections 305 and 311) interest on such Note and for all other purposes whatsoever, whether or not such Note be overdue, and none of the Company, any Subsidiary Guarantor (if applicable), the Trustee nor any agent of the Company, any Subsidiary Guarantor (if applicable) or the Trustee shall be affected by notice to the contrary. SECTION 313. Cancellation. ------------ All 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 cancelled by it. If the Company shall acquire any of the 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 Notes unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 313. No Notes shall be authenticated in lieu of or in exchange for any Notes cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Notes held by the Trustee shall be destroyed by the Trustee and the Trustee shall send a certificate of such destruction to the Company. SECTION 314. Computation of Interest. ----------------------- Interest on the Notes shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 315. CUSIP Numbers. ------------- The Company in issuing 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 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 Notes, and any such redemption or repurchase shall not be affected by any defect in or omission of such CUSIP numbers. The Company will promptly notify the Trustee of any change in the CUSIP numbers. 53 ARTICLE FOUR. SATISFACTION AND DISCHARGE 400. SECTION 401. Satisfaction and Discharge of Indenture. --------------------------------------- This Indenture shall upon Company Request cease to be of further effect (except as to surviving rights of registration of transfer or exchange of Notes expressly provided for herein or pursuant hereto) and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture when (i) either (A) all Notes theretofore authenticated and delivered (other than (1) Notes which have been lost, stolen or destroyed and which have been replaced or paid as provided in Section 310 and (2) 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 Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 1003) have been delivered to the Trustee for cancellation; or (B) all 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 Company, and the Company 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 Notes not theretofore delivered to the Trustee for cancellation, for principal of (and premium, if any) and interest to the date of such deposit (in the case of 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 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 Company or any Subsidiary Guarantor of the Notes is a party or by which it is bound; (iii) the Company or any Subsidiary Guarantor has paid or caused to be paid all sums payable hereunder by the Company or any Subsidiary Guarantor in connection with all the Notes including all fees and expenses of the Trustee; (iv) the Company has delivered irrevocable instructions to the Trustee to apply the deposited money toward the payment of such Notes at maturity or the Redemption Date, as the case may be; and 54 (v) the Company 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 Company's obligation hereunder have been satisfied. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company 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 Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company 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 Company's and any Subsidiary Guarantor's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 401; provided that if the Company has made any payment of principal of, premium, if any, or interest on any Notes because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such 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 occasioned by the provisions of Article Thirteen or 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): (i) a default in any payment of interest on any Note when due, continued for 30 days, whether or not such payment is prohibited by Article Thirteen; (ii) a default in the payment of principal of any Note when due at its Stated Maturity, upon optional redemption, upon required repurchase, upon declaration or otherwise, whether or not such payment is prohibited by Article Thirteen; (iii) the failure by the Company to comply for 30 days after the notice specified below with any of its obligations under Article Eight and Sections 1009 through 1019 (other than a failure to purchase Notes when required under Sections 1015 and 1016 which shall constitute an Event of Default under clause (ii) above); 55 (iv) the failure by the Company to comply for 60 days after the notice specified below with any of its other agreements contained in this Indenture or the Note (other than those referred to in (i), (ii) or (iii) above); (v) Indebtedness of the Company or any Restricted Subsidiary is not paid within any applicable grace period after final maturity or is accelerated by the holders thereof because of a default and the total amount of such Indebtedness unpaid or accelerated exceeds $10 million; (vi) the Company 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 Company or any Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Significant Subsidiary for all or substantially all of its property; or (C) orders the winding up or liquidation of the Company 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 Company 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 (ix) the failure of any Subsidiary Guarantee by a Subsidiary Guarantor made pursuant to Section 1018 to be in full force and effect (except as contemplated by the terms thereof or of this Indenture) or the denial or disaffirmation in writing by any such Subsidiary Guarantor of its obligations under this Indenture or any such Guarantee of the Notes. 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. 56 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 Notes notify the Company of the default and the Company 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 Company 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 Company 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, premium, if any, or interest on any Note, the Trustee may withhold notice if and so long as a committee of its Trust officers in good faith determines that withholding notice is in the interests of the Noteholders. 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 Company or the Holders of at least 25% in principal amount of the applicable Notes Outstanding may declare the principal (and premium, if any), accrued and unpaid interest and any other monetary obligations on all such then outstanding Notes to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders). Upon the effectiveness of such declaration, such principal (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 principal amount of all the 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 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. 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 Company or any Subsidiary Guarantor (in accordance with the applicable Guarantee of the Notes) or any other obligor upon the Notes and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company, any Subsidiary Guarantor or any other obligor upon the Notes, wherever situated. 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 or any Guarantee of the Notes by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any 57 such rights, including, seeking recourse against any Subsidiary Guarantor pursuant to the terms of any Guarantee of the Notes, 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 including, without limitation, seeking recourse against any Subsidiary Guarantor pursuant to the terms of a Guarantee of the Notes, or to enforce any other proper remedy, subject however to Section 513. No recovery of any such judgment upon any property of the Company or any Subsidiary Guarantor 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 Company or any other obligor, including any Subsidiary Guarantor, upon the Notes or the property of the Company or of such other obligor or their creditors, the Trustee (irrespective of whether the principal of the 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 Company 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 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, participating 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 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 Notes. ------------------------------------------------------ All rights of action and claims under this Indenture, the Notes or the Guarantees of the Notes may be prosecuted and enforced by the Trustee without the possession of any of the 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 58 and counsel, be for the ratable benefit of the Holders of the Notes in respect of which such judgment has been recovered. SECTION 506. Application of Money Collected. ------------------------------ Subject to Article Thirteen, 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 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 holders of Senior Indebtedness to the extent required by Article Thirteen; THIRD: To the payment of the amounts then due and unpaid for principal of (and premium, if any) and interest on the 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 Notes for principal (and premium, if any) and interest, respectively; and FOURTH: The balance, if any, to the Person or Persons entitled thereto, including the Company or any other obligor on the 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, premium, if any, or interest when due, no holder may pursue any remedy with respect to the Indenture or the Notes unless: (i) such holder has previously given the Trustee notice that an Event of Default is continuing; (ii) holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy; (iii) such holders have offered the Trustee reasonable security or indemnity against any loss, liability or expense; (iv) the Trustee has not complied with such request within 60 days after the receipt of the request and the offer of security or indemnity; and (v) the holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction that, in the opinion of the Trustee, is inconsistent with such request within such 60-day period. 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, any Note or any Guarantee of the Notes 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, any Note or any Guarantee of the Notes, except in the manner herein provided and for the equal and ratable benefit of all the Holders. 59 SECTION 508. Unconditional Right of Holders to Receive Principal, ---------------------------------------------------- Premium and Interest. -------------------- Notwithstanding any other provision in this Indenture (other than Article Thirteen), the Holder of any Note shall have the right, which is absolute and unconditional, to receive payment, as provided herein (including, if applicable, Article Eleven) and in such Note of the principal of (and premium, if any) and (subject to Section 311) interest on such Note on the respective Stated Maturities expressed in such 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. 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 or any Guarantee of the Notes 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 Company, any Subsidiary Guarantor, any other obligor on the 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 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 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 (i) 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. 60 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 Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes) may on behalf of the Holders of all the Notes, by written notice to the Trustee, waive any existing Default or Event of Default and its consequences under this Indenture or any Guarantee of the Notes except a continuing Default or Event of Default in the payment of interest on, premium, if any, or the principal of, any such 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 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 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 Notes, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Note on or after the respective Stated Maturities expressed in such Note (or, in the case of redemption, on or after the Redemption Date). 61 600. ARTICLE SIX. THE TRUSTEE 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 by the Company, any other obligor of the Notes or by any 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 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 Company 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. 62 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 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 Company 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; (ii) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company 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; 63 (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 Company, 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 --------------------------------------------------- Notes. ----- The recitals contained herein and in the Notes, except for the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness and it shall not be responsible for the Company's use of the proceeds from the Notes. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Notes, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the 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 Company are true and accurate, subject to the qualifications set forth therein. The Trustee shall not be accountable for the use or application by the Company of the proceeds of the Notes. SECTION 605. May Hold Notes. -------------- The Trustee, any Paying Agent, any Note Registrar, any Authenticating Agent or any other agent of the Company or of the Trustee, in its individual or any other capacity, may become the owner or pledgee of Notes and, subject to TIA Sections 310(b) and 311, may otherwise deal with the Company 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 Company. 64 SECTION 607. Compensation and Reimbursement. ------------------------------ The Company agrees: (i) to pay to the Trustee from time to time such compensation as shall be agreed to in writing between the Company 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 Company 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 Company, the Trustee shall have a lien prior to the Holders of the 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 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. 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 Company 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 65 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) The Trustee may resign at any time by giving written notice thereof to the Company. Upon receiving such notice of resignation, the Company 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 Company, 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 Notes, delivered to the Trustee and to the Company. The Trustee so removed may, at the expense of the Company, 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 Company or by any Holder who has been a bona fide Holder of a 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 Company or by any Holder who has been a bona fide Holder of a 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 Company, 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 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 Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in principal amount of the outstanding Notes delivered to the Company 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 Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any 66 Holder who has been a bona fide Holder of a Note for at least six months may, at the expense of the Company on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to the Holders of 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 Company 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 Company 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 Company'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 Company 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 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 Notes so authenticated with the same effect as if such successor Trustee had itself authenticated such Notes. In case at that time any of the Notes shall not have been authenticated, any successor Trustee may authenticate such 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 Notes in the name of any predecessor Trustee shall apply only to its successor or successors by merger, conversion or consolidation. 67 SECTION 612. Trustee's Application for Instructions from the Company. ------------------------------------------------------- Any application by the Trustee for written instructions from the Company 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 Company 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. 700. ARTICLE SEVEN. HOLDERS LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 701. Company to Furnish Trustee Names and Addresses. ---------------------------------------------- The Company 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 Company 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 Notes, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company 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 May 15 of each year commencing with the first May 15 after the first issuance of 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 May 15 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 Company's compliance with any of its covenants hereunder (as to which the Trustee is entitled to conclusively rely exclusively on Officer's Certificates). 68 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 Notes are listed. The Company agrees to notify promptly the Trustee whenever the Notes become listed on any stock exchange and of any delisting thereof. 800. ARTICLE EIGHT. MERGER, CONSOLIDATION, OR SALE OF ASSETS SECTION 801. Company May Consolidate, Etc., Only on Certain Terms. ---------------------------------------------------- The Company 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 Company) shall expressly assume, by supplemental indenture, executed and delivered to the Trustee, in form satisfactory to the Trustee, all the obligations of the Company under the Notes and 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 Company or the Successor Company if the Company 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 Company immediately prior to the transaction; (iv) immediately after giving effect to such transaction, the Successor Company would at the time of such transaction or series of transactions, after giving pro forma effect to such transaction be able to Incur at least $1.00 of Indebtedness pursuant to Section 1010; and (v) the Company 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 (v) 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), (x) any Restricted Subsidiary may consolidate with, merge into or transfer all or part of its properties and assets to the Company and (y) the Company may merge with an Affiliate incorporated solely for the purpose of reincorporating the Company in another jurisdiction to realize tax or other benefits. 69 SECTION 802. Successor Substituted. --------------------- Upon any consolidation of the Company with or merger of the Company with or into any other corporation or any conveyance, transfer, lease or other disposition of all or substantially all of the assets of the Company 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 Company hereunder and thereafter the predecessor Company 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, the predecessor Company will not be released from the obligation to pay the principal of and interest on the Notes. 900. ARTICLE NINE. SUPPLEMENTS AND AMENDMENTS TO INDENTURE SECTION 901. Supplemental Indentures Without Consent of Holders. -------------------------------------------------- Without the consent of any Holders, the Company, the Subsidiary Guarantors, if any (with respect to a Guarantee of the Notes to which it is a party), 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 Notes in addition to or in place of certificated Notes (provided that the uncertificated Notes are issued in registered form for purposes of Section 163(f) of the Code, or in a manner such that the uncertificated Notes are described in Section 163(f)(2)(B) of the Code); or (iii) to add Guarantees with respect to the Notes; or (iv) to provide for the assumption by a successor corporation, partnership, trust or limited liability company of the obligations of the Company hereunder; or (v) to secure the Notes; or (vi) to provide that any Indebtedness that becomes or will become an obligation of the Successor Company pursuant to a transaction governed by Section 801 (and that is not a Subordinated Obligation) is Senior Subordinated Indebtedness for purposes of this Indenture; or (vii) to add to the covenants of the Company for the benefit of the Holders or to surrender any right or power conferred upon the Company; or (viii) to make any other change that does not adversely affect the rights of any Holder; or (ix) to comply with any requirement of the SEC in connection with the qualification of this Indenture under the Trust Indenture Act. However, no amendment may be made to the subordination provisions of the Indenture that adversely affects the rights of any holder of Senior Indebtedness then outstanding unless the holders of such Senior Indebtedness (or any group or representative thereof authorized to give a consent) consent to such change. 70 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 Notes (including consents obtained in connection with a tender offer or exchange offer for the Notes), the Company, 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 Note affected thereby (with respect to any Notes held by a nonconsenting Holder of the Notes): (i) reduce the amount of 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 Note; or (iii) reduce the principal of or extend the Stated Maturity of any Note; or (iv) reduce the premium payable upon the redemption or repurchase of any Note or change the time at which any Note may be redeemed as described in Section 1101; or (v) make any Note payable in money other than that stated in the Note; or (vi) impair the right of any Holder to receive payment of principal of and interest on such Holder's Notes on or after the due dates therefor or to institute suit for the enforcement of any payment on or with respect to such Holder's Notes; or (vii) make any change in the amendment provisions which require each Holder's consent or in the waiver provisions. 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 Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby (except as provided in Section 902). 71 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 Notes to Supplemental Indentures. --------------------------------------------- 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 Company or the Trustee shall so determine, new Notes so modified as to conform to any such supplemental indenture may be prepared and executed by the Company, and the Company shall issue and the Trustee shall authenticate a new Note that reflects the changed terms, the cost and expense of which will be borne by the Company in exchange for outstanding Notes. SECTION 907. Notice of Supplemental Indentures. --------------------------------- Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of Section 902, the Company shall give notice thereof to the Holders of each Outstanding 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. SECTION 908. Effect on Senior Indebtedness. ----------------------------- No supplemental indenture shall adversely affect the rights of any holders of Senior Indebtedness under Article Thirteen unless the requisite holders of each issue of Senior Indebtedness (or any group or representative thereof authorized to give consent) affected thereby shall have consented to such supplemental indenture. 1000. ARTICLE TEN. COVENANTS SECTION 1001. Payment of Principal, Premium, if any, and Interest. --------------------------------------------------- The Company 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 Notes in accordance with the terms of the Notes and this Indenture. SECTION 1002. Maintenance of Office or Agency. ------------------------------- The Company will maintain in The City of New York, an office or agency where the Notes may be presented or surrendered for payment, where, if applicable, the Notes may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The corporate trust office of the Trustee c/o State Street Bank and Trust Company, N.A., 61 Broadway, New York, New York 10006 shall be such office or agency of the Company, unless the Company shall designate and maintain some other office or agency for one or more of such purposes. The Company 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 Company shall fail to maintain any such required office or agency 72 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 Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. The Company 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 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 Company of its obligation to maintain an office or agency in The City of New York for such purposes. The Company 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 Company 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 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 Company shall have one or more Paying Agents for the Notes, it will, on or before each due date of the principal of (or premium, if any) or interest on any 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 Company will promptly notify the Trustee of such action or any failure to so act. The Company 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 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 Company (or any other obligor upon the Notes) in the making of any payment of principal (and premium, if any) or interest; and (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 Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company 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 Company 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. 73 Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of (or premium, if any) or interest on any Note and remaining unclaimed for two years after such principal, premium or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company 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 Company, may at the expense of the Company 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 Company. SECTION 1004. Corporate Existence. ------------------- Subject to Article Eight, the Company 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 Company and each Restricted Subsidiary; provided, however, that the Company shall not be required to preserve any such existence (except the Company) right, license or franchise if the Board of Directors of the Company shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company 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 Company 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 Company or any Subsidiary or upon the income, profits or property of the Company 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 Company or any Restricted Subsidiary; provided, however, that the Company 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 Company) are being maintained in accordance with GAAP. SECTION 1006. [Intentionally Omitted]. ----------------------- SECTION 1007. [Intentionally Omitted]. ----------------------- SECTION 1008. [Intentionally Omitted]. ----------------------- 74 SECTION 1009. Limitation on Restricted Payments. --------------------------------- (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries, directly or indirectly, to (i) declare or pay any dividend or make any distribution on or in respect of its Capital Stock except (A) dividends or distributions payable in its Capital Stock (other than Disqualified Stock) and (B) dividends or distributions payable to the Company or a Restricted Subsidiary of the Company (and if such Restricted Subsidiary is not a Wholly-Owned Subsidiary, to its other holders of Capital Stock on a pro rata basis), (ii) purchase, redeem, retire or otherwise acquire for value any Capital Stock of the Company held by Persons other than a Restricted Subsidiary of the Company or any Capital Stock of a Restricted Subsidiary of the Company held by any Affiliate of the Company, other than another Restricted Subsidiary (in either case, other than in exchange for its Capital Stock (other than Disqualified Stock)), (iii) purchase, repurchase, redeem, defease or otherwise acquire or retire for value, prior to scheduled maturity, scheduled repayment or scheduled sinking fund payment, any Subordinated Obligations (other than the purchase, repurchase or other acquisition of Subordinated Obligations purchased in anticipation of satisfying a sinking fund obligation, principal installment or final maturity, in each case due within one year of the date of purchase, repurchase or acquisition) or (iv) make any Investment (other than a Permitted Investment) in any Person (any such dividend, distribution, purchase, redemption, repurchase, defeasance, other acquisition, retirement or Investment being herein referred to in clauses (i) through (iv) as a "Restricted Payment"), if at the time the Company or such Restricted Subsidiary makes such Restricted Payment: (1) a Default shall have occurred and be continuing (or would result therefrom); or (2) the Company is not able to incur an additional $1.00 of Indebtedness pursuant to Section 1010; or (3) the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made subsequent to the Issue Date would exceed the sum of: (A) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from, but excluding, the Issue Date to, but excluding, the date of such Restricted Payment (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit); (B) the aggregate net proceeds, including the fair market value of property other than cash (determined in good faith by the Board of Directors as evidenced by a certificate filed with the Trustee, except that in the event the value of any non-cash consideration shall be $10 million or more, the value shall be as determined in writing by an Independent Appraiser) received by the Company from the issue or sale of its Capital Stock (other than Disqualified Stock) or other capital contributions subsequent to the Issue Date (other than net proceeds received from an issuance or sale of such Capital Stock to a Subsidiary of the Company or an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination); (C) the amount by which Indebtedness of the Company is reduced on the Company's balance sheet upon the conversion or exchange (other than by a Subsidiary of the Company) subsequent to the Issue Date of any Indebtedness of the Company convertible or exchangeable for Capital Stock of the Company (less the amount of any cash, or other property, distributed by the Company upon such conversion or exchange); (D) the amount equal to the net reduction in Investments made by the Company or any of its Restricted Subsidiaries in any Person resulting from (i) repurchases or redemptions of such Investments by such Person, proceeds realized upon the sale of such Investment to an unaffiliated purchaser, repayments of loans or advances or other transfers of assets (including by way of dividend or distribution) by such Person to the Company or any Restricted Subsidiary of the Company or (ii) the redesignation of Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the definition of "Investment") not to exceed, in the case of any Unrestricted Subsidiary, the amount of Investments previously made by the Company or any Restricted Subsidiary in such Unrestricted Subsidiary, which amount was included in the calculation of the amount of Restricted Payments; provided, however, that no amount shall be included under this clause (D) to the extent it is already included in Consolidated Net Income. 75 (b) The provisions of paragraph (a) shall not prohibit: (i) any purchase or redemption of Capital Stock or Subordinated Obligations of the Company or any Restricted Subsidiary made by exchange for, or out of the proceeds of the substantially concurrent sale of, Capital Stock of the Company (other than Disqualified Stock and other than Capital Stock issued or sold to a Subsidiary or an employee stock ownership plan or similar trust to the extent such sale to an employee stock ownership plan or similar trust is financed by loans from the Company or any Restricted Subsidiary unless such loans have been repaid with cash on or prior to the date of determination); provided, however, that (A) such purchase or redemption shall be excluded in subsequent calculations of the amount of Restricted Payments and (B) the aggregate net proceeds from such sale shall be excluded from clause (3) (B) of paragraph (a); (ii) any purchase or redemption of Subordinated Obligations of the Company made by exchange for, or out of the proceeds of the substantially concurrent sale of, Subordinated Obligations of the Company; provided, however, that such purchase or redemption shall be excluded in subsequent calculations of the amount of Restricted Payments; (iii) any purchase or redemption of Subordinated Obligations from Net Available Cash to the extent permitted under 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 Holdings to redeem or repurchase Capital Stock of Holdings from existing or former employees or management of the Company or any Subsidiary or their assigns, estates or heirs, in each case in connection with the repurchase provisions under employee stock option or stock purchase agreements or other agreements to compensate management employees; provided that such redemption or repurchases pursuant to this clause shall not exceed $5.0 million (and such maximum amount shall be increased by the amount of any proceeds to the Company from (x) sales of Capital Stock of Holdings to management employees subsequent to the Issue Date and (y) any "key-man" life insurance policies which are used to make such redemptions or repurchases) in the aggregate; provided, however, that such payments shall be included in the calculation of the amount of Restricted Payments; provided, further, that the cancellation of Indebtedness owing to the Company from members of management of the Company or any of its Restricted Subsidiaries in connection with a repurchase of Capital Stock of Holdings will not be deemed to constitute a Restricted Payment under the Indenture; (vi) loans or advances made after the Issue Date to employees or directors of the Company or any Subsidiary the proceeds of which are used to purchase Capital Stock of Holdings, in an aggregate amount not in excess of $1.0 million at any one time outstanding; provided, however, that such payments shall be included in the calculation of the amount of Restricted Payments; (vii) cash dividends to Holdings in amounts equal to (A) the amounts required for Holdings to pay any Federal, state or local income taxes to the extent that such income taxes are attributable to the income of the Company and its Subsidiaries, (B) the amounts required for Holdings to pay franchise taxes and other fees required to maintain its legal existence, (C) an amount not to exceed $250,000 in any fiscal year to permit Holdings to pay its corporate overhead expenses incurred in the ordinary course of business, and to pay salaries or other compensation of employees who perform services for both Holdings and the Company, (D) so long as no Default or Event of Default shall have occurred and be continuing, an amount not to exceed $100,000 in the aggregate, to enable Holdings to make payments to holders of its Capital Stock in lieu of issuance of fractional shares of its Capital Stock, (E) the amounts required for Holdings to make indemnification payments under the Recapitalization Agreement, and (F) on or about the Issue Date the amount required to enable Holdings to repay the Holdings Facility in an amount not to exceed the difference between all amounts then owing by Holdings in respect of the Holdings Facility less the net proceeds to Holdings from the issuance of the Holdings Senior Discount Notes; provided, however, that such payments shall not be included in the calculation of the amount of Restricted Payments; (viii) repurchases of Capital Stock deemed to occur upon the exercise of stock options if such Capital Stock represents a portion of the exercise price hereof; provided, however, that such repurchases shall not be included in the calculation of the amount of Restricted Payments; and (ix) so long as (A) no Default or Event of Default has occurred and is continuing and (B) immediately before and immediately after giving effect 76 thereto, the Company would have been permitted to Incur at least $1.00 of additional Indebtedness under Section 1010, on and after May 15, 2003, payments of cash dividends to Holdings in an amount sufficient to enable Holdings to make payments of interest required to be made in respect of the Holdings Senior Discount Notes in accordance with the terms thereof in effect on the date of the Indenture, provided, that such interest payments are made with the proceeds of such dividends; provided, however, that such payments shall not be included in the calculation of the amount of Restricted Payments. (c) Not later than the date of making any Restricted Payment, the Company 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 Company'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 Company 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. -------------------------- (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, Incur any Indebtedness; provided, however, that the Company and its Restricted Subsidiaries may Incur Indebtedness if on the date thereof the Consolidated Coverage Ratio for the Company and its Restricted Subsidiaries is at least (i) 2.00 to 1.00, if such Indebtedness is Incurred on or prior to the second anniversary of the Issue Date and (ii) 2.25 to 1.00, if such Indebtedness is Incurred thereafter. (b) Notwithstanding the foregoing paragraph (a), the Company and its Restricted Subsidiaries may Incur the following Indebtedness: (i) Indebtedness Incurred pursuant to the Senior Credit Agreement; provided, however, that the aggregate principal amount of all Indebtedness Incurred pursuant to this clause (i) does not exceed $160 million at any time outstanding, less the aggregate principal amount of all mandatory prepayments of principal thereof with the proceeds of Asset Dispositions; (ii) the Subsidiary Guarantees and Guarantees of Indebtedness Incurred pursuant to clause (i); (iii) Indebtedness of the Company owing to and held by any Wholly-Owned Subsidiary or Indebtedness of a Restricted Subsidiary owing to and held by the Company or any Wholly-Owned Subsidiary; provided, however, that any subsequent issuance or transfer of any Capital Stock or any other event which results in any such Wholly-Owned Subsidiary ceasing to be a Wholly-Owned Subsidiary or any subsequent transfer of any such Indebtedness (except to the Company or a Wholly-Owned Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such Indebtedness by the issuer thereof; (iv) Indebtedness represented by (x) the Notes, (y) any Indebtedness (other than the Indebtedness described in clauses (i), (ii) and (iii)) outstanding on the Issue Date and (z) any Refinancing Indebtedness Incurred in respect of any Indebtedness described in this clause (iv) or clause (v) or Incurred pursuant to paragraph (a) of 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 1010 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 77 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; (vii) Indebtedness of foreign Restricted Subsidiaries under working capital facilities; provided that the aggregate principal amount of such Indebtedness outstanding at any time does not exceed 5% of Consolidated Tangible Assets; (viii) Indebtedness (including Capital Lease Obligations) incurred by the Company or any of its Restricted Subsidiaries to finance the purchase, lease or improvement of property (real or personal) or equipment (whether through the direct purchase of assets or the Capital Stock of any Person owning such assets) in an aggregate principal amount outstanding not to exceed the greater of (A) $5.0 million or (B) 5% of Consolidated Tangible Assets at the time of any Incurrence thereof (including any Refinancing Indebtedness with respect thereto); (ix) Indebtedness incurred by the Company or any of its Restricted Subsidiaries constituting reimbursement obligations with respect to letters of credit issued in the ordinary course of business, including, without limitation, letters of credit in respect of workers' compensation claims or self-insurance, or other Indebtedness with respect to reimbursement type obligations regarding workers' compensation claims; (x) Indebtedness arising from agreements of the Company or a Restricted Subsidiary of the Company providing for indemnification, adjustment of purchase price, earn out or other similar obligations, in each case, incurred or assumed in connection with the disposition of any business, assets or a Restricted Subsidiary of the Company, provided that the maximum liability in respect of all such Indebtedness shall at no time exceed the gross proceeds actually received by the Company and its Restricted Subsidiaries in connection with such disposition; (xi) obligations in respect of performance and surety bonds and completion guarantees provided by the Company or any Restricted Subsidiary of the Company in the ordinary course of business; and (xii) Indebtedness (other than Indebtedness described in clauses (i) 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. (c) Neither the Company nor any Restricted Subsidiary shall Incur any Indebtedness under paragraph (b) above if the proceeds thereof are used, directly or indirectly, to refinance any Subordinated Obligations of the Company unless such Indebtedness shall be subordinated to the Notes to at least the same extent as such Subordinated Obligations. No Subsidiary Guarantor shall incur any Indebtedness under paragraph (b) above if the proceeds thereof are used, directly or indirectly to refinance any Subordinated Obligations of such Subsidiary Guarantor unless such Indebtedness shall be subordinated to the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee to at least the same extent as such Subordinated Indebtedness. SECTION 1011. Limitation on Layering. ---------------------- The Company shall not Incur any Indebtedness if such Indebtedness is subordinate or junior in ranking in any respect to any Senior Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or is contractually subordinated in right of payment to Senior Subordinated Indebtedness. No Subsidiary Guarantor shall Incur any Indebtedness if such Indebtedness is contractually subordinate or junior in ranking in any respect to any Senior Indebtedness of such Subsidiary Guarantor unless such Indebtedness is Guarantor Senior Subordinated Indebtedness of such Subsidiary Guarantor or is contractually subordinated in right of payment to Senior Subordinated Indebtedness of such Subsidiary Guarantor. 78 SECTION 1012. Limitation on Affiliate Transactions. ------------------------------------ (a) The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, enter into or conduct any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any Affiliate of the Company (an "Affiliate Transaction") unless: (i) the terms of such Affiliate Transaction are no less favorable to the Company or such Restricted Subsidiary, as the case may be, than those that could be obtained at the time of such transaction in arm's-length dealings with a Person who is not such an Affiliate; (ii) in the event such Affiliate Transaction involves an aggregate amount in excess of $2 million, the terms of such transaction have been approved by a majority of the members of the Board of Directors of the Company and by a majority of the members of such Board having no personal stake in such transaction, if any (and such majority or majorities, as the case may be, determines that such Affiliate Transaction satisfies the criteria in (i) above); and (iii) in the event such Affiliate Transaction involves an aggregate amount in excess of $15 million, the Company has received a written opinion from an independent investment banking firm of nationally recognized standing that such Affiliate Transaction is not materially less favorable than those that might reasonably have been obtained in a comparable transaction at such time on an arms-length basis from a Person that is not an Affiliate. (b) The foregoing paragraph (a) shall not apply to (i) any Restricted Payment permitted to be made pursuant to 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 Company, (iii) the payment of compensation and directors' fees and the performance of indemnification or contribution obligations in the ordinary course of business, (iv) loans or advances to employees in the ordinary course of business of the Company or any of its Restricted Subsidiaries, (v) the execution, delivery and performance of the Management Agreement, or (vi) any transaction between the Company and a Wholly-Owned Subsidiary or between Wholly-Owned Subsidiaries. SECTION 1013. Limitation on Restrictions on Distributions from ------------------------------------------------ Restricted Subsidiaries. - ----------------------- The Company will not, and will not permit any Restricted Subsidiary to, create or otherwise cause or permit to exist or become effective any consensual encumbrance or consensual restriction on the ability of any Restricted Subsidiary to (i) pay dividends or make any other distributions on its Capital Stock or pay any Indebtedness or other obligations owed to the Company, (ii) make any loans or advances to the Company or (iii) transfer any of its property or assets to the Company, except (a) any encumbrance or restriction pursuant to an agreement in effect at or entered into on the date of the Indenture (including, without limitation, the Senior Credit Agreement); (b) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement relating to any Indebtedness Incurred by a Restricted Subsidiary on or prior to the date on which such Restricted Subsidiary was acquired by the Company (other than Indebtedness Incurred to provide all or any portion of the funds utilized to consummate, the transaction or series of related transactions pursuant to which such Restricted Subsidiary became a Restricted Subsidiary or was acquired by the Company) and outstanding on such date; (c) any encumbrance or restriction with respect to a Restricted Subsidiary pursuant to an agreement effecting a refinancing of Indebtedness Incurred pursuant to an agreement referred to in clause (a) or (b) of this covenant or this clause (c) or contained in any amendment to an agreement referred to in clause (a) or (b) of this covenant or this clause (c); provided, however, that the encumbrances and restrictions with respect to such Restricted Subsidiary contained in any such agreement or amendment are no less favorable to the Holders of the Notes than encumbrances and restrictions contained in such agreements; (d) in the case of clause (iii) above, any encumbrance or restriction (A) that restricts in a customary manner the subletting, assignment or transfer of any property or asset that is subject to a lease, license or similar contract, or the assignment or transfer of any such lease, license or other contract, (B) by virtue of any transfer of, agreement to transfer, option or right with respect to, or Lien on, any property or assets of the Company or any Restricted Subsidiary not otherwise prohibited by the Indenture, 79 (C) contained in mortgages, pledges or other security agreements securing Indebtedness of a Restricted Subsidiary to the extent such encumbrance or restrictions restrict the transfer of the property subject to such mortgages, pledges or other security agreements or (D) pursuant to customary provisions restricting dispositions of real property interests set forth in any reciprocal easement agreements of the Company or any Restricted Subsidiary; (e) any restriction with respect to a Restricted Subsidiary (or any of its property or assets) imposed pursuant to an agreement entered into for the direct or indirect sale or disposition of all or substantially all the Capital Stock or assets of such Restricted Subsidiary (or the property or assets that are subject to such restriction) pending the closing of such sale or disposition; (f) encumbrances or restrictions arising or existing by reason of applicable law; (g) any restrictions pursuant to the Indenture and the Holdings Senior Discount Notes; (h) restrictions imposed by any agreement or instrument governing Capital Stock of any Person that is acquired; and (i) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business. SECTION 1014. Limitation on Liens. ------------------- The Company will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or suffer to exist any Liens of any kind against or upon any of its property or assets, or any proceeds therefrom, unless (i) in the case of Liens securing Indebtedness that is expressly subordinate or junior in right of payment to the Notes, the Notes are secured by a Lien on such property, assets or proceeds that is senior in priority to such Liens and (ii) in all other cases, the Notes are equally and ratably secured, except for (A) Liens existing as of the Issue Date and any extensions, renewals or replacements thereof, (B) Liens securing Senior Indebtedness, (C) Liens securing the Notes, (D) Liens of the Company or a Wholly-Owned Restricted Subsidiary of the Company on assets of any Subsidiary of the Company, (E) Liens securing Indebtedness which is incurred to refinance Indebtedness which has been secured by a Lien permitted under the Indenture and which has been incurred in accordance with the provisions of the Indenture; provided, however, that such Liens do not extend to or cover any property or assets of the Company or any of its Restricted Subsidiaries not securing the Indebtedness so refinanced, and (F) Permitted Liens. SECTION 1015. Change of Control. ----------------- (a) Upon the occurrence of a Change of Control, unless the Company shall have exercised its right to redeem the Notes as described in Section 1101, each holder will have the right to require the Company to repurchase all or any part of such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date). (b) Within 30 days following any Change of Control, unless the Company has mailed a redemption notice with respect to all the outstanding Notes in connection with such Change of Control as described in Section 1105, the Company shall mail a notice to each holder with a copy to the Trustee stating: (i) that a Change of Control has occurred and that such holder has the right to require the Company to purchase such holder's Notes at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase (subject to the right of holders of record on a record date to receive interest on the relevant interest payment date); (ii) the repurchase date (which shall be no earlier than 30 days nor later than 60 days from the date such notice is mailed); and (iii) the procedures determined by the Company, consistent with the Indenture, that a holder must follow in order to have its Notes purchased. 80 (c) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to this covenant. To the extent that the provisions of any securities laws or regulations conflict with provisions of the Indenture, the Company will comply with the applicable securities laws and regulations and shall not be deemed to have breached its obligations described in the Indenture by virtue thereof. SECTION 1016. Limitation on Sales of Assets and Subsidiary Stock. -------------------------------------------------- (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any Asset Disposition unless (i) the Company or such Restricted Subsidiary receives consideration at the time of such Asset Disposition at least equal to the fair market value, as determined in good faith by the Board of Directors (including as to the value of all non-cash consideration), of the shares and assets subject to such Asset Disposition, (ii) at least 75% of the consideration thereof received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents and (iii) an amount equal to 100% of the Net Available Cash from such Asset Disposition is applied by the Company (or such Restricted Subsidiary, as the case may be) (A) first, to the extent the Company or any Restricted Subsidiary, as the case may - ----- be, elects (or is required by the terms of any Senior Indebtedness), to prepay, repay or purchase Senior Indebtedness or Indebtedness (other than any Preferred Stock) of a Wholly-Owned Subsidiary (in each case other than Indebtedness owed to the Company or an Affiliate of the Company) within 180 days from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (B) second, to the extent of the balance of such Net Available Cash after ------ application in accordance with clause (A), at the Company's election to the investment in Additional Assets within one year from the later of the date of such Asset Disposition or the receipt of such Net Available Cash; (C) third, to ----- the extent of the balance of such Net Available Cash after application and in accordance with clauses (A) and (B), to make an offer to purchase (an "Offer") Notes and other pari passu debt obligations subject to a similar covenant (collectively, the "pari passu Notes") at par plus accrued and unpaid interest, if any, thereon; and (D) fourth, to the extent of the balance of such Net ------ Available Cash after application in accordance with clauses (A), (B) and (C), for other general corporate purposes not prohibited by the Indenture; provided, however, that, in connection with any prepayment, repayment or purchase of Indebtedness pursuant to clause (A) above, the Company or such Restricted Subsidiary shall retire such Indebtedness and shall cause the related loan commitment (if any) to be permanently reduced in an amount equal to the principal amount so prepaid, repaid or purchased. Notwithstanding the foregoing provisions, the Company and its Restricted Subsidiaries shall not be required to apply any Net Available Cash in accordance herewith except to the extent that the aggregate Net Available Cash from all Asset Dispositions which are not applied in accordance with this covenant exceed $5 million. The Company shall not be required to make an Offer for the Notes and for the pari passu Notes pursuant to this covenant if the Net Available Cash available therefor (after application of the proceeds as provided in clauses (A) and (B)) are less than $5 million for any particular Asset Disposition (which lesser amounts shall be carried forward for purposes of determining whether an Offer is required with respect to the Net Available Cash from any subsequent Asset Disposition). (b) If the aggregate principal amount of Notes and pari passu Notes validly tendered and not withdrawn in connection with an Offer pursuant to clause (C) above exceeds the funds available therefor ("Offer Proceeds"), the Offer Proceeds will be apportioned between the Notes and such pari passu Notes, with the portion of the Offer Proceeds payable in respect of the Notes equal to the lesser of (i) the Offer Proceeds amount multiplied by a fraction, the numerator of which is the outstanding principal amount of the Notes and the denominator of which is the sum of the outstanding principal amount of the Notes and the outstanding principal amount of the relevant pari passu Notes, and (ii) the aggregate principal amount of Notes validly tendered and not withdrawn. (c) For the purposes of this covenant, the following will be deemed to be cash: (x) the assumption by the transferee of Senior Indebtedness of the Company or Indebtedness of any Restricted 81 Subsidiary of the Company and the release of the Company or such Restricted Subsidiary from all liability on such Senior Indebtedness or Indebtedness in connection with such Asset Disposition (in which case the Company shall, without further action, be deemed to have applied such assumed Indebtedness in accordance with clause (A) of the preceding paragraph), (y) securities received by the Company or any Restricted Subsidiary of the Company from the transferee that are promptly converted by the Company or such Restricted Subsidiary into cash and (z) any Designated Noncash Consideration received by the Company or any of its Restricted Subsidiaries in such Asset Disposition having an aggregate fair market value, taken together with all other Designated Noncash Consideration received pursuant to this clause (z) that is at that time outstanding, not to exceed 10% of Consolidated Tangible Assets at the time of the receipt of such Designated Noncash Consideration (with the fair market value of each item of Designated Noncash Consideration being measured at the time received and without giving effect to subsequent changes in value). (d) In the event of an Asset Disposition that requires the purchase of Notes pursuant to clause (a)(iii)(C), the Company will be required to purchase Notes tendered pursuant to an offer by the Company for the Notes at a purchase price of 100% of their principal amount plus accrued and unpaid interest, if any, to the purchase date in accordance with the procedures (including prorating in the event of oversubscription) set forth in the Indenture. If the aggregate purchase price of the pari passu Notes tendered pursuant to the offer is less than the Net Available Cash allotted to the purchase of the pari passu Notes, the Company will apply the remaining Net Available Cash in accordance with clause (a)(iii)(D) above. (e) The Company will comply, to the extent applicable, with the requirements of Section 14(e) of the Exchange Act and any other securities laws or regulations in connection with the repurchase of Notes pursuant to the Indenture. To the extent that the provisions of any securities laws or regulations conflict with provisions of this covenant, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the Indenture by virtue thereof. SECTION 1017. SEC Reports. ----------- Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, to the extent permitted by the Exchange Act, the Company will file with the SEC and provide, within 15 days after the Company is required to file the same with the SEC, the Trustee and the holders of the Notes with the annual reports and the information, documents and other reports (or copies of such portions of any of the foregoing as the 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 Company is not permitted to file such reports, documents and information with the SEC pursuant to the Exchange Act, the Company will nevertheless deliver such Exchange Act information to the holders of the Notes as if the Company were subject to the reporting requirements of Sections 13 and 15(d) of the Exchange Act. SECTION 1018. Future Subsidiary Guarantors. ---------------------------- (a) After the Issue Date, the Company will cause each Restricted Subsidiary created or acquired by the Company which Guarantees the Bank Indebtedness to execute and deliver to the Trustee a Subsidiary Guarantee pursuant to which such Subsidiary Guarantor will unconditionally Guarantee on a joint and several basis, the full and prompt payment of the principal of, premium, if any and interest on Notes on a senior subordinated basis for so long as such Restricted Subsidiary Guarantees the Bank Indebtedness. (b) The obligations of each Subsidiary Guarantor will be limited to the maximum amount as will, after giving effect to all other contingent and fixed liabilities of such Subsidiary Guarantor (including, without limitation, any guarantees under the Senior Credit Agreement) and after giving effect to any collections from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under its Subsidiary Guarantee or pursuant to its contribution obligations under 82 the Indenture, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent transfer under federal or state law. (c) Each Subsidiary Guarantor will be permitted to consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor without limitation. Each Subsidiary Guarantor will be permitted to consolidate with or merge into or sell all or substantially all its assets to a corporation, partnership or trust other than the Company or another Subsidiary Guarantor (whether or not affiliated with the Subsidiary Guarantor). Upon the sale or disposition of a Subsidiary Guarantor (by merger, consolidation, the sale of all or substantially all of its assets) to a Person (whether or not an Affiliate of the Subsidiary Guarantor) which is not a Subsidiary of the Company, which sale or disposition is otherwise in compliance with the Indenture (including Section 1016) or in the event the Restricted Subsidiary no longer Guarantees the Bank Indebtedness, such Subsidiary Guarantor shall be deemed released from all its obligations under the Indenture and its Subsidiary Guarantee and such Subsidiary Guarantee shall terminate; provided, however, that any such termination shall occur only to the extent that all obligations of such Subsidiary Guarantor under the Senior Credit Agreement and all of its guarantees of, and under all of its pledges of assets or other security interests which secure, any other Indebtedness of the Company shall also terminate upon such release, sale or transfer. SECTION 1019. Limitation on Lines of Business. ------------------------------- The Company will not, and will not permit any Restricted Subsidiary to, engage in any business other than a Related Business. SECTION 1020. Statement by Officers as to Default. ----------------------------------- (a) The Company will deliver to the Trustee, within 120 days after the end of each fiscal year of the Company, an Officers' Certificate stating that a review of the activities of the Company 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 Company 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 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 Company elect to change the manner in which it fixes its fiscal year end. For purposes of this Section 1020(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 Company or any Significant Subsidiary 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 Company 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. 83 1100. ARTICLE ELEVEN. REDEMPTION OF NOTES SECTION 1101. Optional Redemption. ------------------- The 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 Note (Section 204), together with accrued and unpaid interest to the redemption date. SECTION 1102. Applicability of Article. ------------------------ Redemption of Notes at the election of the Company 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 Company to redeem any Notes pursuant to Section 1101 shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, at least 90 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Notes to be redeemed and shall deliver to the Trustee such documentation and records as shall enable the Trustee to select the Notes to be redeemed pursuant to Section 1104. SECTION 1104. Selection by Trustee of Notes to Be Redeemed. -------------------------------------------- If less than all the Notes are to be redeemed at any time pursuant to an optional redemption, the particular Notes to be redeemed shall be selected not more than 90 days prior to the Redemption Date by the Trustee, from the outstanding Notes not previously called for redemption, in compliance with the requirements of the principal securities exchange, if any, on which such Notes are listed, or, if such Notes are not so listed, on a pro rata basis, by lot or by such other method as the Trustee shall deem fair and appropriate (and in such manner as complies with applicable legal requirements) and which may provide for the selection for redemption of portions of the principal of the Notes; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Note not redeemed to less than $1,000. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Notes selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Notes shall relate, in the case of any Note redeemed or to be redeemed only in part, to the portion of the principal amount of such 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 Notes to be redeemed. The Trustee shall give notice of redemption in the Company's name and at the Company's expense; provided, however, that the Company shall deliver to the Trustee, at least 45 days prior to the Redemption Date, 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: 84 (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 Notes are to be redeemed, the identification of the particular Notes (or portion thereof) to be redeemed, as well as the aggregate principal amount of Notes to be redeemed and the aggregate principal amount of Notes to be Outstanding after such partial redemption, (iv) in case any Note is to be redeemed in part only, the notice which relates to such Note shall state that on and after the Redemption Date, upon surrender of such Note, the holder will receive, without charge, a new Note or Notes of authorized denominations for the principal amount 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 Note, or the portion thereof, to be redeemed, and, unless the Company defaults in making the redemption payment, that interest on Notes called for redemption (or the portion thereof) will cease to accrue on and after said date, (vi) the place or places where such 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 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 Notes, and (x) the paragraph of the Notes or Section of the Indenture pursuant to which the Notes are to be redeemed. SECTION 1106. Deposit of Redemption Price. --------------------------- Prior to any Redemption Date, the Company shall deposit with the Trustee or with a Paying Agent (or, if the Company 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 Notes which are to be redeemed on that date. SECTION 1107. Notes Payable on Redemption Date. -------------------------------- Notice of redemption having been given as aforesaid, the 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 Company shall default in the payment of the Redemption Price and accrued interest) such Notes shall cease to bear interest. Upon surrender of any such Note for redemption in accordance with said notice, such Note shall be paid by the Company at the Redemption Price, together with 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 85 shall be payable to the Holders of such Notes, or one or more Predecessor 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 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 Notes. SECTION 1108. Notes Redeemed in Part. ---------------------- Any 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 Company maintained for such purpose pursuant to Section 1002 (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing), and the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Note at the expense of the Company, a new Note or 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 Note so surrendered, provided, that each such new Note will be in a principal amount of $1,000 or integral multiple thereof. 1200. ARTICLE TWELVE. LEGAL DEFEASANCE AND COVENANT DEFEASANCE SECTION 1201. Company's Option to Effect Legal Defeasance or Covenant ------------------------------------------------------- Defeasance. - ---------- The Company and the Subsidiary Guarantors, if any, may, at their option, at any time, with respect to the Notes, elect to have either Section 1202 or Section 1203 be applied to all outstanding Notes upon compliance with the conditions set forth in this Article Twelve. The Company in its sole discretion can defease the Notes. SECTION 1202. Legal Defeasance and Discharge. ------------------------------ Upon the Company's exercise under Section 1201 of the option applicable to this Section 1202, the Company and any Subsidiary Guarantor shall be deemed to have been discharged from its obligations with respect to all outstanding 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 Company and any such Subsidiary Guarantor shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding 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 Notes and this Indenture insofar as such Notes are concerned (and the Trustee, at the expense of the Company, 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 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 Notes when such payments are due, (ii) the Company's obligations with respect to such Notes under Sections 304, 305, 310, 1002 and 1003, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder, and the Company's obligations in connection therewith and (iv) this Article Twelve. If the Company exercises its Legal Defeasance Option, payment of the Notes may not be accelerated because of an Event of Default. 86 Subject to compliance with this Article Twelve, the Company may exercise its option under this Section 1202 notwithstanding the prior exercise of its option under Section 1203 with respect to the Notes. SECTION 1203. Covenant Defeasance. ------------------- Upon the Company's exercise under Section 1201 of the option applicable to this Section 1203, the Company may terminate (i) its obligations under any covenant contained in Sections 1004 through 1020, (ii) the operation of Section 501(v), Section 501(vi) (with respect only to Significant Subsidiaries), Section 501(vii) (with respect only to Significant Subsidiaries), 501(viii) and Section 501(ix) and (iii) the limitations contained in Sections 801(a)(iii) and (iv) with respect to the outstanding Notes on and after the date the conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"), and the 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 Notes will not be outstanding for accounting purposes). If the Company exercises its covenant defeasance option, payment of the 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), (viii) and (ix) or because of the failure of the Company to comply with Sections 801(a)(iii) and (iv). For this purpose, such Covenant Defeasance means that, with respect to the outstanding Notes, the Company 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 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 Notes: (i) The Company 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 Company, to pay the principal of, premium, if any, and interest due on the outstanding 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 Notes; (ii) in the case of Legal Defeasance, the Company 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 Company 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 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; 87 (iii) in the case of Covenant Defeasance, the Company 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 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; (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 Company or any Subsidiary Guarantor is a party or by which the Company or any Subsidiary Guarantor is bound; (vi) the Company 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 Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of defeating, hindering, delaying or defrauding any creditors of the Company or any Subsidiary Guarantor or others; (viii) the Company 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 Company 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 Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such 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. Money and Government Obligations so held in trust are not subject to Article Thirteen. The Company 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. 88 Anything in this Article Twelve to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company 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 Company's obligations under this Indenture and the 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, however, that if the Company makes any payment of principal of (or premium, if any) or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money and Government Obligations held by the Trustee or Paying Agent. 1300. ARTICLE THIRTEEN. SUBORDINATION OF NOTES SECTION 1301. Notes Subordinate to Senior Indebtedness. ---------------------------------------- The Company covenants and agrees, and each Holder of a Note, by his acceptance thereof, likewise covenants and agrees, for the benefit of the holders, from time to time, of Senior Indebtedness that, to the extent and in the manner hereinafter set forth in this Article, the Indebtedness represented by the Notes and the payment of the principal of (and premium, if any) and interest on each and all of the Notes and all other Subordinated Obligations are hereby expressly made subordinate and subject in right of payment as provided in this Article to the prior payment in full in cash or Cash Equivalents of all Senior Indebtedness, whether outstanding on the Issue Date or thereafter Incurred, created, assumed or, Guaranteed. The Notes will in all respects rank pari passu with all Senior Subordinated Indebtedness of the Company. SECTION 1302. Payment over of Proceeds upon Dissolution, Etc. ---------------------------------------------- Upon any payment or distribution of the assets of the Company upon a total or partial liquidation, dissolution, reorganization or bankruptcy of or similar proceeding relating to the Company or its property: (i) the holders of Senior Indebtedness will be entitled to receive payment in full in cash or Cash Equivalents of the Senior Indebtedness (including interest after, or which would accrue but for, the commencement of any proceeding at the rate specified in the applicable Senior Indebtedness, whether or not a claim for such interest would be allowed) before the holders of the Notes are entitled to receive any payment, and (ii) until the Senior Indebtedness is paid in full in cash or Cash Equivalents, any payment or distribution to which holders of the Notes would be entitled but for the subordination provisions of the Indenture will be made to holders of the Senior Indebtedness as their interests may appear. SECTION 1303. Suspension of Payment When Senior Indebtedness in ------------------------------------------------- Default. - ------- 89 (a) The Company may not pay principal of, premium, if any, or interest on, the Notes or make any deposit pursuant to the provisions described in Article Twelve and may not otherwise purchase or retire any Notes (collectively, "pay the Notes") if: (i) any Senior Indebtedness is not paid when due whether at maturity, upon any redemption, by declaration or otherwise, in cash or Cash Equivalents; or (ii) any other default on Senior Indebtedness occurs and the maturity of such Senior Indebtedness is accelerated in accordance with its terms unless, in either case, the default has been cured or waived and any such acceleration has been rescinded or such Senior Indebtedness has been paid in full in cash or Cash Equivalents; provided however, the Company may pay the Notes without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of the Senior Indebtedness with respect to which either of the events set forth in clause (i) or (ii) of the immediately preceding sentence has occurred and is continuing. (b) During the continuance of any default (other than a default described in clause (a) (i) or (a) (ii) above) with respect to any Designated Senior Indebtedness pursuant to which the maturity thereof may be accelerated immediately without further notice (except such notice as may be required to effect such acceleration) or the expiration of any applicable grace periods, the Company may not pay the Notes for a period (a "Payment Blockage Period") commencing upon the receipt by the Trustee (with a copy to the Company) of written notice (a "Blockage Notice") of such default from the Representative of the holders of such Designated Senior Indebtedness specifying an election to effect a Payment Blockage Period and ending 179 days thereafter (or earlier if such Payment Blockage Period is terminated (i) by written notice to the Trustee and the Company from the Person or Persons who gave such Blockage Notice, (ii) because the default giving rise to such Blockage Notice is no longer continuing or (iii) because such Designated Senior Indebtedness has been repaid in full). Notwithstanding the provisions described in the immediately preceding sentence, unless the holders of such Designated Senior Indebtedness or the Representative of such holders have accelerated the maturity of such Designated Senior Indebtedness, the Company may resume payments on the Notes after the end of such Payment Blockage Period. Not more than one Blockage Notice shall be effective in any consecutive 360-day period, irrespective of the number of defaults with respect to Designated Senior Indebtedness during such period. SECTION 1304. Acceleration of Notes. --------------------- If payment of the Notes is accelerated because of an Event of Default, the Company or the Trustee shall promptly notify the holders of the Designated Senior Indebtedness or the Representative of such holders of the acceleration. The Company may not pay the Notes until five Business Days after such holders or the Representative of the Designated Senior Indebtedness receive notice of such acceleration and, thereafter, may pay the Notes only if the subordination provisions of the Indenture otherwise permit payment at that time. SECTION 1305. When Distribution Must Be Paid Over. ----------------------------------- If a distribution is made to Holders of the Notes that, due to the provisions of this Article Thirteen, should not have been made to them, such Holders are required to hold it in trust for the holders of Senior Indebtedness and pay it over to them as their interests may appear. With respect to the holders of Senior Indebtedness, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article Thirteen, and no implied 90 covenants or obligations with respect to the holders of Senior Indebtedness shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Indebtedness, and shall not be liable charged with knowledge of any facts which would require payment of any amounts held by it to the holders of Senior Indebtedness unless it has received written notice thereof within the time set forth in the proviso at Section 1313. SECTION 1306. Notice by Company. ----------------- The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes that violate this Article, but failure to give such notice shall not affect the subordination of the Notes to the Senior Indebtedness as provided in this Article Thirteen. SECTION 1307. Payment Permitted If No Default. ------------------------------- Nothing contained in this Article or elsewhere in this Indenture or in any of the Notes shall prevent the Company, at any time except during the pendency of any case, proceeding, dissolution, liquidation or other winding up, assignment for the benefit of creditors or other marshalling of assets and liabilities of the Company referred to in Section 1302 or under the conditions described in Section 1303, from making payments at any time of principal of (and premium, if any, on) or interest on the Notes. SECTION 1308. Subrogation to Rights of Holders of Senior ------------------------------------------ Indebtedness. - ------------ Subject to the payment in full of all Senior Indebtedness in cash or Cash Equivalents, the Holders shall be subrogated (equally and ratably with the holders of all pari passu Indebtedness of the Company) to the rights of the holders of such Senior Indebtedness to receive payments and distributions of cash, property and securities applicable to the Senior Indebtedness until the Subordinated Obligations shall be paid in full. For purposes of such subrogation, no payments or distributions to the holders of Senior Indebtedness of any cash, property or securities to which the Holders of the Notes or the Trustee would be entitled except for the provisions of this Article, and no payments over pursuant to the provisions of this Article to the holders of Senior Indebtedness by Holders of the Notes or on their behalf or by the Trustee, shall, as among the Company, its creditors other than holders of Senior Indebtedness, and the Holders of the Notes, be deemed to be a payment or distribution by the Company to or on account of the Senior Indebtedness; it being understood that the provisions of this Article are intended solely for the purpose of determining the relative rights of the Holders of the Notes, on the one hand, and the holders of Senior Indebtedness, on the other hand. SECTION 1309. Provisions Solely to Define Relative Rights. ------------------------------------------- The provisions of this Article are and are intended solely for the purpose of defining the relative rights of the Holders on the one hand and the holders of Senior Indebtedness on the other hand. Nothing contained in this Article or elsewhere in this Indenture or in the Notes is intended to or shall (a) impair, as between the Company and the Holders, the obligation of the Company, which is absolute and unconditional, to pay to the Holders the principal of (and premium, if any) and interest on the Notes as and when the same shall become due and payable in accordance with their terms; or (b) affect the relative rights against the Company of the Holders and creditors of the Company other than their rights in relation to holders of Senior Indebtedness; or (c) prevent the Trustee or any Holder from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article of the holders of Senior Indebtedness. If the Company fails because of this Article to pay principal (or premium, if any) or interest on a Note on the due date, the failure is still a Default or Event of Default. 91 SECTION 1310. Trustee to Effectuate Subordination. ----------------------------------- Each Holder of a Note by his acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article and appoints the Trustee his attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 504 hereof at least 30 days before the expiration of the time to file such claim, the Administrative Agent under the Senior Credit Agreement (if the such facility is still outstanding) is hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. SECTION 1311. Subordination May Not Be Impaired by Company. -------------------------------------------- No right of any present or future holder of any Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or by any act or failure to act, in good faith, by any such holder, or by any non-compliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof any such holder may have or be otherwise charged with. SECTION 1312. Distribution or Notice to Representative. ---------------------------------------- Whenever a distribution is to be made or a notice given to holders of Senior Indebtedness, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article Thirteen, the Trustee and the Holders shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Indebtedness and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other acts pertinent thereto or to this Article Thirteen. SECTION 1313. Notice to Trustee. ----------------- (a) The Company shall give prompt written notice to the Trustee of any fact known to the Company which would prohibit the making of any payment to or by the Trustee in respect of the Notes. Notwithstanding the provisions of this Article or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts which would prohibit the making of any payment to or by the Trustee in respect of the Notes, unless and until the Trustee shall have received written notice thereof from the Company, the Administrative Agent or Representative under the Senior Credit Agreement or a holder of Senior Indebtedness or from any trustee, fiduciary or agent therefor; and, prior to the receipt of any such written notice, the Trustee shall be entitled in all respects to assume that no such facts exist; provided, however, that, if the Trustee shall not have received the notice provided for in this Section at least three Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of (and premium, if any) or interest on any Note), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purpose for which such money was received and shall not be affected by any notice to the contrary which may be received by it within three Business Days prior to such date. (b) The Trustee shall be entitled to rely on the delivery to it of a written notice by a Person representing himself to be a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor) to 92 establish that such notice has been given by a holder of Senior Indebtedness (or a trustee, fiduciary or agent therefor). In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of Senior Indebtedness to participate in any payment or distribution pursuant to this Article, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. SECTION 1314. Reliance on Judicial Order or Certificate of -------------------------------------------- Liquidating Agent. - ----------------- Upon any payment or distribution of assets of the Company referred to in this Article, the Trustee and the Holders of the Notes shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of Notes, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article; provided that such court, trustee, receiver, custodian, assignee, agent or other Person has been apprised of, or the order, decree or certificate makes reference to, the provisions of this Article. SECTION 1315. Rights of Trustee as a Holder of Senior Indebtedness; ----------------------------------------------------- Preservation of Trustee's Rights. - -------------------------------- The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article with respect to any Senior Indebtedness which may at any time be held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. Nothing in this Article shall apply to claims of, or payments to, the Trustee under or pursuant to Section 607. SECTION 1316. Article Applicable to Paying Agents. ----------------------------------- In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context otherwise requires) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee; provided, however, that Section 1315 shall not apply to the Company or any Affiliate of the Company if it or such Affiliate acts as Paying Agent. SECTION 1317. No Suspension of Remedies. ------------------------- Nothing contained in this Article shall limit the right of the Trustee or the Holders of Notes to take any action to accelerate the maturity of the Notes pursuant to Article Five or to pursue any rights or remedies hereunder or under applicable law, except as provided in Article Five. SECTION 1318. Modification of Terms of Senior Indebtedness. -------------------------------------------- Any renewal or extension of the time of payment of any Senior Indebtedness or the exercise by the holders of Senior Indebtedness of any of their rights under any instrument creating or evidencing Senior 93 Indebtedness, including, without limitation, the waiver of default thereunder, may be made or done all without notice to or assent from the Holders or the Trustee. No compromise, alteration, amendment, modification, extension, renewal or other change of, or waiver, consent or other action in respect of, any liability or obligation under or in respect of, or of any of the terms, covenants or conditions of any indenture or other instrument under which any Senior Indebtedness is outstanding or of such Senior Indebtedness, whether or not such release is in accordance with the provisions of any applicable document, shall in any way alter or affect any of the provisions of this Article Thirteen or of the Notes relating to the subordination thereof. SECTION 1319. [Intentionally Omitted]. ----------------------- SECTION 1320. Trust Moneys Not Subordinated. ----------------------------- Notwithstanding anything contained herein to the contrary, payments from the money or the proceeds of Government Obligations held in trust under Article Twelve hereof by the Trustee (or other qualifying trustee) and which were deposited in accordance with the terms of Article Twelve hereof and not in violation of Section 1303 hereof for the payment of principal of (and premium, if any) and interest on the Notes shall not be subordinated to the prior payment of any Senior Indebtedness or subject to the restrictions set forth in this Article Thirteen, and none of the Holders shall be obligated to pay over any such amount to the Company or any holder of Senior Indebtedness or any other creditor of the Company. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. DETAILS, INC. By /s/ Bruce McMaster ----------------------------- Name: Bruce McMaster Title: President Attest: By /s/ Joseph P. Gisch ------------------------------ Name: Joseph P. Gisch Title: Chief Financial Officer STATE STREET BANK AND TRUST COMPANY, as Trustee By /s/ Earl W. Dennison, Jr. ----------------------------- Name: Earl W. Dennison, Jr. Title: Vice President EX-4.2 5 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT EXECUTION COPY -------------- DETAILS, INC. $100,000,000 10% Senior Subordinated Notes due 2005 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT ------------------------------------------ November 18, 1997 CHASE SECURITIES INC. 270 Park Avenue, 4th Floor New York, New York 10017 Ladies and Gentlemen: Details, Inc., a California corporation (the "Company"), proposes to ------- issue and sell to Chase Securities Inc. (the "Initial Purchaser"), upon the ----------------- terms and subject to the conditions set forth in a purchase agreement dated November 13, 1997 (the "Purchase Agreement"), $100,000,000 aggregate principal ------------------ amount of its 10% Senior Subordinated Notes due 2005 (the "Notes"). Capitalized ----- terms used but not defined herein shall have the meanings given to such terms in the Purchase Agreement. As an inducement to the Initial Purchaser to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Initial Purchaser thereunder, the Company agrees with the Initial Purchaser, for the benefit of the holders (including the Initial Purchaser) of the Notes, the Exchange Notes (as defined herein) and the Private Exchange Notes (as defined herein) (collectively, the "Holders"), as follows: ------- Section 1. Registered Exchange Offer. The Company shall (i) prepare ------------------------- and, not later than 90 days following the date of original issuance of the Notes (the "Issue Date"), file with the Securities and Exchange Commission (the ---------- "Commission") a registration statement (the "Exchange Offer Registration --------------------------- Statement") on an appropriate form under the Securities Act with respect to a - --------- proposed offer to the Holders of the Notes that are Transfer Restricted Notes (as defined in Section 3(a) hereof) (the "Registered Exchange Offer") to issue ------------------------- and deliver to such 2 Holders, in exchange for the Transfer Restricted Notes, a like aggregate principal amount of debt securities of the Company (the "Exchange Notes") that -------------- are identical in all material respects to the Transfer Restricted Notes, except for the transfer restrictions relating to the Transfer Restricted Notes, (ii) use its reasonable best efforts to cause the Exchange Offer Registration Statement to become effective under the Securities Act no later than 180 days after the Issue Date and the Registered Exchange Offer to be consummated no later than 210 days after the Issue Date and (iii) keep the Exchange Offer Registration Statement effective for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders (such period being called the "Exchange -------- Offer Registration Period"). The Exchange Notes and the Private Exchange Notes - ------------------------- (as defined below), if any, will be issued under the Indenture or an indenture (the "Exchange Notes Indenture") between the Company and the Trustee or such ------------------------ other bank or trust company that is reasonably satisfactory to the Company and the Initial Purchaser, as trustee (the "Exchange Notes Trustee"), such indenture ---------------------- to be identical in all material respects to the Indenture, except for the transfer restrictions relating to the Transfer Restricted Notes (as described above). Upon the effectiveness of the Exchange Offer Registration Statement, the Company shall promptly commence the Registered Exchange Offer, it being the objective of such Registered Exchange Offer to enable each Holder electing to exchange Transfer Restricted Notes for Exchange Notes (assuming that such Holder (a) is not an affiliate of the Company or an Exchanging Dealer (as defined herein) not complying with the requirements of the next sentence, (b) is not the Initial Purchaser with Transfer Restricted Notes that have the status of an unsold allotment in an initial distribution, (c) acquires the Exchange Notes in the ordinary course of such Holder's business and (d) has no arrangements or understandings with any person to participate in the distribution of the Exchange Notes) and to trade such Exchange Notes from and after their receipt without any limitations or restrictions under the Securities Act and without material restrictions under the securities laws of the several states of the United States. The Company, the Initial Purchaser and each Exchanging Dealer acknowledge that, pursuant to current interpretations by the Commission's staff of Section 5 of the Securities Act, (i) each Holder that is a broker-dealer electing to exchange Notes, acquired for its own account as a result of market- making activities or other trading activities, for Exchange Notes (an "Exchanging Dealer"), is required to deliver a prospectus containing ----------------- substantially the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C hereto in the "Plan of Distribution" section of such prospectus in connection with a sale of any such Exchange Notes received by such Exchanging Dealer pursuant to the Registered Exchange Offer and (ii) if the Initial Purchaser elects to sell Private Exchange Notes acquired in exchange for Transfer Restricted Notes constituting any portion of an unsold allotment, it is required to deliver a prospectus containing the information required by Items 507 or 508 of Regulation S-K under the Securities Act and the Exchange Act ("Regulation S-K"). -------------- Upon consummation of the Registered Exchange Offer in accordance with this Section 1, the provisions of this Agreement shall continue to apply, mutatis mutandis, solely with respect to Transfer Restricted Notes that are Private Exchange Notes, Exchange Notes as 3 to which clause (v) of the first paragraph of Section 2 is applicable and Exchange Notes held by Exchanging Dealers, and the Company shall have no further obligations to register Transfer Restricted Notes (other than Private Exchange Notes and other than in respect of any Exchange Notes as to which clause (v) of the first paragraph of Section 2 hereof applies) pursuant to Section 2 hereof. If, prior to the consummation of the Registered Exchange Offer, any Holder holds any Notes acquired by it that have, or that are reasonably likely to be determined to have, the status of an unsold allotment in the initial distribution, or any Holder is not entitled to participate in the Registered Exchange Offer, the Company shall, upon the request of any such Holder, simultaneously with the delivery of the Exchange Notes in the Registered Exchange Offer, issue and deliver to any such Holder, in exchange for the Notes held by such Holder (the "Private Exchange"), a like aggregate principal amount ---------------- of debt securities of the Company (the "Private Exchange Notes") that are ---------------------- identical in all material respects to the Exchange Notes, except for the transfer restrictions relating to such Private Exchange Notes. The Private Exchange Notes will be issued under the same indenture as the Exchange Notes, and the Company shall use its reasonable best efforts to cause the Private Exchange Notes to bear the same CUSIP number as the Exchange Notes. In connection with the Registered Exchange Offer, the Company shall: (a) mail to each registered Holder a copy of the prospectus forming part of the Exchange Offer Registration Statement, together with an appropriate letter of transmittal and related documents; (b) keep the Registered Exchange Offer open for not less than 30 days (or longer, if required by applicable law) after the date on which notice of the Registered Exchange Offer is mailed to the Holders; (c) utilize the services of a depositary for the Registered Exchange Offer with an address in the Borough of Manhattan, The City of New York; (d) permit Holders to withdraw tendered Transfer Restricted Notes at any time prior to the close of business, New York City time, on the last business day on which the Registered Exchange Offer shall remain open; and (e) otherwise comply in all respects with all laws that are applicable to the Registered Exchange Offer. As soon as practicable after the close of the Registered Exchange Offer and any Private Exchange, as the case may be, the Company shall: 4 (a) accept for exchange all Transfer Restricted Notes tendered and not validly withdrawn pursuant to the Registered Exchange Offer and the Private Exchange; (b) deliver to the Trustee for cancellation all Transfer Restricted Notes so accepted for exchange; and (c) cause the Trustee or the Exchange Notes Trustee, as the case may be, promptly to authenticate and deliver to each Holder, Exchange Notes or Private Exchange Notes, as the case may be, equal in principal amount to the Transfer Restricted Notes of such Holder so accepted for exchange. The Company shall use its reasonable best efforts to keep the Exchange Offer Registration Statement effective and to amend and supplement the prospectus contained therein in order to permit such prospectus to be used by all persons subject to the prospectus delivery requirements of the Securities Act for such period of time as such persons must comply with such requirements in order to resell the Exchange Notes; provided that (i) in the case where such -------- prospectus and any amendment or supplement thereto must be delivered by an Exchanging Dealer, such period shall be the lesser of 90 days and the date on which all Exchanging Dealers have sold all Exchange Notes held by them and (ii) the Company shall make such prospectus and any amendment or supplement thereto available to any broker-dealer for use in connection with any resale of any Exchange Notes for a period of not less than 90 days after the consummation of the Registered Exchange Offer. The Indenture or the Exchange Notes Indenture, as the case may be, shall provide that the Notes, the Exchange Notes and the Private Exchange Notes shall vote and consent together on all matters as one class and that none of the Notes, the Exchange Notes or the Private Exchange Notes will have the right to vote or consent as a separate class on any matter. Interest on each Exchange Note and Private Exchange Note issued pursuant to the Registered Exchange Offer and in the Private Exchange will accrue from the last interest payment date on which interest was paid on the Notes surrendered in exchange therefor or, if no interest has been paid on the Notes, from the Issue Date. Each Holder participating in the Registered Exchange Offer shall be required to represent to the Company that at the time of the consummation of the Registered Exchange Offer (i) any Exchange Notes received by such Holder will be acquired in the ordinary course of business, (ii) such Holder will have no arrangements or understanding with any person to participate in the distribution of the Notes or the Exchange Notes within the meaning of the Securities Act, (iii) such Holder is not an affiliate of the Company or, if it is such an affiliate, such Holder will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable, and (iv) if an Exchanging Dealer, such person shall comply with the prospectus delivery requirements of the Securities Act. 5 Notwithstanding any other provisions hereof, the Company will ensure that (i) any Exchange Offer Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Exchange Offer Registration Statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and (iii) any prospectus forming part of any Exchange Offer Registration Statement, and any supplement to such prospectus, does not, as of the consummation of the Registered Exchange Offer, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Section 2. Shelf Registration. If (i) because of any change in law ------------------ or applicable interpretations thereof by the Commission's staff, the Company is not permitted to effect the Registered Exchange Offer as contemplated by Section 1 hereof, (ii) any Notes validly tendered pursuant to the Exchange Offer are not exchanged for Exchange Notes within 210 days after the Issue Date, (iii) the Initial Purchaser so requests with respect to Notes not eligible to be exchanged for Exchange Notes in the Registered Exchange Offer, (iv) any applicable law or interpretations do not permit any Holder to participate in the Registered Exchange Offer, (v) any Holder that participates in the Registered Exchange Offer does not receive freely transferable Exchange Notes in exchange for tendered Notes, or (vi) the Company so elects, then the following provisions shall apply: (a) The Company shall use its reasonable best efforts to file as promptly as practicable (but in no event more than 30 days after so required or requested pursuant to this Section 2) with the Commission, and thereafter shall use its reasonable best efforts to cause to be declared effective, a shelf registration statement on an appropriate form under the Securities Act relating to the offer and sale of the Transfer Restricted Notes by such Holders thereof from time to time in accordance with the methods of distribution set forth in such registration statement (hereafter, a "Shelf Registration Statement" and, ---------------------------- together with any Exchange Offer Registration Statement, a "Registration ------------ Statement"). - --------- (b) The Company shall use its reasonable best efforts to keep the Shelf Registration Statement continuously effective in order to permit the prospectus forming part thereof to be used by Holders of Transfer Restricted Notes for a period ending on the earlier of (i) two years from the Issue Date or such shorter period that will terminate when all the Transfer Restricted Notes covered by the Shelf Registration Statement have been sold pursuant thereto and (ii) the date all of the Notes become eligible for resale without volume restrictions pursuant to Rule 144 under the Securities Act (in any such case, such period being called the "Shelf Registration Period"). The Company shall be ------------------------- deemed not to have used its reasonable best efforts to keep the Shelf Registration Statement effective during the requisite period if it voluntarily takes any action that would result in Holders of Transfer Restricted Notes covered thereby not being able to offer and sell such Transfer Restricted Notes during that period, 6 unless such action is required by applicable law; provided, however, that no -------- ------- Holder of Notes or Exchange Notes (other than the Initial Purchaser) shall be entitled to have Notes or Exchange Notes held by it covered by such Shelf Registration Statement unless such Holder agrees in writing to be bound by all the provisions of this Agreement applicable to such Holder. (c) Notwithstanding any other provisions hereof, the Company will ensure that (i) any Shelf Registration Statement and any amendment thereto and any prospectus forming part thereof and any supplement thereto complies in all material respects with the Securities Act and the rules and regulations of the Commission thereunder, (ii) any Shelf Registration Statement and any amendment thereto (in either case, other than with respect to information included therein in reliance upon or in conformity with written information furnished to the Company by or on behalf of any Holder specifically for use therein (the "Holders' Information")) does not, when it becomes effective, contain an untrue -------------------- statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading and (iii) any prospectus forming part of any Shelf Registration Statement, and any supplement to such prospectus (in either case, other than with respect to Holders' Information), does not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Section 3. Liquidated Damages. (a) The parties hereto agree that ------------------ the Holders of Transfer Restricted Notes will suffer damages if the Company fails to fulfill its obligations under Section 1 or Section 2, as applicable, and that it would not be feasible to ascertain the extent of such damages. Accordingly, if (i) a Registration Statement is not filed with the Commission on or prior to 90 days after the Issue Date, (ii) the Exchange Offer Registration Statement or a Shelf Registration Statement, if applicable, is not declared effective within 180 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of Commission's staff, if later, within 90 days after publication of the change in law or interpretation), (iii) the Registered Exchange Offer is not consummated on or prior to 210 days after the Issue Date, or (iv) a Shelf Registration Statement is filed and declared effective within 180 days after the Issue Date (or in the case of a Shelf Registration Statement required to be filed in response to a change in law or the applicable interpretations of Commission's staff, if later, within 90 days after publication of the change in law or interpretation) but shall thereafter cease to be effective (at any time that the Company is obligated to maintain the effectiveness thereof) without being succeeded within 60 days by an additional Registration Statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Company will be -------------------- obligated to pay liquidated damages to each Holder of Transfer Restricted Notes, during the period of one or more such Registration Defaults, in an amount equal to $0.192 per week per $1,000 principal amount of Transfer Restricted Notes held by such Holder until (i) the applicable Registration Statement is filed, (ii) the Exchange Offer Registration Statement is declared effective and the Registered Exchange Offer is consummated, (iii) the Shelf Registration Statement is declared effective or (iv) the Shelf Registration Statement again 7 becomes effective, as the case may be. Following the cure of all Registration Defaults, the accrual of liquidated damages will cease. As used herein, the term "Transfer Restricted Notes" means (i) each Note until the date on which such ------------------------- Note has been exchanged for a freely transferable Exchange Note in the Registered Exchange Offer, (ii) each Note or Private Exchange Note until the date on which it has been effectively registered under the Securities Act and disposed of in accordance with the Shelf Registration Statement or (iii) each Note or Private Exchange Note until the date on which it is distributed to the public pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Notwithstanding anything to the contrary in this Section 3(a), the Company shall not be required to pay liquidated damages to a Holder of Transfer Restricted Notes if such Holder failed to comply with its obligations to make the representations set forth in the second to last paragraph of Section 1 or failed to provide the information required to be provided by it, if any, pursuant to Section 4(n). (b) The Company shall notify the Trustee and the Paying Agent under the Indenture immediately upon the happening of each and every Registration Default. The Company shall pay the liquidated damages due on the Transfer Restricted Notes by depositing with the Paying Agent (which may not be the Company for these purposes), in trust, for the benefit of the Holders thereof, prior to 10:00 a.m., New York City time, on the next interest payment date specified by the Indenture and the Notes, sums sufficient to pay the liquidated damages then due. The liquidated damages due shall be payable on each interest payment date specified by the Indenture and the Notes to the record holder of the Transfer Restricted Notes entitled to receive the interest payment to be made on such date. Each obligation to pay liquidated damages shall be deemed to accrue from and including the date of the applicable Registration Default. (c) The parties hereto agree that the liquidated damages provided for in this Section 3 constitute a reasonable estimate of and will constitute the sole damages that will be suffered by Holders of Transfer Restricted Notes by reason of the failure of (i) the Shelf Registration Statement or the Exchange Offer Registration Statement to be filed, (ii) the Shelf Registration Statement to remain effective or (iii) the Exchange Offer Registration Statement to be declared effective and the Registered Exchange Offer to be consummated, in each case to the extent required by this Agreement. Section 4. Registration Procedures. In connection with any ----------------------- Registration Statement, the following provisions shall apply: (a) The Company shall (i) furnish to the Initial Purchaser, prior to the filing thereof with the Commission, a copy of the Registration Statement and each amendment thereof and each supplement, if any, to the prospectus included therein and shall use its reasonable best efforts to reflect in each such document, when so filed with the Commission, such comments as the Initial Purchaser may reasonably propose; (ii) if applicable, include the information set forth in Annex A hereto on the cover, in Annex B hereto in the "Exchange Offer Procedures" section and the "Purpose of the Exchange Offer" section and in Annex C 8 hereto in the "Plan of Distribution" section of the prospectus forming a part of the Exchange Offer Registration Statement, and include the information set forth in Annex D hereto in the Letter of Transmittal delivered pursuant to the Registered Exchange Offer; and (iii) if requested by the Initial Purchaser, include the information required by Items 507 or 508 of Regulation S-K, as applicable, in the prospectus forming a part of the Exchange Offer Registration Statement. (b) The Company shall advise the Initial Purchaser, Exchanging Dealer and the Holders (by notice to the Trustee) (if applicable) and, if requested by any such person, confirm such advice in writing (which advice pursuant to clauses (ii)-(v) hereof shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made): (i) when any Registration Statement and any amendment thereto has been filed with the Commission and when such Registration Statement or any post-effective amendment thereto has become effective; (ii) of any request by the Commission for amendments or supplements to any Registration Statement or the prospectus included therein or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of any Registration Statement or the initiation of any proceedings for that purpose; (iv) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Notes, the Exchange Notes or the Private Exchange Notes for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and (v) of the happening of any event that requires the making of any changes in any Registration Statement or the prospectus included therein in order that the statements therein are not misleading and do not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Company will make every reasonable effort to obtain the withdrawal at the earliest possible time of any order suspending the effectiveness of any Registration Statement. (d) The Company will furnish, if requested, to each record Holder of Transfer Restricted Notes included within the coverage of any Shelf Registration Statement, without charge, at least one conformed copy of such Shelf Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if any such 9 Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (e) The Company will, if requested, during the Shelf Registration Period, promptly deliver to each Holder of Transfer Restricted Notes included within the coverage of any Shelf Registration Statement, without charge, as many copies of the prospectus (including each preliminary prospectus) included in such Shelf Registration Statement and any amendment or supplement thereto as such Holder may reasonably request; and the Company consents to the use of such prospectus or any amendment or supplement thereto by each of the selling Holders of Transfer Restricted Notes in connection with the offer and sale of the Transfer Restricted Notes covered by such prospectus or any amendment or supplement thereto. (f) The Company will furnish to the Initial Purchaser and each Exchanging Dealer, and to any other Holder who so requests, without charge, at least one conformed copy of the Exchange Offer Registration Statement and any post-effective amendment thereto, including financial statements and schedules and, if the Initial Purchaser or any Exchanging Dealer or any such Holder so requests in writing, all exhibits thereto (including those, if any, incorporated by reference). (g) The Company will, during the Exchange Offer Registration Period or the Shelf Registration Period, as applicable, promptly deliver to the Initial Purchaser, each Exchanging Dealer and such other persons that are required to deliver a prospectus following the Registered Exchange Offer, without charge, as many copies of the final prospectus included in the Exchange Offer Registration Statement or the Shelf Registration Statement and any amendment or supplement thereto as the Initial Purchaser, any Exchanging Dealer or other persons may reasonably request; and the Company consents to the use of the prospectus or any amendment or supplement thereto by the Initial Purchaser, any Exchanging Dealer or other persons, as applicable, as aforesaid. (h) Prior to the effective date of any Registration Statement, the Company will use its reasonable best efforts to register or qualify, or cooperate with the Holders of Notes, Exchange Notes or Private Exchange Notes included therein and their respective counsel in connection with the registration or qualification of, such Notes, Exchange Notes or Private Exchange Notes for offer and sale under the securities or blue sky laws of such jurisdictions as any such Holder reasonably requests in writing and do any and all other acts or things necessary or advisable to enable the offer and sale in such jurisdictions of the Notes, Exchange Notes or Private Exchange Notes covered by such Registration Statement; provided that the Company will not be -------- required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process or to taxation in any such jurisdiction where it is not then so subject. (i) The Company will cooperate with the Holders of Notes, Exchange Notes or Private Exchange Notes to facilitate the timely preparation and delivery of certificates representing Notes, Exchange Notes or Private Exchange Notes to be sold pursuant to any 10 Registration Statement free of any restrictive legends and in such denominations and registered in such names as the Holders thereof may request in writing prior to sales of Notes, Exchange Notes or Private Exchange Notes pursuant to such Registration Statement. (j) If any event contemplated by Section 4(b)(ii) through (v) occurs during the period for which the Company is required to maintain an effective Registration Statement, the Company will promptly prepare and file with the Commission a post-effective amendment to the Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to purchasers of the Notes, Exchange Notes or Private Exchange Notes from a Holder, the prospectus will not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. (k) Not later than the effective date of the applicable Registration Statement, the Company will provide a CUSIP number for the Notes, the Exchange Notes and the Private Exchange Notes, as the case may be, and provide the applicable trustee with printed certificates for the Notes, the Exchange Notes or the Private Exchange Notes, as the case may be, in a form eligible for deposit with The Depository Trust Company. (l) The Company will comply with all applicable rules and regulations of the Commission and will make generally available to its security holders as soon as practicable after the effective date of the applicable Registration Statement an earning statement satisfying the provisions of Section 11(a) of the Securities Act; provided that in no event shall such earning statement be -------- delivered later than 45 days after the end of a 12-month period (or 90 days, if such period is a fiscal year) beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the applicable Registration Statement, which statement shall cover such 12-month period. (m) The Company will cause the Indenture or the Exchange Notes Indenture, as the case may be, to be qualified under the Trust Indenture Act as required by applicable law in a timely manner. (n) The Company may require each Holder of Transfer Restricted Notes to be registered pursuant to any Shelf Registration Statement to furnish to the Company such information concerning the Holder and the distribution of such Transfer Restricted Notes as the Company may from time to time reasonably require for inclusion in such Shelf Registration Statement, and the Company may exclude from such registration the Transfer Restricted Notes of any Holder that fails to furnish such information within a reasonable time after receiving such request. (o) In the case of a Shelf Registration Statement, each Holder of Transfer Restricted Notes to be registered pursuant thereto agrees by acquisition of such Transfer Restricted Notes that, upon receipt of any notice from the Company pursuant to Section 4(b)(ii) through (v), such Holder will discontinue disposition of such Transfer Restricted Notes until 11 such Holder's receipt of copies of the supplemental or amended prospectus contemplated by Section 4(j) or until advised in writing (the "Advice") by the ------ Company that the use of the applicable prospectus may be resumed. If the Company shall give any notice under Section 4(b)(ii) through (v) during the period that the Company is required to maintain an effective Registration Statement (the "Effectiveness Period"), such Effectiveness Period shall be extended by the -------------------- number of days during such period from and including the date of the giving of such notice to and including the date when each seller of Transfer Restricted Notes covered by such Registration Statement shall have received (x) the copies of the supplemental or amended prospectus contemplated by Section 4(j) (if an amended or supplemental prospectus is required) or (y) the Advice (if no amended or supplemental prospectus is required). (p) In the case of a Shelf Registration Statement, the Company shall enter into such customary agreements (including, if requested, an underwriting agreement in customary form) and take all such other action, if any, as Holders of a majority in aggregate principal amount of the Notes, Exchange Notes and Private Exchange Notes being sold or the managing underwriters (if any) shall reasonably request in order to facilitate any disposition of Notes, Exchange Notes or Private Exchange Notes pursuant to such Shelf Registration Statement. (q) In the case of a Shelf Registration Statement, the Company shall (i) make reasonably available for inspection by a representative of, and Special Counsel (as defined below) acting for, Holders of a majority in aggregate principal amount of the Notes, Exchange Notes and Private Exchange Notes being sold and any underwriter participating in any disposition of Notes, Exchange Notes or Private Exchange Notes pursuant to such Shelf Registration Statement, all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries and (ii) use its reasonable best efforts to have its officers, directors, employees, accountants and counsel supply all relevant information reasonably requested by such representative, Special Counsel or any such underwriter (an "Inspector") in connection with such --------- Shelf Registration Statement. (r) In the case of a Shelf Registration Statement, the Company shall, if requested by Holders of a majority in aggregate principal amount of the Notes, Exchange Notes and Private Exchange Notes being sold, their Special Counsel or the managing underwriters (if any) in connection with such Shelf Registration Statement, use its reasonable best efforts to cause (i) its counsel to deliver an opinion relating to the Shelf Registration Statement and the Notes, Exchange Notes or Private Exchange Notes, as applicable, in customary form, (ii) its officers to execute and deliver all customary documents and certificates requested by Holders of a majority in aggregate principal amount of the Notes, Exchange Notes and Private Exchange Notes being sold, their Special Counsel or the managing underwriters (if any) and (iii) its independent public accountants to provide a comfort letter in customary form, subject to receipt of appropriate documentation as contemplated, and only if permitted, by Statement of Auditing Standards No. 72. 12 Section 5. Registration Expenses. The Company will bear all expenses --------------------- incurred in connection with the performance of its obligations under Sections 1, 2, 3 and 4 and the Company will reimburse the Initial Purchaser and the Holders for the reasonable fees and disbursements of one firm of attorneys (in addition to any local counsel) chosen by the Holders of a majority in aggregate principal amount of the Notes, the Exchange Notes and the Private Exchange Notes to be sold pursuant to each Registration Statement (the "Special Counsel") acting for --------------- the Initial Purchaser or Holders in connection therewith. Section 6. Indemnification. (a) In the event of a Shelf --------------- Registration Statement or in connection with any prospectus delivery pursuant to an Exchange Offer Registration Statement by the Initial Purchaser or Exchanging Dealer, as applicable, the Company shall indemnify and hold harmless each Holder (including, without limitation, the Initial Purchaser or any such Exchanging Dealer), its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls such Holder within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6 and Section 7 as a Holder) from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, without limitation, any loss, claim, damage, liability or action relating to purchases and sales of Notes, Exchange Notes or Private Exchange Notes), to which that Holder may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and shall reimburse each Holder as incurred for any legal or other expenses reasonably incurred by that Holder in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, -------- however, that neither the Company shall not be liable in any such case to the - ------- extent that any such loss, claim, damage, liability or action arises out of, or is based upon, an untrue statement or alleged untrue statement in or omission or alleged omission from any of such documents in reliance upon and in conformity with any Holders' Information; and provided, further, that with respect to any -------- ------- such untrue statement in or omission from any related preliminary prospectus, the indemnity agreement contained in this Section 6(a) shall not inure to the benefit of any Holder from whom the person asserting any such loss, claim, damage, liability or action received Notes, Exchange Notes or Private Exchange Notes to the extent that such loss, claim, damage, liability or action of or with respect to such Holder results from the fact that both (A) a copy of the final prospectus was not sent or given to such person at or prior to the written confirmation of the sale of such Notes, Exchange Notes or Private Exchange Notes to such person and (B) the untrue statement in or omission from the related preliminary prospectus was corrected in the final prospectus unless, in either case, such failure to deliver the final prospectus was a result of non- compliance by the Company with Section 4(d), 4(e), 4(f) or 4(g). 13 (b) In the event of a Shelf Registration Statement, each Holder, severally and not jointly, shall indemnify and hold harmless the Company, its affiliates, their respective officers, directors, employees, representatives and agents, and each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act (collectively referred to for purposes of this Section 6(b) and Section 7 as the Company), from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company may become subject, whether commenced or threatened, under the Securities Act, the Exchange Act, any other federal or state statutory law or regulation, at common law or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any such Registration Statement or any prospectus forming part thereof or in any amendment or supplement thereto or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with any Holders' Information furnished to the Company by such Holder, and shall reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending or preparing to defend against or appearing as a third party witness in connection with any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that no such Holder -------- ------- shall be liable for any indemnity claims hereunder in excess of the amount of net proceeds received by such Holder from the sale of Notes, Exchange Notes or Private Exchange Notes pursuant to such Shelf Registration Statement. (c) Promptly after receipt by an indemnified party under this Section 6 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party pursuant to Section 6(a) or 6(b), notify the indemnifying party in writing of the claim or the commencement of that action; provided, -------- however, that the failure to notify the indemnifying party shall not relieve it - ------- from any liability which it may have under this Section 6 except to the extent that it has been materially prejudiced (through the forfeiture of substantive rights or defenses) by such failure; and provided, further, that the failure to -------- ------- notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 6. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 6 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than the reasonable costs of investigation; provided, however, -------- ------- that an indemnified party shall have the right to employ its own counsel in any such action, but the fees, expenses and other charges of such counsel for the indemnified party will be at the expense of such indemnified party unless (1) the 14 employment of counsel by the indemnified party has been authorized in writing by the indemnifying party, (2) the indemnified party has reasonably concluded (based upon advice of counsel to the indemnified party) that there may be legal defenses available to it or other indemnified parties that are different from or in addition to those available to the indemnifying party, (3) a conflict or potential conflict exists (based upon advice of counsel to the indemnified party) between the indemnified party and the indemnifying party (in which case the indemnifying party will not have the right to direct the defense of such action on behalf of the indemnified party) or (4) the indemnifying party has not in fact employed counsel reasonably satisfactory to the indemnified party to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the indemnifying party or parties. It is understood that the indemnifying party or parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm of attorneys (in addition to any local counsel) at any one time for all such indemnified party or parties. Each indemnified party, as a condition of the indemnity agreements contained in Sections 6(a) and 6(b), shall use all reasonable efforts to cooperate with the indemnifying party in the defense of any such action or claim. No indemnifying party shall be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with its written consent or if there be a final judgment for the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. No indemnifying party shall, without the prior written consent of the indemnified party (which consent shall not be unreasonably withheld), effect any settlement of any pending or threatened proceeding in respect of which any indemnified party is or could have been a party and indemnity could have been sought hereunder by such indemnified party, unless such settlement includes an unconditional release of such indemnified party from all liability on claims that are the subject matter of such proceeding. Section 7. Contribution. If the indemnification provided for in ------------ Section 6 is unavailable or insufficient to hold harmless an indemnified party under Section 6(a) or 6(b), then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company from the offering and sale of the Notes, on the one hand, and a Holder with respect to the sale by such Holder of Notes, Exchange Notes or Private Exchange Notes, on the other, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and such Holder on the other with respect to the statements or omissions that resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and a Holder on the other with respect to such offering and such sale shall be deemed to be in the same proportion as the total net proceeds from the offering of 15 the Notes (before deducting expenses) received by or on behalf of the Company as set forth in the table on the cover of the Offering Memorandum, on the one hand, bear to the total proceeds received by such Holder with respect to its sale of Notes, Exchange Notes or Private Exchange Notes, on the other. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to the Company or information supplied by the Company on the one hand or to any Holders' Information supplied by such Holder on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 7 were to be determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 7 shall be deemed to include, for purposes of this Section 7, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 7, an indemnifying party that is a Holder of Notes, Exchange Notes or Private Exchange Notes shall not be required to contribute any amount in excess of the amount by which the total price at which the Notes, Exchange Notes or Private Exchange Notes sold by such indemnifying party to any purchaser exceeds the amount of any damages which such indemnifying party has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Section 8. Rules 144 and 144A. The Company shall use its ------------------ reasonable best efforts to file the reports required to be filed by it under the Securities Act and the Exchange Act in a timely manner and, if at any time the Company is not required to file such reports, it will, upon the written request of any Holder of Transfer Restricted Notes, make publicly available other information so long as necessary to permit sales of such Holder's securities pursuant to Rules 144 and 144A. Upon the written request of any Holder of Transfer Restricted Notes, the Company shall deliver to such Holder a written statement as to whether it has complied with such requirements. Notwithstanding the foregoing, nothing in this Section 8 shall be deemed to require the Company to register any of its securities pursuant to the Exchange Act. Section 9. Underwritten Registrations. If any of the Transfer -------------------------- Restricted Notes covered by any Shelf Registration Statement are to be sold in an underwritten offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of such Transfer Restricted Notes included in such offering, subject to the consent of the Company (which shall not be unreasonably withheld or delayed), and such Holders shall be responsible for all underwriting commissions and discounts in connection therewith. 16 No person may participate in any underwritten registration hereunder unless such person (i) agrees to sell such person's Transfer Restricted Notes on the basis reasonably provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. Section 10. Miscellaneous. (a) Amendments and Waivers. The ------------- ---------------------- provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the Company has obtained the written consent of Holders of a majority in aggregate principal amount of the Notes, the Exchange Notes and the Private Exchange Notes, taken as a single class. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders whose Notes, Exchange Notes or Private Exchange Notes are being sold pursuant to a Registration Statement and that does not directly or indirectly affect the rights of other Holders may be given by Holders of a majority in aggregate principal amount of the Notes, the Exchange Notes and the Private Exchange Notes being sold by such Holders pursuant to such Registration Statement. (b) Notices. All notices and other communications provided for or ------- permitted hereunder shall be made in writing by hand-delivery, first-class mail, telecopier or air courier guaranteeing next-day delivery: (1) if to a Holder, at the most current address given by such Holder to the Company in accordance with the provisions of this Section 10(b), which address initially is, with respect to each Holder, the address of such Holder maintained by the Registrar under the Indenture, with a copy in like manner to Chase Securities Inc.; (2) if to the Initial Purchaser, initially at its address set forth in the Purchase Agreement; and (3) if to the Company, initially at the address of the Company set forth in the Purchase Agreement. All such notices and communications shall be deemed to have been duly given: when delivered by hand, if personally delivered; one business day after being delivered to a next-day air courier; five business days after being deposited in the mail; and when receipt is acknowledged by the recipient's telecopier machine, if sent by telecopier. (c) Successors And Assigns. This Agreement shall be binding upon the ---------------------- Company and its successors and assigns. (d) Counterparts. This Agreement may be executed in any number of ------------ counterparts (which may be delivered in original form or by telecopier) and by the parties 17 hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (e) Definition of Terms. For purposes of this Agreement, (a) the term ------------------- "business day" means any day on which the New York Stock Exchange, Inc. is open for trading, (b) the term "subsidiary" has the meaning set forth in Rule 405 under the Securities Act and (c) except where otherwise expressly provided, the term "affiliate" has the meaning set forth in Rule 405 under the Securities Act. (f) Headings. The headings in this Agreement are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. (g) Governing Law. This Agreement shall be governed by and construed ------------- in accordance with the laws of the State of New York. (h) Remedies. In the event of a breach by the Company or by any -------- Holder of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law, including recovery of damages (other than the recovery of damages for a breach by the Company of its obligations under Sections 1 or 2 hereof for which liquidated damages have been paid pursuant to Section 3 hereof), will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agree that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate. (i) No Inconsistent Agreements. The Company represents, warrants and -------------------------- agrees that (i) it has not entered into, shall not, on or after the date of this Agreement, enter into any agreement that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof, (ii) it has not previously entered into any agreement which remains in effect granting any registration rights with respect to any of its debt securities to any person and (iii) without limiting the generality of the foregoing, without the written consent of the Holders of a majority in aggregate principal amount of the then outstanding Transfer Restricted Notes, it shall not grant to any person the right to request the Company to register any debt securities of the Company under the Securities Act unless the rights so granted are not in conflict or inconsistent with the provisions of this Agreement. (j) No Piggyback on Registrations. Neither the Company nor any of its ----------------------------- security holders (other than the Holders of Transfer Restricted Notes in such capacity) shall have the right to include any securities of the Company in any Shelf Registration Statement or Registered Exchange Offer other than Transfer Restricted Notes. (k) Severability. The remedies provided herein are cumulative and not ------------ exclusive of any remedies provided by law. If any term, provision, covenant or restriction of 18 this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. Please confirm that the foregoing correctly sets forth the agreement between the Company and the Initial Purchaser. Very truly yours, DETAILS, INC. By /s/ Bruce McMaster ------------------------------ Name: Bruce McMaster Title: President Accepted: CHASE SECURITIES INC. By /s/ James P. Casey ---------------------------- Authorized Signatory ANNEX A Each broker-dealer that receives Exchange Notes for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. The Letter of Transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 90 days after the Expiration Date (as defined herein), it will make this Prospectus available to any broker-dealer for use in connection with any such resale. See "Plan of Distribution." ANNEX B Each broker-dealer that receives Exchange Notes for its own account in exchange for Notes, where such Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. See "Plan of Distribution." ANNEX C PLAN OF DISTRIBUTION Each broker-dealer that receives Exchange Notes for its own account pursuant to the Registered Exchange Offer must acknowledge that it will deliver a prospectus in connection with any resale of such Exchange Notes. This Prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of Exchange Notes received in exchange for Notes where such Notes were acquired as a result of market-making activities or other trading activities. The Company has agreed that, for a period of 90 days after the Expiration Date, it will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale. In addition, until _______________, 199_, all dealers effecting transactions in the Exchange Notes may be required to deliver a prospectus./1/ The Company will not receive any proceeds from any sale of Exchange Notes by broker-dealers. Exchange Notes received by broker-dealers for their own account pursuant to the Registered Exchange Offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the Exchange Notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or at negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any such Exchange Notes. Any broker-dealer that resells Exchange Notes that were received by it for its own account pursuant to the Registered Exchange Offer and any broker or dealer that participates in a distribution of such Exchange Notes may be deemed to be an "underwriter" within the meaning of the Securities Act and any profit on any such resale of Exchange Notes and any commission or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The Letter of Transmittal states that, by acknowledging that it will deliver and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. For a period of 90 days after the Expiration Date the Company will promptly send additional copies of this Prospectus and any amendment or supplement to this Prospectus to any broker-dealer that requests such documents in the Letter of Transmittal. The Company has agreed to pay all expenses incident to the Registered Exchange Offer (including the expenses of one counsel for the Holders of the Notes) other than commissions or concessions of any broker-dealers and will indemnify the Holders of the Notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act. - -------------------- /1/ In addition, the legend required by Item 502(e) of Regulation S-K will appear on the back cover page of the Registered Exchange Offer prospectus. ANNEX D [_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: ------------------------------- Address: ---------------------------- --------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. EX-5.1 6 OPINION OF ROPES & GRAY EXHIBIT 5.1 [ROPES & GRAY LETTERHEAD] November 26, 1997 Details, Inc. 1231 Simon Circle Anaheim, CA 92806 Re: Registration Statement on Form S-4 Ladies and Gentlemen: We have acted as counsel to Details, Inc., a California corporation (the "Company") in connection with a Registration Statement on Form S-4 (the "Registration statement") to be filed by the Company with the Securities and Exchange Commission relating to the proposed issuance by the Company of up to $100,000,000 aggregate principal amount of its new 10% Senior Subordinated Notes due 2005 (the "Exchange Notes") registered under the Securities Act of 1933, as amended (the "Securities Act"), in exchange for a like principal amount of the Company's outstanding 10% Senior Subordinated Notes due 2005, which have not been so registered (the "Original Notes"). The Exchange Notes will be issued under an indenture dated as of November 18, 1997 (the "Indenture") between the Company and State Street Bank and Trust Company, as indenture trustee. We have examined and relied upon the information set forth in the Registration Statement and such other documents and records as we have deemed necessary. In addition, as to questions of fact material to our opinions, we have relied upon certificates of officers of the Company and public officials. In the course of our examination, we have assumed the legal capacity of all natural persons, the genuineness of all signatures, the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. In making our examination of documents executed by parties other than the Company, we have assumed that such parties had the power, corporate or other, to enter into and perform all obligations thereunder and have also assumed the due authorization by all requisite action, corporate or other, and execution and delivery by such parties of such documents and the validity and binding effect thereof on such parties. We express no opinion as to the laws of any jurisdiction other than those of The Commonwealth of Massachusetts and the federal laws of the United States of America. We have relied as to all matters governed by California law upon the opinion dated the date hereof and filed as Exhibit 5.2 to the Registration Statement. We call your attention to the fact that each of the Indenture and the Exchange Notes provides that it is to be governed by the laws of the State of New York. For purposes of the opinion provided herein, we have assumed with your permission that the Indenture and the Exchange Notes would be governed by and construed in accordance with the domestic substantive laws of The Commonwealth of Massachusetts without giving effect to any choice of law or conflict of laws, rule or provision that would cause the application of the domestic substantive laws of any other jurisdiction. Based upon the foregoing,we are of the opinion that: The Exchange Notes, assuming due authorization, execution and delivery thereof, when executed and authenticated in the manner provided for the Indenture and delivered against surrender and cancellation of a like aggregate principal amount of Original Notes as contemplated in the Registration Rights agreement dated as of November 18, 1997, between the company and the Initial Purchaser named therein, will be enforceable against the Company in accordance with their terms, except as enforcement thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting creditors' rights generally or by general equitable principle (regardless of whether considered in a proceeding inequity or at law). We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" contained in the prospectus included therein. It is understood that this opinion is to be used only in connection with the Exchange Offer while the Registration Statement is in effect. Very truly yours. /s/ Ropes & Gray ---------------- Ropes & Gray 2 EX-5.2 7 OPINION OF STRADLING YOCCA CARLSON & RAUTH EXHIBIT 5.2 [Stradling, Yocca, Carlson & Rauth Letterhead] November 26, 1997 Details, Inc. 1231 Simon Circle Anaheim, California 92806 Re: Registration Statement on Form S-4 Ladies and Gentlemen: We have acted as special California counsel for Details, Inc. (the "Company") with respect to the Registration Statement on Form S-4, filed by the Company with the Securities and Exchange Commission on November 26, 1997 (as such may be amended or supplemented, the "Registration Statement"), in connection with the registration under the Securities Act of 1933, as amended, of the exchange of an aggregate of principal amount of up to $100,000,000, of its new Senior Discount Notes due 2005 (the "Exchange Discount Notes") for a like principal amount of its outstanding Senior Discount Notes due 2005 (the "Original Discount Notes"). The Exchange Notes will be issued under an indenture dated as of November 18, 1997 (the "Indenture") between the Company and State Street Bank and Trust Company, as indenture trustee. As your special California counsel in connection with this transaction, we have examined the proceedings taken and are familiar with the proceedings proposed to be taken by you in connection with the exchange and issuance of the Exchange Discount Notes. Based upon the foregoing, it is our opinion that, upon completion of the proceedings taken in order to permit such transaction to be carried out in accordance with the securities laws of the various states where required, the Exchange Discount Notes have been duly authorized by all requisite corporate action of the Company and when executed and authenticated in the manner provided for in the Indenture and delivered against surrender and cancellation of a like aggregate principal amount of Original Discount Notes as contemplated in the Registration Rights Agreement dated as of November 18, 1997, between the Company and the Initial Purchaser named therein, will be duly authorized, validly issued, fully paid and nonassessable and will be valid and legally binding obligations of the Company. We consent of the use of the opinion as an exhibit to the Registration Statement and to the use of our name under the caption "Legal Matters" in the Prospectus which is a part of the Registration Statement, and any amendment thereto. We understand and agree that Ropes & Gray will rely upon the foregoing opinion in connection with its opinion dated the date hereof and filed as Exhibit 5.1 to the Registration Statement. Very truly yours. Stradling, Yocca, Carlson & Rauth /s/ Stradling, Yocca, Carlson & Rauth EX-10.1 8 CREDIT AGREEMENT DATED AS OF 10/28/97 ================================================================================ DETAILS, INC. ---------------------------------- $144,400,000 CREDIT AGREEMENT ----------------- dated as of October 28, 1997 ---------------------------------- THE CHASE MANHATTAN BANK, as Documentation, Syndication and Administrative Agent ---------------------------- CHASE SECURITIES INC., as Arranger [LOGO OF CHASE APPEARS HERE] ================================================================================ TABLE OF CONTENTS -----------------
Page ---- SECTION 1. DEFINITIONS..................................................... 1 1.1 Defined Terms.................................................... 1 1.2 Other Definitional Provisions.................................... 21 SECTION 2. AMOUNT AND TERMS OF COMMITMENTS................................. 22 2.1 Term Loan Commitments............................................ 22 2.2 Procedure for Term Loan Borrowing................................ 22 2.3 Repayment of Term Loans.......................................... 23 2.4 Revolving Credit Commitments..................................... 23 2.5 Procedure for Revolving Credit Borrowing......................... 24 2.6 Swing Line Commitment............................................ 24 2.7 Procedure for Swing Line Borrowing; Refunding of Swing Line Loans 25 2.8 Commitment Fees, etc............................................. 26 2.9 Termination or Reduction of Commitments.......................... 26 2.10 Optional Prepayments............................................. 27 2.11 Mandatory Prepayments and Commitment Reductions.................. 27 2.12 Conversion and Continuation Options.............................. 29 2.13 Minimum Amounts and Maximum Number of Eurodollar Tranches........ 29 2.14 Interest Rates and Payment Dates................................. 29 2.15 Computation of Interest and Fees................................. 30 2.16 Inability to Determine Interest Rate............................. 30 2.17 Pro Rata Treatment and Payments.................................. 31 2.18 Requirements of Law.............................................. 32 2.19 Taxes............................................................ 33 2.20 Indemnity........................................................ 35 2.21 Change of Lending Office......................................... 35 2.22 Replacement of Lenders under Certain Circumstances............... 36 SECTION 3. LETTERS OF CREDIT............................................... 36 3.1 L/C Commitment................................................... 36 3.2 Procedure for Issuance of Letter of Credit....................... 36 3.3 Commissions, Fees and Other Charges.............................. 37 3.4 L/C Participations............................................... 37 3.5 Reimbursement Obligation of the Borrower......................... 38 3.6 Obligations Absolute............................................. 38 3.7 Letter of Credit Payments........................................ 39 3.8 Applications..................................................... 39 SECTION 4. REPRESENTATIONS AND WARRANTIES.................................. 39 4.1 Financial Condition.............................................. 39 4.2 No Change........................................................ 40 4.3 Corporate Existence; Compliance with Law......................... 40 4.4 Corporate Power; Authorization; Enforceable Obligations.......... 40 4.5 No Legal Bar..................................................... 41 4.6 No Material Litigation........................................... 41 4.7 No Default....................................................... 41
4.8 Ownership of Property; Liens..................................... 41 4.9 Intellectual Property............................................ 41 4.10 Taxes............................................................ 41 4.11 Federal Regulations.............................................. 42 4.12 Labor Matters.................................................... 42 4.13 ERISA............................................................ 42 4.14 Investment Company Act; Other Regulations........................ 42 4.15 Subsidiaries..................................................... 43 4.16 Use of Proceeds.................................................. 43 4.17 Environmental Matters............................................ 43 4.18 Accuracy of Information, etc..................................... 44 4.19 Security Documents............................................... 44 4.20 Solvency......................................................... 45 4.21 Senior Indebtedness.............................................. 45 SECTION 5. CONDITIONS PRECEDENT............................................ 45 5.1 Conditions to Initial Extension of Credit........................ 45 5.2 Conditions to Each Extension of Credit........................... 47 SECTION 6. AFFIRMATIVE COVENANTS........................................... 48 6.1 Financial Statements............................................. 48 6.2 Certificates; Other Information.................................. 49 6.3 Payment of Obligations........................................... 50 6.4 Conduct of Business and Maintenance of Existence, etc............ 50 6.5 Maintenance of Property; Insurance............................... 50 6.6 Inspection of Property; Books and Records; Discussions........... 51 6.7 Notices.......................................................... 51 6.8 Environmental Laws............................................... 51 6.9 Interest Rate Protection......................................... 52 6.10 Additional Collateral, etc....................................... 52 SECTION 7. NEGATIVE COVENANTS.............................................. 53 7.1 Financial Condition Covenants.................................... 53 7.2 Limitation on Indebtedness....................................... 54 7.3 Limitation on Liens.............................................. 56 7.4 Limitation on Fundamental Changes................................ 57 7.5 Limitation on Sale of Assets..................................... 57 7.6 Limitation on Dividends.......................................... 58 7.7 Limitation on Capital Expenditures............................... 58 7.8 Limitation on Investments, Loans and Advances.................... 59 7.9 Limitation on Optional Payments and Modifications of Debt Instruments, etc............................................ 60 7.10 Limitation on Transactions with Affiliates....................... 60 7.11 Limitation on Sales and Leasebacks............................... 61 7.12 Limitation on Changes in Fiscal Periods.......................... 61 7.13 Limitation on Negative Pledge Clauses............................ 61 7.14 Limitation on Restrictions on Subsidiary Distributions........... 62 7.15 Limitation on Lines of Business.................................. 62 7.16 Limitation on Amendments to Transaction Documents................ 62 7.17 Limitation on Activities of the Company.......................... 62
Page ---- SECTION 8. EVENTS OF DEFAULT............................................... 63 SECTION 9. THE ADMINISTRATIVE AGENT........................................ 66 9.1 Appointment...................................................... 66 9.2 Delegation of Duties............................................. 66 9.3 Exculpatory Provisions........................................... 66 9.4 Reliance by Administrative Agent................................. 67 9.5 Notice of Default................................................ 67 9.6 Non-Reliance on Agents and Other Lenders......................... 67 9.7 Indemnification.................................................. 68 9.8 Administrative Agent in Its Individual Capacity.................. 68 9.9 Successor Administrative Agent................................... 68 9.10 Authorization to Release Liens................................... 69 SECTION 10. MISCELLANEOUS.................................................. 69 10.1 Amendments and Waivers.......................................... 69 10.2 Notices......................................................... 70 10.3 No Waiver; Cumulative Remedies.................................. 71 10.4 Survival of Representations and Warranties...................... 71 10.5 Payment of Expenses and Taxes................................... 71 10.6 Successors and Assigns; Participations and Assignments.......... 72 10.7 Adjustments; Set-off............................................ 74 10.8 Counterparts.................................................... 75 10.9 Severability.................................................... 75 10.10 Integration..................................................... 75 10.11 GOVERNING LAW................................................... 75 10.12 Submission To Jurisdiction; Waivers............................. 75 10.13 Acknowledgements................................................ 76 10.14 WAIVERS OF JURY TRIAL........................................... 76 10.15 Confidentiality................................................. 76 10.16 Assumption by Subsequent Lenders................................ 77
SCHEDULES ---------------------------------------------- Schedule 1.1 Commitments Schedule 4.4 Consents, Authorizations, Filings and Notices Schedule 4.10 Tax Claims Schedule 4.15 Subsidiaries Schedule 4.19(a) UCC Filing Jurisdictions Schedule 7.2(e) Existing Indebtedness Schedule 7.3(e) Existing Liens EXHIBITS ---------------------------------------------- Exhibit A Form of Guarantee and Collateral Agreement Exhibit B Form of Compliance Certificate Exhibit C Form of Closing Certificate Exhibit D Form of Assignment and Acceptance Exhibit E Form of Legal Opinion of Ropes & Gray Exhibit F-1 Form of Term Note Exhibit F-2 Form of Revolving Credit Note Exhibit F-3 Form of Alternative Term Note Exhibit F-4 Form of Alternative Revolving Credit Note Exhihit F-5 Form of Swing Line Note Exhibit G Form of Prepayment Option Notice Exhibit H-1 Form of Assumption Agreement Exhibit H-2 Form of Lender Assumption Agreement CREDIT AGREEMENT, dated as of October 28, 1997, among DETAILS, INC., a California corporation (the "Company"), the several banks and other financial ------- institutions or entities from time to time parties to this Agreement (the "Lenders"), and THE CHASE MANHATTAN BANK, as documentation, syndication and ------- administrative agent. The parties hereto hereby agree as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the terms listed in this ------------- Section 1.1 shall have the respective meanings set forth in this Section 1.1. "ABR": for any day, a rate per annum (rounded upwards, if necessary, to --- the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest per ---------- annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City (the Prime Rate not being intended to be the lowest rate of interest charged by the Administrative Agent in connection with extensions of credit to debtors); and "Federal Funds Effective Rate" shall mean, for any day, the weighted average of ---------------------------- the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. Any change in the ABR due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "ABR Loans": Loans the rate of interest applicable to which is based upon --------- the ABR. "Accepting Lenders": as defined in Section 2.17(d). ----------------- "Adjustment Date": as defined in the Pricing Grid. --------------- "Administrative Agent": The Chase Manhattan Bank, together with its -------------------- affiliates, as the arranger of the Commitments and as the documentation, syndication and administrative agent for the Lenders under this Agreement and the other Loan Documents, together with any of its successors. "Affiliate": as to any Person, any other Person which, directly or --------- indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. In addition, for the purpose of this Agreement, an Affiliate of Bain Capital shall include any Bain Investor or any investment fund under common control with the Bain Investors. Notwithstanding the foregoing, none of the Lenders or any of their respective affiliates shall be deemed to be Affiliates of the Company or its Subsidiaries. "Agreement": this Credit Agreement, as amended, supplemented or otherwise --------- modified from time to time. "Alternative Note": as defined in Section 10.6(f)(ii). ---------------- "Alternative Noteholder": as defined in Section 10.6(f)(ii). ---------------------- "Applicable Margin": for each Type of Loan, the rate per annum set forth ----------------- under the relevant column heading below:
Eurodollar ABR Loans Loans ----------- ------ Revolving Credit Loans and Swing Line Loans 1.50% 2.50% Tranche A Term Loans 1.50% 2.50% Tranche B Term Loans 1.75% 2.75%
provided, that on and after the first Adjustment Date occurring after the - -------- completion of four full fiscal quarters of the Borrower after the Closing Date, the Applicable Margin with respect to Revolving Credit Loans, the Swing Line Loans and Tranche A Term Loans will be determined pursuant to the Pricing Grid. "Application": an application, in such form as the Issuing Lender may ----------- specify from time to time, requesting the Issuing Lender to open a Letter of Credit. "Asset Sale": any Disposition of Property or series of related ---------- Dispositions of Property (excluding any such Disposition permitted by clause (a), (b), (c), (d) or (e) of Section 7.5) which yields gross proceeds to the Company or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $500,000. "Assignee": as defined in Section 10.6(c). -------- "Assignor": as defined in Section 10.6(c). -------- "Assumption Agreement": an agreement, executed and delivered by the -------------------- Successor Subsidiary, which shall be substantially similar to the form attached as Exhibit H-1 hereto. "Available Revolving Credit Commitment": as to any Revolving Credit ------------------------------------- Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Revolving Credit Commitment over (b) such Lender's Revolving Extensions of ---- Credit. "Bain Affiliates": any Bain Investor or Affiliate of Bain Capital, --------------- provided that, for purposes of the definition of "Change of Control", the term - -------- Bain Affiliate shall not include (x) any portfolio company of either Bain Capital or any Affiliate of Bain Capital or (y) any officer or director of the Company or any of its Subsidiaries that is not also a partner, principal or stockholder of Bain Capital. "Bain Capital": Bain Capital, Inc., a Delaware corporation. ------------ "Bain Investor": Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P., ------------- BCIP Associates, BCIP Trust Associates, L.P and RGIP, LLC. "Base CapEx Amount": as defined in Section 7.7. ----------------- "Board": the Board of Governors of the Federal Reserve System of the ----- United States (or any successor). "Borrower": (a) prior to the Push-Down Date, the Company and (b) -------- thereafter, the Successor Subsidiary. "Borrowing Date": any Business Day specified by the Borrower as a date on -------------- which the Borrower requests the relevant Lenders to make Loans hereunder. "Business": as defined in Section 4.17. -------- "Business Day": a day other than a Saturday, Sunday or other day on ------------ which commercial banks in New York City are authorized or required by law to close. "Capital Expenditures": for any period, with respect to any Person, the -------------------- aggregate of all expenditures by such Person and its Subsidiaries for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which should be capitalized under GAAP on a consolidated balance sheet of such Person and its Subsidiaries. "Capital Lease Obligations": as to any Person, the obligations of such ------------------------- Person under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or ------------- other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Cash Equivalents": (a) marketable direct obligations issued by, or ---------------- unconditionally guaranteed by, the United States Government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of one year or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by Standard & Poor's Ratings Services or P-2 by Moody's Investors Service, Inc., or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within one year from the date of acquisition; (c) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, rated at least A-2 by Standard & Poor's Ratings Services or P-2 by Moody's Investors Service, Inc.; and (d) investments in money market funds substantially all the assets of which are comprised of securities of the types described in clauses (a) through (c) above. "Change of Control": any of the following events: ----------------- (a) prior to the date of an initial registered public offering by the Company of its common stock, (i) Bain Capital and Bain Affiliates shall cease to own (on a fully diluted basis) at least 20% of the economic and voting interests in the Capital Stock of the Company or (ii) the Permitted Holders shall cease to "control" (as such term is defined in Rule 405 promulgated under the Securities Act of 1933, as amended) the Company; or (b) from and after the date of an initial registered public offering by the Company of its common stock, (i) any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as in effect on the Closing Date) shall own a greater percentage of the voting and/or economic interest in the Capital Stock of the Company than that owned by Bain Capital and/or the Bain Affiliates or (ii) the Board of Directors of the Company shall cease to consist of a majority of Continuing Directors. "Closing Date": the date on which the conditions precedent set forth ------------ in Section 5.1 shall have been satisfied, which date shall be no later than December 31, 1997. "Code": the Internal Revenue Code of 1986, as amended from time to ---- time. "Collateral": all Property of the Loan Parties, now owned or hereafter ---------- acquired, upon which a Lien is purported to be created by any Security Document. "Commitment": as to any Lender, the sum of the Tranche A Term Loan ---------- Commitment, the Tranche B Term Loan Commitment and the Revolving Credit Commitment of such Lender. "Commitment Fee Rate": 1/2 of 1% per annum; provided, that on and ------------------- -------- after the first Adjustment Date occurring after the completion of four full fiscal quarters of the Borrower after the Closing Date, the Commitment Fee Rate will be determined pursuant to the Pricing Grid. "Commonly Controlled Entity": an entity, whether or not incorporated, -------------------------- which is under common control with the Borrower within the meaning of Section 4001 of ERISA or is part of a group which includes the Borrower and which is treated as a single employer under Section 414 of the Code. "Company": as defined in the preamble. ------- "Company Indenture": the Indenture to be entered into by the Company in ----------------- connection with the issuance of the Company Zeros, together with all instruments and other agreements entered into by the Company or any of its Subsidiaries in connection therewith, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.9. "Company Interim Credit Facility": the collective reference to the ------------------------------- Company Interim Credit Facility, of even date herewith, among the Company, The Chase Manhattan Bank, as administrative agent, and the other lenders from time to time party thereto, together with all documents executed in connection therewith (including, without limitation, any Exchange Notes issued pursuant thereto), as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.9. "Company Zeros": the senior unsecured discount notes of the Company ------------- issued pursuant to the Company Indenture. "Compliance Certificate": a certificate duly executed by a Responsible ---------------------- Officer substantially in the form of Exhibit B. "Confidential Information Memorandum": the Confidential Information ----------------------------------- Memorandum dated October 1997 prepared by the Company with respect to the issuance of the Company Interim Credit Facility. "Consolidated Current Assets": at a particular date, all amounts --------------------------- (other than cash and Cash Equivalents) which would, in conformity with GAAP, be set forth opposite the caption "total current assets" (or any like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such date. "Consolidated Current Liabilities": at a particular date, all amounts -------------------------------- which would, in conformity with GAAP, be set forth opposite the caption "total current liabilities" (or any like caption) on a consolidated balance sheet of the Borrower and its Subsidiaries at such date, but excluding (a) the current portion of any Funded Debt of the Borrower and its Subsidiaries and (b) without duplication of clause (a) above, all Indebtedness consisting of Revolving Credit Loans to the extent otherwise included therein. "Consolidated EBITDA": for any period, Consolidated Net Income for ------------------- such period plus, (a) without duplication and to the extent reflected as a ---- charge in the statement of such Consolidated Net Income for such period, the sum of (i) total income tax expense, (ii) total interest expense, amortization or writeoff of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness (including the Loans), (iii) depreciation and amortization expense, (iv) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (v) any extraordinary or non-recurring expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business), (vi) charges for the write-off of any step-up in basis in inventory required in a transaction which is accounted for under the purchase method of accounting, (vii) any other non-cash charges and (viii) all management fees paid to Bain Capital and the Bain Affiliates permitted by Section 7.10, minus, (b) to the extent included in the statement of such Consolidated Net - ----- Income for such period, the sum of (i) interest income, (ii) any extraordinary or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business) and (iii) any other non-cash income (other than non-cash income resulting from the Company's accrual method of accounting in accordance with past practice). Notwithstanding the foregoing, there shall be added to Consolidated EBITDA on a pro forma basis for purposes of computing the financial --- ----- covenants for any period set forth in Section 7.1 (i) the amount of compensation and other payments paid to James I. Swenson (not to exceed $2,400,000) which were deducted in computing Consolidated Net Income for such period and (ii) the expenses deducted in computing Consolidated Net Income for such period which were associated with the vesting and exercise by existing management of the Company of options on the Capital Stock of the Company on or prior to the Closing Date and the bonuses paid to such existing management pursuant to Section 1.11 of the Transaction Agreement. "Consolidated Fixed Charge Coverage Ratio": for any period, the ratio ---------------------------------------- of (a) the total of (i) Consolidated EBITDA for such period less (ii) the aggregate amount actually paid by the Borrower and its Subsidiaries in cash during such period on account of Capital Expenditures (excluding the principal amount of Indebtedness incurred in connection with such expenditures and any Capital Expenditures financed with Reinvestment Deferred Amounts) less (iii) any provision for cash income taxes made by the Borrower and its Subsidiaries on a consolidated basis in respect of such period to (b) Consolidated Fixed Charges for such period. "Consolidated Fixed Charges": for any period, the sum (without -------------------------- duplication) of (a) Consolidated Interest Expense for such period and (b) scheduled payments made during such period on account of principal of Indebtedness of the Borrower or any of its Subsidiaries (including the Term Loans). "Consolidated Interest Coverage Ratio": for any period, the ratio of ------------------------------------ (a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for such period; provided that, for purposes of determining such ratio at a time -------- when less than four full fiscal quarters of the Company have begun after and fully elapsed since the Closing Date, (x) Consolidated EBITDA for the relevant period shall be deemed to be the sum of (i) the aggregate Consolidated EBITDA of the Company for those fiscal quarters which have begun after and fully elapsed since the Closing Date and (ii) the aggregate Consolidated EBITDA (determined on a pro forma basis, as if the Transaction had occurred on the first day of such period) of the Company for the requisite number of consecutive fiscal quarters commencing prior to the Closing Date and (y) Consolidated Interest Expense shall be determined by annualizing the Consolidated Interest Expense of the Company for those fiscal quarters which have begun after and fully elapsed since the Closing Date. "Consolidated Interest Expense": for any period, all cash interest ----------------------------- expense (including that attributable to Capital Lease Obligations) of the Company and its Subsidiaries for such period with respect to all outstanding Indebtedness of the Company and its Subsidiaries (including, without limitation, all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Protection Agreements to the extent such net costs are allocable to such period in accordance with GAAP). "Consolidated Leverage Ratio": as at the last day of any period, the --------------------------- ratio of (a) Consolidated Total Debt on such day to (b) Consolidated EBITDA for such period; provided that, for purposes of determining such ratio at a time -------- when less than four full fiscal quarters of the Company have begun after and fully elapsed since the Closing Date, Consolidated EBITDA for the relevant period shall be deemed to be the sum of (x) the aggregate Consolidated EBITDA of the Company for those fiscal quarters which have begun after and fully elapsed since the Closing Date and (y) the aggregate Consolidated EBITDA (determined on a pro forma basis, as if the Transaction had occurred on the first day of such period) of the Company for the requisite number of consecutive fiscal quarters commencing prior to the Closing Date. "Consolidated Net Income": for any period, the consolidated net income (or ----------------------- loss) of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that there shall be excluded therefrom (a) the -------- income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions and (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary. "Consolidated Total Debt": at any date, the aggregate principal ----------------------- amount of all Indebtedness of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP. "Consolidated Working Capital": the excess of Consolidated Current ---------------------------- Assets over Consolidated Current Liabilities. "Continuing Directors": the directors of the Company on the Effective -------------------- Date and each other director if such director's nomination for the election to the Board of Directors of the Company is recommended by a majority of the then Continuing Directors. "Contractual Obligation": as to any Person, any provision of any security ---------------------- issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound. "Default": any of the events specified in Section 8, whether or not ------- any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Delayed Draw Commitment": $25,000,000, as such amount may be reduced ----------------------- from time to time pursuant to Section 2.8(b). "Designated Equity Amounts": at any date, the amount equal to the ------------------------- aggregate amount of Net Cash Proceeds received by the Company and its Subsidiaries from the issuance of Capital Stock which (a) have been designated in writing by the Company to the Administrative Agent as "Permitted Expenditure Amounts" and (b) are utilized by the Company and its Subsidiaries within 45 days after such receipt for an Expenditure Use Amount. "DI Acquisition": DI Acquisition Corp., a California corporation. -------------- "Disposition": with respect to any Property, any sale, lease, sale and ----------- leaseback, assignment, conveyance, transfer or other disposition thereof; and the terms "Dispose" and "Disposed of" shall have correlative meanings. ------- ----------- "Dollars" and "$": dollars in lawful currency of the United States of ------- - America. "Domestic Subsidiary": any Subsidiary of the Borrower organized under ------------------- the laws of any jurisdiction within the United States of America. "ECF Percentage": 75%; provided, that, with respect to each fiscal -------------- -------- year of the Borrower ending on or after December 31, 1998, the ECF Percentage shall be reduced to 50% if the Consolidated Interest Coverage Ratio for the period of four consecutive fiscal quarters ending on the last day of such fiscal year is at least 2.5 to 1.0 and the Consolidated Leverage Ratio as of the last day of such fiscal year is not greater than 4.0 to 1.0. "Environmental Laws": any and all foreign, Federal, state, local or ------------------ municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees, requirements of any Governmental Authority or other Requirements of Law (including common law) regulating, relating to or imposing liability or standards of conduct concerning protection of human health or the environment, as now or may at any time hereafter be in effect. "ERISA": the Employee Retirement Income Security Act of 1974, as amended ----- from time to time. "Eurocurrency Reserve Requirements": for any day as applied to a --------------------------------- Eurodollar Loan, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto) dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate": with respect to each day during each Interest -------------------- Period pertaining to a Eurodollar Loan, the rate per annum determined by the Administrative Agent to be the offered rate for deposits in Dollars with a term comparable to such Interest Period that appears on the applicable Telerate Page at approximately 10:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period; provided, however, that if at any time for -------- ------- any reason such offered rate does not appear on the applicable Telerate Page, "Eurodollar Base Rate" shall mean, with respect to each day during each Interest Period pertaining to a Eurodollar Loan, the rate per annum equal to the rate at which the Administrative Agent is offered Dollar deposits at or about 10:00 A.M., New York City time, two Business Days prior to the beginning of such Interest Period in the interbank eurodollar market where the eurodollar and foreign currency and exchange operations in respect of its Eurodollar Loans are then being conducted for delivery on the first day of such Interest Period for the number of days comprised therein and in an amount comparable to the amount of its Eurodollar Loans to be outstanding during such Interest Period. "Eurodollar Loans": Loans the rate of interest applicable to which is ---------------- based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest --------------- Period pertaining to a Eurodollar Loan, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): Eurodollar Base Rate ---------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Eurodollar Tranche": the collective reference to Eurodollar Loans ------------------ the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "Event of Default": any of the events specified in Section 8, provided that ---------------- -------- any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Excess Cash Flow": for any fiscal year of the Borrower, the excess, if ---------------- any, of (a) the sum, without duplication, of (i) Consolidated Net Income for such fiscal year, (ii) an amount equal to the amount of all non-cash charges deducted in arriving at such Consolidated Net Income, (iii) decreases in Consolidated Working Capital for such fiscal year, (iv) an amount equal to the aggregate net non-cash loss on the Disposition of Property by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent deducted in arriving at such Consolidated Net Income, (v) the amount, if any, by which Consolidated Working Capital was increased by changes in the current deferred income tax account and (vi) the amount by which Consolidated Working Capital was increased as a result of the payment in such fiscal year of items referred to in clause (b)(vii) below over (b) the sum, without duplication, of (i) an amount equal to the amount of - ---- all non-cash credits included in arriving at such Consolidated Net Income, (ii) the aggregate amount actually paid by the Borrower and its Subsidiaries in cash during such fiscal year on account of Capital Expenditures (excluding the principal amount of Indebtedness incurred in connection with such expenditures and any such expenditures financed with the proceeds of any portion of the Reinvestment Deferred Amount that exceeded any gain recognized as a result of the event that gave rise to such Deferred Investment Amount), (iii) the aggregate amount of all prepayments of Revolving Credit Loans and Swing Line Loans during such fiscal year to the extent accompanying permanent optional reductions of the Revolving Credit Commitments and all optional prepayments of the Term Loans during such fiscal year, (iv) the aggregate amount of all principal payments of Funded Debt (including, without limitation, the Term Loans) of the Borrower and its Subsidiaries made during such fiscal year (other than in respect of any revolving credit facility to the extent there is not an equivalent permanent reduction in commitments thereunder), (v) increases in Consolidated Working Capital for such fiscal year, (vi) an amount equal to the aggregate net non-cash gain on the Disposition of Property by the Borrower and its Subsidiaries during such fiscal year (other than sales of inventory in the ordinary course of business), to the extent included in arriving at such Consolidated Net Income, (vii) the amount of non cash charges that decreased Consolidated Working Capital during such fiscal year which resulted from items that the Borrower reasonably determines in good faith are expected to be paid in cash in the immediately following fiscal year, (viii) any cash disbursement made against non-current liabilities to the extent not deducted in determining Consolidated Net Income, (ix) the amount, if any, by which Consolidated Working Capital was decreased by changes in the current deferred income tax account, (x) the amount of distributions permitted by Section 7.6 which were made in such fiscal year, (xi) the amount of investments, advances, loans or extensions of credit made pursuant to clauses (d), (e), (i) and (j) of Section 7.8, to the extent not funded by the incurrence of Indebtedness or contributions to capital and (xii) any payments made to the former shareholders of the Company pursuant to Section 1.11 of the Transaction Agreement. "Excess Cash Flow Application Date": as defined in Section 2.11(c). --------------------------------- "Excess Note Proceeds": as defined in Section 7.2(g). -------------------- "Excluded Agreements": the collective reference to the following: (i) the ------------------- employment agreements with Bruce McMaster, Joseph Gisch, Lee Muse and Terry Wright, (ii) equity incentive/option plans for directors, officers and employees of, and consultants and advisors to, the Company and its Subsidiaries, awards thereunder and any promissory notes accepted as payment in connection with the issuance of securities thereunder, (iii) the warrant and escrow agreements related to the Company Interim Credit Facility, (iv) the Management Agreement, dated as of October 28, 1997, between the Company and Bain Capital Partners V, L.P., (v) the Transaction Agreement, (vi) the Stockholders Agreement, dated as of October 28, 1997, among the Company and its shareholders, (vii) each of the Subscription Agreements, dated as of October 28, 1997, to which DI Acquisition is a party and (viii) the escrow agreement described in Section 1.11 of the Transaction Agreement and the tax savings and refunds related thereto. "Excluded Foreign Subsidiaries": any Foreign Subsidiary the pledge of ----------------------------- all of whose Capital Stock as Collateral would, in the good faith judgment of the Borrower, result in adverse tax consequences to the Borrower. "Expenditure Use Amounts": at any date, the amount equal to the sum ----------------------- of (a) all amounts utilized by the Borrower and its Subsidiaries to finance Capital Expenditures, other than Capital Expenditures which are (i) not in excess of the Base CapEx Amount for the relevant fiscal year and any permitted rollovers to such fiscal year of unused amounts from the prior fiscal year or (ii) financed with Deferred Reinvestment Amounts, (b) all amounts utilized by the Borrower and its Subsidiaries to finance investments permitted pursuant to Section 7.8(i), except to the extent that the consideration (determined in accordance with such Section 7.8(i)) for all such investments made since the Closing Date does not exceed $30,000,000 in the aggregate and (c) all amounts utilized by the Borrower and its Subsidiaries to finance investments permitted pursuant to Section 7.8(j), except to the extent that the aggregate amount of all such investments (valued at cost, but net of returns of capital from such investments) made since the Closing Date does not exceed $5,000,000. "Facility": each of (a) the Tranche A Term Loan Commitments and the -------- Tranche A Term Loans made thereunder (the "Tranche A Term Loan Facility"), (b) ---------------------------- the Tranche B Term Loan Commitments and the Tranche B Term Loans made thereunder (the "Tranche B Term Loan Facility"), and (c) the Revolving Credit Commitments ---------------------------- and the extensions of credit made thereunder (the "Revolving Credit Facility"). ------------------------- "Foreign Subsidiary": any Subsidiary of the Borrower that is not a ------------------ Domestic Subsidiary. "Funded Debt": as to any Person, all Indebtedness of such Person that ----------- matures more than one year from the date of its creation or matures within one year from such date but is renewable or extendible, at the option of such Person, to a date more than one year from such date or arises under a revolving credit or similar agreement that obligates the lender or lenders to extend credit during a period of more than one year from such date, including, without limitation, all current maturities and current sinking fund payments in respect of such Indebtedness whether or not required to be paid within one year from the date of its creation and, in the case of the Borrower, Indebtedness in respect of the Loans. "GAAP": generally accepted accounting principles in the United States ---- of America as in effect from time to time set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and the statements and pronouncements of the Financial Accounting Standards Board and the rules and regulations of the Securities and Exchange Commission, or in such other statements by such other entity as may be in general use by significant segments of the accounting profession, which are applicable to the circumstances of the Borrower as of the date of determination, except that for purposes of Section 7.1, GAAP shall be determined on the basis of such principles in effect on the date hereof and consistent with those used in the preparation of the most recent audited financial statements delivered pursuant to Section 4.1(b). In the event that any "Accounting Change" (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Changes with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such Accounting Changes as if such Accounting Changes had not been made. Until such time as such an amendment shall have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Changes had not occurred. "Accounting Changes" refers to changes in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the Securities and Exchange Commission (or successors thereto or agencies with similar functions). "Governmental Authority": any nation or government, any state or other ----------------------- political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (including, without limitation, the National Association of Insurance Commissioners). "Guarantee and Collateral Agreement": the Guarantee and Collateral ---------------------------------- Agreement to be executed and delivered by the Company, the Successor Subsidiary and each Subsidiary Guarantor, substantially in the form of Exhibit A, as the same may be amended, supplemented or otherwise modified from time to time. "Guarantee Obligation": as to any Person (the "guaranteeing person"), -------------------- ------------------- any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit) to induce the creation of which the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") ------------------- of any other third Person (the "primary obligor") in any manner, whether --------------- directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any Property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase Property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not -------- ------- include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "Guarantors": the collective reference to the Subsidiary Guarantors ---------- and (from and after the Push-Down Date) the Company. "Incur": as defined in Section 7.2. ----- "Indebtedness": of any Person at any date, without duplication, (a) all ------------ indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of Property or services (other than trade payables incurred in the ordinary course of such Person's business which are current liabilities), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party under bankers' acceptance, letter of credit or similar facilities, (g) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any Capital Stock (other than common stock) of such Person, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above; (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on Property (including, without limitation, accounts and contract rights) owned by such Person, whether or not such Person has assumed or become liable for the payment of such obligation; and (j) for the purposes of Section 8(e) only, the net exposure of such Person in respect of Interest Rate Protection Agreements. "Insolvency": with respect to any Multiemployer Plan, the condition ---------- that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. --------- "Intellectual Property": the collective reference to all rights, --------------------- priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Interest Payment Date": (a) as to any ABR Loan, the last day of each --------------------- March, June, September and December to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of three months or less, the last day of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day which is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and (d) as to any Loan (other than any Revolving Credit Loan that is an ABR Loan and any Swing Line Loan), the date of any repayment or prepayment made in respect thereof. "Interest Period": as to any Eurodollar Loan, (a) initially, the period --------------- commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions -------- relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; (ii) any Interest Period that would otherwise extend beyond the Scheduled Revolving Credit Termination Date or beyond the date final payment is due on the Tranche A Term Loans or the Tranche B Term Loans, as the case may be, shall end on the Scheduled Revolving Credit Termination Date or such due date, as applicable; (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of a calendar month; and (iv) the Borrower shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Loan during an Interest Period for such Loan. "Interest Rate Protection Agreement": any interest rate protection ---------------------------------- agreement, interest rate futures contract, interest rate option, interest rate cap or other interest rate hedge arrangement, to or under which the Borrower or any of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a party or a beneficiary after the date hereof. "Issuing Lender": The Chase Manhattan Bank or any of its Affiliates, -------------- in its capacity as issuer of any Letter of Credit. "L/C Commitment": $5,000,000. -------------- "L/C Fee Payment Date": the last day of each March, June, September -------------------- and December and the last day of the Revolving Credit Commitment Period. "L/C Obligations": at any time, an amount equal to the sum of (a) the --------------- aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit which have not then been reimbursed pursuant to Section 3.5. "L/C Participants": the collective reference to all the Revolving ---------------- Credit Lenders other than the Issuing Lender. "Letters of Credit": as defined in Section 3.1(a). ----------------- "Lien": any mortgage, pledge, hypothecation, assignment, deposit ---- arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing). "Loan": any loan made by any Lender pursuant to this Agreement. ---- "Loan Documents": this Agreement, the Security Documents and the Notes. -------------- "Loan Parties": the Company, the Borrower (to the extent different ------------ from the Company) and each Subsidiary of the Borrower which is a party to a Loan Document. "Majority Facility Lenders": with respect to any Facility, the holders of ------------------------- more than 50% of the aggregate unpaid principal amount of the Term Loans or the Total Revolving Extensions of Credit, as the case may be, outstanding under such Facility (or, in the case of the Revolving Credit Facility, prior to any termination of the Revolving Credit Commitments, the holders of more than 50% of the Total Revolving Credit Commitments). "Majority Revolving Credit Facility Lenders": the Majority Facility ------------------------------------------ Lenders in respect of the Revolving Credit Facility. "Mandatory Prepayment Date": as defined in Section 2.17(d). ------------------------- "Material Adverse Effect": a material adverse effect on (a) the ----------------------- Transaction, (b) the business, operations, property or condition (financial or otherwise) of the Borrower and its Subsidiaries taken as a whole or (c) the validity or enforceability of this Agreement or any of the other Loan Documents or the rights or remedies of the Administrative Agent or the Lenders hereunder or thereunder. "Material Environmental Amount": an amount payable by the Borrower and/or ----------------------------- its Subsidiaries in excess of $1,500,000 for remedial costs, compliance costs, compensatory damages, punitive damages, fines, penalties or any combination thereof. "Materials of Environmental Concern": any gasoline or petroleum ---------------------------------- (including crude oil or any fraction thereof) or petroleum products or any hazardous or toxic substances, materials or wastes, defined or regulated as such in or under any Environmental Law, including, without limitation, asbestos, polychlorinated biphenyls and urea-formaldehyde insulation. "Material Subsidiary": any Subsidiary of the Company which has assets ------------------- (valued at their fair market value) or annual revenues which are in excess of $2,500,000. "Multiemployer Plan": a Plan which is a multiemployer plan as defined ------------------ in Section 4001(a)(3) of ERISA. "Net Cash Proceeds": (a) in connection with any Asset Sale or any Recovery ----------------- Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of reasonable attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset which is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other customary and reasonable fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements) and (b) in connection with any issuance or sale of equity securities or debt securities or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of reasonable attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith. "Non-Excluded Taxes": as defined in Section 2.19(a). ------------------ "Non-U.S. Lender": as defined in Section 2.19(b). --------------- "Notes": the collective reference to any promissory note evidencing Loans. ----- "Obligations": the unpaid principal of and interest on (including, ----------- without limitation, interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans and all other obligations and liabilities of the Borrower to the Administrative Agent or to any Lender (or, in the case of Interest Rate Protection Agreements, any affiliate of any Lender), whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this Agreement, any other Loan Document, the Letters of Credit, any Interest Rate Protection Agreement entered into with any Lender or any affiliate of any Lender or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise. "Participant": as defined in Section 10.6(b). ----------- "PBGC": the Pension Benefit Guaranty Corporation established pursuant ---- to Subtitle A of Title IV of ERISA (or any successor). "Permitted Expenditure Amounts": at any date, the amount equal to (a) ----------------------------- the sum of (i) all Designated Equity Amounts as of such date and (ii) any portion of the Excess Cash Flow of the Company for fiscal years completed since the Closing Date which was not required to be applied pursuant to the provisions of Section 2.11(c) minus (b) the aggregate amount of Expenditure Use Amounts as of such date. "Permitted Holders": any of (a) Bain Capital and the Bain Affiliates, ----------------- (b) each other holder of common stock of the Company on the Effective Date and (c) senior management employees of the Borrower and (to the extent that it is not then the Borrower) the Company. "Person": an individual, partnership, corporation, limited liability ------ company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan which is ---- covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Prepayment Option Notice": as defined in Section 2.17(b). ------------------------ "Pricing Grid": the pricing grid attached hereto as Annex A. ------------ "Pro Forma Balance Sheets": as defined in Section 4.1(a). ------------------------ "Projections": as defined in Section 6.2(c). ----------- "Property": any right or interest in or to property of any kind -------- whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Capital Stock. "Push-Down Date": as defined in Section 7.17. -------------- "Real Properties": as defined in Section 4.17. --------------- "Recovery Event": any settlement of or payment in respect of any -------------- property or casualty insurance claim or any condemnation proceeding relating to any asset of the Company or any of its Subsidiaries. "Refunded Swing Line Loans": as defined in Section 2.7. ------------------------- "Refunding Date": as defined in Section 2.7. -------------- "Register": as defined in Section 10.6(d). -------- "Regulation U": Regulation U of the Board as in effect from time to time. ------------ "Reimbursement Obligation": the obligation of the Borrower to reimburse the ------------------------ Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit. "Reinvestment Deferred Amount": with respect to any Reinvestment Event, the ---------------------------- aggregate Net Cash Proceeds received by the Company or any of its Subsidiaries in connection therewith which are not applied to prepay the Term Loans or reduce the Revolving Credit Commitments pursuant to Section 2.11(b) as a result of the delivery of a Reinvestment Notice. "Reinvestment Event": any Asset Sale or Recovery Event in respect of which ------------------ the Borrower has delivered a Reinvestment Notice. "Reinvestment Notice": a written notice executed by a Responsible Officer ------------------- stating that no Event of Default has occurred and is continuing and that the Borrower (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale or Recovery Event to acquire assets useful in its business. "Reinvestment Prepayment Amount": with respect to any Reinvestment ------------------------------ Event, the Reinvestment Deferred Amount relating thereto less any amount expended or then committed to be expended prior to the relevant Reinvestment Prepayment Date to acquire assets useful in the Borrower's business. "Reinvestment Prepayment Date": with respect to any Reinvestment Event, the ---------------------------- earlier of (a) the date occurring six months (or, in the case of any reinvestment to be made by the Borrower or any of its Subsidiaries from the proceeds of any property or casualty insurance claim, twelve months) after such Reinvestment Event and (b) the date on which the Borrower shall have determined not to, or shall have otherwise ceased to, acquire assets useful in the Borrower's business with all or any portion of the relevant Reinvestment Deferred Amount. "Reorganization": with respect to any Multiemployer Plan, the condition -------------- that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(b) of ---------------- ERISA, other than those events as to which the thirty day notice period is waived under subsection .13, .14, .16, .18, .19 or .20 of PBGC Reg. (S)2615. "Required Lenders": the holders of more than 50% of (a) until the ---------------- Closing Date, the Commitments and (b) thereafter, the sum of (i) the aggregate unpaid principal amount of the Term Loans and (ii) the Total Revolving Credit Commitments or, if the Revolving Credit Commitments have been terminated, the Total Revolving Extensions of Credit. "Required Prepayment Lenders": the Majority Facility Lenders in respect of --------------------------- each Facility. "Requirement of Law": as to any Person, the Certificate of Incorporation ------------------ and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "Responsible Officer": the chief executive officer, president or chief ------------------- financial officer of the Borrower, but in any event, with respect to financial matters, the chief financial officer of the Borrower. "Revolving Credit Commitment": as to any Lender, the obligation of such --------------------------- Lender, if any, to make Revolving Credit Loans and participate in Swing Line Loans and Letters of Credit, in an aggregate principal and/or face amount not to exceed the amount set forth under the heading "Revolving Credit Commitment" opposite such Lender's name on Schedule 1.1, as the same may be changed from time to time pursuant to the terms hereof. "Revolving Credit Commitment Period": the period from and including the ---------------------------------- Closing Date to the Scheduled Revolving Credit Termination Date or such earlier date on which the Revolving Credit Commitments shall terminate as provided herein. "Revolving Credit Lender": each Lender which has a Revolving Credit ----------------------- Commitment or which has made Revolving Credit Loans. "Revolving Credit Loans": as defined in Section 2.4. ---------------------- "Revolving Credit Percentage": as to any Revolving Credit Lender at any --------------------------- time, the percentage which such Lender's Revolving Credit Commitment then constitutes of the Total Revolving Credit Commitments (or, at any time after the Revolving Credit Commitments shall have expired or terminated, the percentage which the aggregate principal amount of such Lender's Revolving Credit Loans then outstanding constitutes of the aggregate principal amount of the Revolving Credit Loans then outstanding). "Revolving Extensions of Credit": as to any Revolving Credit Lender at any ------------------------------ time, an amount equal to the sum of (a) the aggregate principal amount of all Revolving Credit Loans made by such Lender then outstanding, (b) such Lender's Revolving Credit Percentage of the aggregate principal amount of Swing Line Loans then outstanding and (c) such Lender's Revolving Credit Percentage of the L/C Obligations then outstanding. "Scheduled Revolving Credit Termination Date": October 27, 2003. ------------------------------------------- "Securities Act": the Securities Act of 1933, as amended from time to time, -------------- and the rules and regulations. "Security Documents": the collective reference to the Guarantee and ------------------ Collateral Agreement and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any Property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document. "Senior Subordinated Credit Facility": the collective reference to the ----------------------------------- Senior Subordinated Credit Agreement of even date herewith, among the Borrower, The Chase Manhattan Bank, as administrative agent, and the other lenders from time to time party thereto, together with all documents executed in connection therewith (including, without limitation, any Exchange Notes issued pursuant thereto), as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.9. "Senior Subordinated Note Indenture": the Indenture to be entered into by ---------------------------------- the Borrower and certain of its Subsidiaries in connection with the issuance of the Senior Subordinated Notes, together with all instruments and other agreements entered into by the Borrower or such Subsidiaries in connection therewith, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.9. "Senior Subordinated Notes": the subordinated notes of the Borrower to be ------------------------- issued pursuant to the Senior Subordinated Note Indenture. "Single Employer Plan": any Plan which is covered by Title IV of ERISA, but -------------------- which is not a Multiemployer Plan. "Solvent": when used with respect to any Person, means that, as of any date ------- of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "Specified Change of Control": a "Change of Control" as defined in either --------------------------- the Senior Subordinated Note Indenture or the Company Indenture. "Subsidiary": as to any Person, a corporation, partnership, limited ---------- liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Subsidiary Guarantor": each Subsidiary of the Borrower other than any -------------------- Excluded Foreign Subsidiary. "Successor Subsidiary": as defined in Section 7.17. -------------------- "Swing Line Commitment": the obligation of the Swing Line Lender to make --------------------- Swing Line Loans pursuant to Section 2.6 in an aggregate principal amount at any one time outstanding not to exceed $5,000,000. 20 "Swing Line Lender": The Chase Manhattan Bank, in its capacity as the ----------------- lender of Swing Line Loans. "Swing Line Loans": as defined in Section 2.6. ---------------- "Swing Line Participation Amount": as defined in Section 2.7. ------------------------------- "Tax Benefit": as defined in Section 2.19(c). ----------- "Telerate Page" means the display designated as Page 3750 on the ------------- Telerate System Incorporated Service (or such other page as may replace such page on such service for the purpose of displaying the rates at which Dollar deposits are offered by leading banks in the London interbank deposit market). "Term Loan Lenders": the collective reference to the Tranche A Term ----------------- Loan Lenders and the Tranche B Term Loan Lenders. "Term Loans": the collective reference to the Tranche A Term Loans ---------- and the Tranche B Term Loans. "Total Revolving Credit Commitments": at any time, the aggregate ---------------------------------- amount of the Revolving Credit Commitments at such time. "Total Revolving Extensions of Credit": at any time, the aggregate ------------------------------------ amount of the Revolving Extensions of Credit of the Revolving Credit Lenders at such time. "Tranche A Term Loan": as defined in Section 2.1. ------------------- "Tranche A Term Loan Commitment": as to any Lender, the obligation of ------------------------------ such Lender, if any, to make a Tranche A Term Loan to the Borrower hereunder in a principal amount not to exceed the amount set forth under the heading "Tranche A Term Loan Commitment" opposite such Lender's name on Schedule 1.1. "Tranche A Term Loan Lender": each Lender which has a Tranche A Term -------------------------- Loan Commitment or which has made a Tranche A Term Loan. "Tranche A Term Loan Percentage": as to Tranche A Term Loan Lender at ------------------------------ any time, the percentage which such Lender's Tranche A Term Loan Commitment then constitutes of the aggregate Tranche A Term Loan Commitments (or, at any time after the Closing Date, the percentage which the aggregate principal amount of such Lender's Tranche A Term Loans then outstanding constitutes of the aggregate principal amount of the Tranche A Term Loans then outstanding). "Tranche B Repayment Amount": as defined in Section 2.17(d). -------------------------- "Tranche B Term Loan": as defined in Section 2.1. ------------------- "Tranche B Term Loan Commitment": as to Tranche B Term Loan Lender, ------------------------------ the obligation of such Lender, if any, to make a Tranche B Term Loan to the borrower hereunder in 21 a principal amount not to exceed the amount set forth under the heading "Tranche B Term Loan Commitment" opposite such Lender's name on Schedule 1.1. "Tranche B Term Loan Lender": each Lender which has a Tranche B Term -------------------------- Loan Commitment or which has made a Tranche B Term Loan. "Tranche B Term Loan Percentage": as to any Lender at any time, the ------------------------------ percentage which such Lender's Tranche B Term Loan Commitment then constitutes of the aggregate Tranche B Term Loan Commitments (or, at any time after the Closing Date, the percentage which the aggregate principal amount of such Lender's Tranche B Term Loans then outstanding constitutes of the aggregate principal amount of the Tranche B Term Loans then outstanding). "Transaction": as defined in Section 5.1(b). ----------- "Transaction Agreement": the Amended and Restated Recapitalization --------------------- Agreement, dated as of October 4, 1997, by and among DI Acquisition, the Company and certain shareholders of the Company, as amended, supplemented or otherwise modified in accordance with the terms hereof and thereof. "Transaction Documents": the collective reference to the Transaction --------------------- Agreement and all other agreements, documents and instruments executed or filed by or on behalf of DI Acquisition, the Company or any of its Subsidiaries or any of their Affiliates with any Governmental Authority in connection with the Transaction. "Transferee": as defined in Section 10.15. ---------- "Type": as to any Loan, its nature as an ABR Loan or a Eurodollar ---- Loan. "Uniform Customs": the Uniform Customs and Practice for Documentary --------------- Credits (1993 Revision), International Chamber of Commerce Publication No. 500, as the same may be amended from time to time. "U.S. Taxes": as defined in Section 10.6(f)(ii). ---------- "Wholly Owned Subsidiary": as to any Person, any other Person all of ----------------------- the Capital Stock of which (other than directors' qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries. "Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is --------------------------------- a Wholly Owned Subsidiary of the Borrower. 1.2 Other Definitional Provisions. (a) Unless otherwise specified ----------------------------- therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms relating to the Company and its Subsidiaries not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. 22 (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. SECTION 2. AMOUNT AND TERMS OF COMMITMENTS 2.1 Term Loan Commitments. Subject to the terms and conditions --------------------- hereof, (a) each Tranche A Term Loan Lender severally agrees to make a term loan to the Borrower on the Closing Date and to make up to three additional term loans to the Borrower during the period prior to October 27, 1998 (the "Tranche ------- A Term Loans") in an aggregate amount not to exceed the amount of the Tranche A - ------------ Term Loan Commitment of such Lender and (b) each Tranche B Term Loan Lender severally agrees to make a term loan (a "Tranche B Term Loan") to the Borrower ------------------- on the Closing Date in an amount not to exceed the amount of the Tranche B Term Loan Commitment of such Lender. Notwithstanding anything to the contrary contained herein, the aggregate amount of Tranche A Term Loans to be borrowed on the Closing Date shall not exceed $41,400,000 and the aggregate amount of those made by all Lenders after the Closing Date shall not exceed $25,000,000. The Term Loans may from time to time be Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.2 and 2.12. 2.2 Procedure for Term Loan Borrowing. The Borrower shall give the --------------------------------- Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to 2:00 P.M., New York City time, one Business Day prior to the requested Borrowing Date) requesting that the Term Loan Lenders make the Term Loans on the requested Borrowing Date (which must be a Business Day) and specifying the amount to be borrowed; provided that the aggregate -------- amount of Tranche A Term Loans made by the Tranche A Term Loan Lenders after the Closing Date (after giving effect to the making of such requested Tranche A Term Loans) shall not exceed the Delayed Draw Commitment on the requested Borrowing Date. All Term Loans initially shall be made as ABR Loans and shall be in an amount equal to $1,000,000 or a whole multiple of $500,000 in excess thereof (or, if the then unused Tranche A Term Loan Commitments of all Tranche A Term Loan Lenders aggregate less than $1,000,000, such lesser amount). Any Term Loans which are made on the Closing Date may not be converted into or continued as a Eurodollar Loan having an Interest Period in excess of one month prior to the earlier of (a) the date which is 60 days after the Closing Date and (b) the date upon which the Administrative Agent determines (in good faith) that the syndication of the Commitments is complete. Upon receipt of such notice the Administrative Agent shall promptly notify each Term Loan Lender thereof. Not later than 12:00 Noon, New York City time, on the requested Borrowing Date each Term Loan Lender shall make available to the Administrative Agent at its office specified in Section 10.2 an amount in immediately available funds equal to the Term Loan or Term Loans to be made by such Lender. The Administrative Agent shall credit the account of the Borrower on the books of such office of the Administrative Agent with the aggregate of the amounts made available to the Administrative Agent by the Term Loan Lenders in immediately available funds. 2.3 Repayment of Term Loans. (a) The Tranche A Term Loans of each ----------------------- Tranche A Term Loan Lender shall mature in quarterly installments (other than with respect to the last 23 installment, which shall be due on October 27, 2003), commencing on September 30, 1998, in an amount equal to such Lender's Tranche A Term Loan Percentage of the amount equal to (i) the sum of the initial aggregate principal amount of each Tranche A Term Loan of such Lender times (ii) the percentage set forth below opposite the period during which such installment is due:
Installment Percentage ----------- ---------- September 30, 1998 through June 30, 2000 2.50% July 1, 2000 through December 31, 2001 5.00% January 1, 2002 through October 27, 2003 6.25%
; provided that any Tranche A Term Loan which is made by a Lender after April -------- 30, 1998 shall begin to amortize on December 31, 1998 and shall be payable from and after such date in quarterly installments in the amount equal to the percentage set forth above opposite the date upon which such installment is due times the initial aggregate principal amount of such Tranche A Term Loan. Any Tranche A Term Loans outstanding on October 27, 2003 shall be due and payable on such date. (b) The Tranche B Term Loan of each Tranche B Lender shall mature in quarterly installments (other than with respect to the last installment, which shall be due on October 27, 2004), commencing on September 30, 1998, each of which shall be in an amount equal to such Lender's Tranche B Term Loan Percentage of the amount equal to (i) the aggregate principal amount of the Tranche B Term Loan of such Lender made on the Closing Date times (ii) the percentage set forth below opposite the period during which such installment is due:
Installment Percentage ----------- ---------- September 30, 1998 through December 31, 2003 0.2% January 1, 2004 through October 27, 2004 23.9%
2.4 Revolving Credit Commitments. (a) Subject to the terms and ---------------------------- conditions hereof, each Revolving Credit Lender severally agrees to make revolving credit loans ("Revolving Credit Loans") to the Borrower from time to ---------------------- time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding which, when added to such Lender's Revolving Credit Percentage of the sum of (i) the aggregate principal amount of the Swing Line Loans then outstanding and (ii) the aggregate amount of the L/C Obligations then outstanding, does not exceed the amount of such Lender's Revolving Credit Commitment. During the Revolving Credit Commitment Period the Borrower may use the Revolving Credit Commitments by borrowing, prepaying the Revolving Credit Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. The Revolving Credit Loans may from time to time be Eurodollar Loans or ABR Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.5 and 2.12, provided that no -------- Revolving Credit Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Scheduled Revolving Credit Termination Date. (b) The Borrower shall repay all outstanding Revolving Credit Loans on the Scheduled Revolving Credit Termination Date (or such earlier date as all amounts owing hereunder shall become due and payable). 24 2.5 Procedure for Revolving Credit Borrowing. The Borrower may ---------------------------------------- borrow under the Revolving Credit Commitments during the Revolving Credit Commitment Period on any Business Day, provided that the Borrower shall give the -------- Administrative Agent irrevocable notice (which notice must be received by the Administrative Agent prior to (a) 3:00 P.M., New York City time, three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) 11:00 A.M., New York City time, on the requested Borrowing Date, in the case of ABR Loans), specifying (i) the amount and Type of Revolving Credit Loans to be borrowed, (ii) the requested Borrowing Date and (iii) in the case of Eurodollar Loans, the respective amounts of each such Type of Loan and the respective lengths of the initial Interest Period therefor. Each borrowing under the Revolving Credit Commitments shall be in an amount equal to (x) in the case of ABR Loans, $1,000,000 or a whole multiple of $500,000 in excess thereof (or, if the then aggregate Available Revolving Credit Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans, $5,000,000 or a whole multiple of $1,000,000 in excess thereof; provided that -------- the Swing Line Lender may, on behalf of the Borrower, request borrowings of ABR Loans under the Revolving Credit Commitments in amounts other than those specified above to the extent necessary to repay Refunded Swing Line Loans. Upon receipt of any such notice from the Borrower, the Administrative Agent shall promptly notify each Revolving Credit Lender thereof. Each Revolving Credit Lender will make the amount of its pro rata share of each borrowing --- ---- available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent specified in Section 10.2 prior to 12:00 Noon, New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent crediting the account of the Borrower on the books of such office with the aggregate of the amounts made available to the Administrative Agent by the Revolving Credit Lenders and in like funds as received by the Administrative Agent. 2.6 Swing Line Commitment. (a) Subject to the terms and conditions --------------------- hereof, the Swing Line Lender agrees to make a portion of the credit otherwise available to the Borrower under the Revolving Credit Commitments from time to time during the Revolving Credit Commitment Period by making swing line loans ("Swing Line Loans") to the Borrower; provided that (i) the aggregate principal - ------------------ -------- amount of Swing Line Loans outstanding at any time shall not exceed the Swing Line Commitment then in effect (notwithstanding that the Swing Line Loans outstanding at any time, when aggregated with the Swing Line Lender's other outstanding Revolving Credit Loans hereunder, may exceed the Swing Line Commitment then in effect) and (ii) the Borrower shall not request, and the Swing Line Lender shall not make, any Swing Line Loan if, after giving effect to the making of such Swing Line Loan, the aggregate amount of the Available Revolving Credit Commitments would be less than zero. During the Revolving Credit Commitment Period, the Borrower may use the Swing Line Commitment by borrowing, repaying and reborrowing, all in accordance with the terms and conditions hereof. Swing Line Loans shall be made as ABR Loans only and shall not be entitled to be converted into Eurodollar Loans. (b) The Borrower shall repay all outstanding Swing Line Loans on the Scheduled Revolving Credit Termination Date or such earlier date on which the Revolving Credit Commitments shall terminate as provided herein. 2.7 Procedure for Swing Line Borrowing; Refunding of Swing Line ----------------------------------------------------------- Loans. (a) Whenever the Borrower desires that the Swing Line Lender make Swing Line Loans it shall give the Swing Line Lender irrevocable telephonic notice confirmed promptly in writing (which 25 telephonic notice must be received by the Swing Line Lender not later than 2:00 P.M., New York City time, on the proposed Borrowing Date), specifying (i) the amount to be borrowed and (ii) the requested Borrowing Date (which shall be a Business Day during the Revolving Credit Commitment Period). Each borrowing under the Swing Line Commitment shall be in an amount equal to $500,000 or a whole multiple of $100,000 in excess thereof. Not later than 4:00 P.M., New York City time, on the Borrowing Date specified in a notice in respect of Swing Line Loans, the Swing Line Lender shall make available to the Administrative Agent at its office specified in Section 10.2 an amount in immediately available funds equal to the amount of the Swing Line Loan to be made by the Swing Line Lender. The Administrative Agent shall make the proceeds of such Swing Line Loan available to the Borrower on such Borrowing Date by depositing such proceeds in the account of the Borrower with the Administrative Agent on such Borrowing Date in immediately available funds. (b) The Swing Line Lender, at any time and from time to time in its sole and absolute discretion may, on behalf of the Borrower (which hereby irrevocably directs the Swing Line Lender to act on its behalf), on notice given by the Swing Line Lender no later than 2:00 P.M., New York City time, on the requested Borrowing Date, request each Revolving Credit Lender to make, and each Revolving Credit Lender hereby agrees to make, a Revolving Credit Loan, in an amount equal to such Revolving Credit Lender's Revolving Credit Percentage of the aggregate amount of the Swing Line Loans (the "Refunded Swing Line Loans") ------------------------- outstanding on the date of such notice, to repay the Swing Line Lender. Each Revolving Credit Lender shall make the amount of such Revolving Credit Loan available to the Administrative Agent at its office set forth in Section 10.2 in immediately available funds, not later than 4:00 P.M., New York City time, on the date of such notice. The proceeds of such Revolving Credit Loans shall be immediately applied by the Swing Line Lender to repay the Refunded Swing Line Loans. The Borrower irrevocably authorizes the Swing Line Lender to charge the Borrower's accounts with the Administrative Agent (up to the amount available in each such account) in order to immediately pay the amount of such Refunded Swing Line Loans to the extent amounts received from the Revolving Credit Lenders are not sufficient to repay in full such Refunded Swing Line Loans. (c) If prior to the time a Revolving Credit Loan would have otherwise been made pursuant to Section 2.7(b), one of the events described in Section 8(f) shall have occurred and be continuing with respect to the Borrower or if for any other reason, as determined by the Swing Line Lender in its sole discretion, Revolving Credit Loans may not be made as contemplated by Section 2.7(b), each Revolving Credit Lender shall, on the date such Revolving Credit Loan was to have been made pursuant to the notice referred to in Section 2.7(b) (the "Refunding Date"), purchase for cash an undivided participating interest in -------------- an amount equal to (i) its Revolving Credit Percentage times (ii) the aggregate principal amount of Swing Line Loans then outstanding which were to have been repaid with such Revolving Credit Loans (the "Swing Line Participation Amount"). ------------------------------- (d) Whenever, at any time after the Swing Line Lender has received from any Revolving Credit Lender such Lender's Swing Line Participation Amount, the Swing Line Lender receives any payment on account of the Swing Line Loans, the Swing Line Lender will distribute to such Lender its Swing Line Participation Amount (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender's participating interest was outstanding and funded and, in the case of principal and interest payments, to reflect such Lender's pro rata portion of such payment if such payment is not sufficient to pay the principal of and interest on all Swing Line Loans then due); provided, however, that in the event 26 that such payment received by the Swing Line Lender is required to be returned, such Revolving Credit Lender will return to the Swing Line Lender any portion thereof previously distributed to it by the Swing Line Lender. (e) Each Revolving Credit Lender's obligation to make the Loans referred to in Section 2.7(b) and to purchase participating interests pursuant to Section 2.7(c) shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any setoff, counterclaim, recoupment, defense or other right which such Revolving Credit Lender or the Borrower may have against the Swing Line Lender, the Borrower or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or an Event of Default or the failure to satisfy any of the other conditions specified in Section 5; (iii) any adverse change in the condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement or any other Loan Document by the Borrower, any other Loan Party or any other Revolving Credit Lender; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. 2.8 Commitment Fees, etc. (a) The Borrower agrees to pay to the --------------------- Administrative Agent for the account of each Revolving Credit Lender a commitment fee for the period from and including the Closing Date to the last day of the Revolving Credit Commitment Period, computed at the Commitment Fee Rate on the average daily amount of the Available Revolving Credit Commitment (without giving effect to any Swing Line Loans which are then outstanding) of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Scheduled Revolving Credit Termination Date or such earlier date on which the Revolving Credit Commitments shall terminate as provided herein, commencing on the first of such dates to occur after the date hereof. (b) The Borrower agrees to pay to the Administrative Agent, for the ratable accounts of the Tranche A Term Loan Lenders, a commitment fee for the period from and including the Closing Date to October 27, 1998, computed at the Commitment Fee Rate on the amount by which the average daily Delayed Draw Commitment during the period for which payment is due exceeds the average daily principal amount (without giving effect to any prepayments or repayments thereof) during such period of all Tranche A Term Loans made after the Closing Date. Such commitment fee shall be payable quarterly in arrears on the last day of each March, June, September and December and on October 27, 1998, commencing on the first of such dates to occur after the date hereof. (c) The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates previously agreed to in writing by the Borrower and the Administrative Agent. 2.9 Termination or Reduction of Commitments. (a) The Borrower shall --------------------------------------- have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to reduce the amount of the Revolving Credit Commitments; -------- provided that no such termination or reduction of Revolving Credit Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Revolving Credit Loans and Swing Line Loans made on the effective date thereof, the Total Revolving Extensions of Credit would exceed the Total Revolving Credit Commitments. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Revolving Credit Commitments then in effect. 27 (b) The Borrower shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate the Delayed Draw Commitment or, from time to time, to reduce the amount of the Delayed Draw Commitment. Any such reduction shall be in an amount equal to $1,000,000, or a whole multiple thereof, and shall reduce permanently the Revolving Credit Commitments then in effect. 2.10 Optional Prepayments. The Borrower may at any time and from -------------------- time to time prepay the Loans, in whole or in part, without premium or penalty, upon irrevocable notice delivered to the Administrative Agent at least three Business Days prior thereto in the case of Eurodollar Loans and at least one Business Day prior thereto in the case of ABR Loans, which notice shall specify the date and amount of prepayment and whether the prepayment is of Eurodollar Loans or ABR Loans; provided, that if a Eurodollar Loan is prepaid on any day -------- earlier than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.20. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (except in the case of Revolving Credit Loans which are ABR Loans and any Swing Line Loans) accrued interest to such date on the amount prepaid. Partial prepayments of Term Loans and Revolving Credit Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof. Partial Prepayments of Swing Line Loans shall be in an aggregate principal amount of $100,000 or a whole multiple thereof. Amounts to be applied in connection with optional prepayments of the Term Loans shall be applied pro rata among the Tranche A Term --- ---- Loans and the Tranche B Term Loans based upon the outstanding principal amount thereof. 2.11 Mandatory Prepayments and Commitment Reductions. (a) Unless ----------------------------------------------- the Required Prepayment Lenders shall otherwise agree, if any Capital Stock or Indebtedness shall be issued or Incurred by the Company or any of its Subsidiaries, an amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the date of such issuance or Incurrence toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.11(d); provided that no such prepayment and reduction shall be -------- required pursuant to this Section 2.11(a) with respect to (i) Designated Equity Amounts, (ii) any such Net Cash Proceeds from the issuance of Capital Stock which is applied within five Business Days after the receipt thereof by the Company and its Subsidiaries to repay Indebtedness Incurred in reliance upon the provisions of Section 7.2(i) or (j) hereof, (iii) other than to the extent set forth therein, Indebtedness Incurred in accordance with Section 7.2 and (iv) up to $10,000,000 in aggregate Net Cash Proceeds from the issuance of Capital Stock by the Borrower after the Closing Date. (b) Unless the Required Prepayment Lenders shall otherwise agree, if on any date the Company or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect thereof, such Net Cash Proceeds shall be applied on such date toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.11(d); provided, -------- that, notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Asset Sales that may be excluded from the foregoing requirement pursuant to a Reinvestment Notice shall not exceed $2,000,000 in any fiscal year of the Borrower and (ii) on each Reinvestment Prepayment Date, an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event shall be applied toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.11(d). 28 (c) Unless the Required Prepayment Lenders shall otherwise agree, if, for any fiscal year of the Borrower commencing with the fiscal year ending December 31, 1998, there shall be Excess Cash Flow, the Borrower shall, on the relevant Excess Cash Flow Application Date, apply the ECF Percentage of such Excess Cash Flow toward the prepayment of the Term Loans and the reduction of the Revolving Credit Commitments as set forth in Section 2.11(d). Each such prepayment and commitment reduction shall be made on a date (an "Excess Cash ----------- Flow Application Date") no later than five days after the earlier of (i) the - --------------------- date on which the financial statements of the Borrower referred to in Section 6.1(a), for the fiscal year with respect to which such prepayment is made, are required to be delivered to the Lenders and (ii) the date such financial statements are actually delivered. (d) Amounts to be applied in connection with prepayments and Commitment reductions made pursuant to Section 2.11 shall be applied, first, to ----- the prepayment of the Term Loans (pro rata among the Tranche A Term Loans and --- ---- the Tranche B Term Loans based upon the outstanding principal amount thereof) and, second, to reduce permanently the Revolving Credit Commitments. Any such ------ reduction of the Revolving Credit Commitments shall be accompanied by prepayment of the Revolving Credit Loans and/or Swing Line Loans to the extent, if any, that the Total Revolving Extensions of Credit exceed the amount of the Total Revolving Credit Commitments as so reduced, provided that if the aggregate -------- principal amount of Revolving Credit Loans and Swing Line Loans then outstanding is less than the amount of such excess (because L/C Obligations constitute a portion thereof), the Borrower shall, to the extent of the balance of such excess, replace outstanding Letters of Credit and/or deposit an amount in cash in a cash collateral account established with the Administrative Agent for the benefit of the Lenders on terms and conditions satisfactory to the Administrative Agent. Subject to the immediately preceding sentence, the application of any prepayment pursuant to Section 2.11 shall be made first to ABR Loans and second to Eurodollar Loans. Each prepayment of the Loans under Section 2.11 (except in the case of Revolving Credit Loans that are ABR Loans and Swing Line Loans) shall be accompanied by accrued interest to the date of such prepayment on the amount prepaid. (e) Notwithstanding the provisions of Section 2.11(d), 50% of any Excess Note Proceeds shall be applied to prepay the Tranche A Term Loans and 50% of any Excess Note Proceeds shall be applied to prepay the Tranche B Term Loans, with such prepayment of the Tranche B Term Loans being applied ratably to the remaining installments thereof and with such prepayment of the Tranche A Term Loans being applied to prepay each installment thereof which is due on a date occurring during a period set forth below by the percentage of such Excess Note Proceeds set forth opposite such period:
Period Percentage ------- ---------- September 30, 1998 through September 29, 1999 7.50% September 30, 1999 through September 29, 2000 6.25% September 30, 2000 through September 29, 2002 3.75% September 30, 2002 and thereafter 2.50%
(f) All unpaid amounts owing hereunder shall be due and payable on October 27, 2004. 2.12 Conversion and Continuation Options. (a) The Borrower may elect ----------------------------------- from time to time to convert Eurodollar Loans to ABR Loans by giving the Administrative Agent at 29 least one Business Days' prior irrevocable notice of such election, provided -------- that any such conversion of Eurodollar Loans may only be made on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert ABR Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election (which notice shall specify the length of the initial Interest Period therefor), provided that no ABR Loan under a particular Facility may be converted into a - -------- Eurodollar Loan (i) when any Event of Default has occurred and is continuing and the Administrative Agent or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such conversions or (ii) after the date that is one month prior to the final scheduled termination or maturity date of such Facility. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. (b) Any Eurodollar Loan may be continued as such upon the expiration of the then current Interest Period with respect thereto by the Borrower giving irrevocable notice to the Administrative Agent, in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided -------- that no Eurodollar Loan under a particular Facility may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has or the Majority Facility Lenders in respect of such Facility have determined in its or their sole discretion not to permit such continuations or (ii) after the date that is one month prior to the final scheduled termination or maturity date of such Facility, and provided, further, that if the Borrower -------- ------- shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso such Loans shall be automatically converted to ABR Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each relevant Lender thereof. 2.13 Minimum Amounts and Maximum Number of Eurodollar Tranches. --------------------------------------------------------- Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions, continuations and optional prepayments of Eurodollar Loans hereunder and all selections of Interest Periods hereunder shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof and (b) no more than ten Eurodollar Tranches shall be outstanding at any one time. 2.14 Interest Rates and Payment Dates. (a) Each Eurodollar Loan -------------------------------- shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin. (b) Each ABR Loan shall bear interest at a rate per annum equal to the ABR plus the Applicable Margin. (c) (i) If all or a portion of the principal amount of any Loan or Reimbursement Obligation shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement Obligations (whether or not overdue) shall bear interest at a rate per annum which is equal to (x) in the case of the Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section 2.14 plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to - ---- ABR Loans under the Revolving Credit Facility plus 2%, and (ii) if all or a ---- portion of any interest payable on 30 any Loan or Reimbursement Obligation or any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate applicable to ABR Loans under the relevant Facility plus 2% (or, in the case of any such other amounts that do not relate to a - ---- particular Facility, the ABR plus 3.75%), in each case, with respect to clauses ---- (i) and (ii) above, from the date of such non-payment until such amount is paid in full (as well after as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section -------- 2.14 shall be payable from time to time on demand. 2.15 Computation of Interest and Fees. (a) Interest, fees and -------------------------------- commissions payable pursuant hereto shall be calculated on the basis of a 360- day year for the actual days elapsed, except that, with respect to ABR Loans the rate of interest on which is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the ABR or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the relevant Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.14(a). 2.16 Inability to Determine Interest Rate. If prior to the first day ------------------------------------ of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Majority Facility Lenders in respect of the relevant Facility that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans under the relevant Facility requested to be made on the first day of such Interest Period shall be made as ABR Loans, (y) any Loans under the relevant Facility that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as ABR Loans and (z) any outstanding Eurodollar Loans under the relevant Facility that were to have 31 been continued as such on such first day shall be converted on such day to ABR Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans under the relevant Facility shall be made or continued as such, nor shall the Borrower have the right to convert Loans under the relevant Facility to Eurodollar Loans. 2.17 Pro Rata Treatment and Payments. (a) Each borrowing by the ------------------------------- Borrower from the Lenders hereunder, each payment by the Borrower on account of any commitment fee and any reduction of the Commitments of the Lenders shall be made pro rata according to the respective Tranche A Term Loan Percentages, --- ---- Tranche B Term Loan Percentages or Revolving Credit Percentages, as the case may be, of the relevant Lenders. (b) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Term Loans shall be made pro rata --- ---- according to the respective outstanding principal amounts of the Term Loans then held by the Term Loan Lenders (except as otherwise provided in paragraph (d) below). The amount of each principal payment of the Term Loans shall be applied to reduce the then remaining installments of the Tranche A Term Loans and Tranche B Term Loans, as the case may be, pro rata based upon the then remaining --- ---- principal amount thereof. Amounts prepaid on account of the Term Loans may not be reborrowed. (c) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Revolving Credit Loans shall be made pro rata according to the respective outstanding principal amounts of the - --- ---- Revolving Credit Loans then held by the Revolving Credit Lenders. (d) Notwithstanding anything to the contrary in Section 2.11(d) or 2.17, with respect to the amount of any optional or mandatory prepayment described in Section 2.10 or 2.11 that is allocated to Tranche B Term Loans (such amounts, the "Tranche B Prepayment Amount"), at any time when Tranche A --------------------------- Term Loans remain outstanding, the Borrower will, in lieu of applying such amount to the prepayment of Tranche B Term Loans as provided in Section 2.10 or 2.11, on the date specified in Section 2.10 or 2.11 for such prepayment, give the Administrative Agent telephonic notice (promptly confirmed in writing) requesting that the Administrative Agent prepare and provide to each Tranche B Term Loan Lender a notice (each, a "Prepayment Option Notice") as described ------------------------ below. As promptly as practicable after receiving such notice from the Borrower, the Administrative Agent will send to each Tranche B Term Loan Lender a Prepayment Option Notice, which shall be in the form of Exhibit G, and shall include an offer by the Borrower to prepay on the date (each a "Mandatory --------- Prepayment Date") that is 10 Business Days after the date of the Prepayment - --------------- Option Notice, the relevant Tranche B Term Loans of such Lender by an amount equal to the portion of the Tranche B Prepayment Amount indicated in such Lender's Prepayment Option Notice as being applicable to such Lender's Tranche B Term Loans. On the Mandatory Prepayment Date, (i) the Borrower shall pay to the Administrative Agent the aggregate amount necessary to prepay that portion of the outstanding relevant Term Loans in respect of which Tranche B Term Loan Lenders have accepted prepayment as described above (such Lenders, the "Accepting Lenders"), and such amount shall be applied to reduce the Tranche B ----------------- Repayment Amounts with respect to each Accepting Lender and (ii) the Borrower shall pay to the Administrative Agent an amount equal to the remaining portion of the Tranche B Prepayment Amount not accepted by the Accepting Lenders, and such amount shall be applied to the prepayment of the Tranche A Term Loans. 32 (e) All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the Lenders, at the Administrative Agent's office specified in Section 10.2, in Dollars and in immediately available funds. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension. (f) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this Section 2.17(f) shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days of such Borrowing Date, the Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to ABR Loans under the relevant Facility, on demand, from the Borrower. 2.18 Requirements of Law. (a) If the adoption of or any change in ------------------- any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Taxes covered by Section 2.19 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender which is not otherwise included in the determination of the Eurodollar Rate hereunder; or 33 (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable; provided that the Borrower -------- shall not be required to compensate a Lender pursuant to this paragraph for any amounts incurred more than six months prior to the date that such Lender notifies the Borrower of such Lender's intention to claim compensation therefor. If any Lender becomes entitled to claim any additional amounts pursuant to this Section 2.18, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender for such reduction; provided that the Borrower shall not be required to compensate a Lender pursuant - -------- to this paragraph for any amounts incurred more than six months prior to the date that such Lender notifies the Borrower of such Lender's intention to claim compensation therefor. (c) A certificate as to any additional amounts payable pursuant to this Section 2.18 submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The obligations of the Borrower pursuant to this Section 2.18 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.19 Taxes. (a) All payments made by the Borrower under this ----- Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on the Administrative Agent or any Lender as a result of a present or former connection between the Administrative Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from the Administrative Agent or such Lender having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document). If any such non- excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required to be withheld from any amounts ------------------ payable to the Administrative Agent or any 34 Lender hereunder, the amounts so payable to the Administrative Agent or such Lender shall be increased to the extent necessary to yield to the Administrative Agent or such Lender (after payment of all Non-Excluded Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement, provided, however, that the Borrower shall not be required to -------- ------- (x) increase any such amounts payable to any Lender that is not organized under the laws of the United States of America or a state thereof to the extent such Lender fails to comply with Section 2.19(b) or (y) compensate a Lender pursuant to this paragraph for any amounts incurred more than six months prior to the date that such Lender notifies the Borrower of such Lender's intention to claim compensation therefor. Whenever any Non-Excluded Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for its own account or for the account of such Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non- Excluded Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Administrative Agent and the Lenders for any incremental taxes, interest or penalties that may become payable by the Administrative Agent or any Lender as a result of any such failure. The agreements in this Section 2.19 shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (b) Each Lender (or Transferee) that is not a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States of America (or any jurisdiction thereof), or any estate or trust that is subject to federal income taxation regardless of the source of its income (a "Non-U.S. Lender") shall --------------- deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, an annual certificate representing that such Non-U.S. Lender is not a "bank" for purposes of Section 881(c) of the Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this Section 2.19(b), a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 2.19(b) that such Non-U.S. Lender is not legally able to deliver. (c) In the event the Borrower makes any additional payment to any Lender or Administrative the Agent pursuant to Section 2.19(a) and such Lender or the Administrative Agent, by reason of payment by the Borrower of any Taxes, obtains a credit against, or return or 35 reduction of, any tax payable by it in, or any other currently realized tax benefit from, a taxing jurisdiction which it would not have enjoyed but for such payment ("Tax Benefit"), such Lender or the Administrative Agent shall, to the ----------- extent that it can do so without prejudice to the retention of such Tax Benefit, thereupon pay to the Borrower the amount which, after the deduction of any additional tax savings realized as a result of such payment, shall equal the amount of such Tax Benefit; provided, however, that the Borrower shall not be -------- ------- entitled to require such Lender or the Administrative Agent to supply it with details of its tax position or to inspect any records, including tax returns, of any Lender or the Administrative Agent. The Borrower agrees to reimburse the Administrative Agent and each Lender upon demand for out-of-pocket costs and expenses (other than expenses incurred in connection with the preparation of any tax returns) incurred in connection with any determination required pursuant to this Section 2.19(c). 2.20 Indemnity. The Borrower agrees to indemnify each Lender and to --------- hold each Lender harmless from any loss or expense (other than any loss of Applicable Margin) which such Lender reasonably may sustain or incur as a consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment of Eurodollar Loans on a day which is not the last day of an Interest Period with respect thereto. Such indemnification shall be based upon the amount equal to the excess, if any, of (i) the amount of interest which would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as ---- reasonably determined by such Lender) which would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank eurodollar market. A certificate as to any amounts payable pursuant to this Section 2.20 submitted to the Borrower by any Lender shall be presumptively correct in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.21 Change of Lending Office. Each Lender agrees that, upon the ------------------------ occurrence of any event giving rise to the operation of Section 2.18 or 2.19(a) with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such -------- designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section 2.21 shall -------- ------- affect or postpone any of the obligations of any Borrower or the rights of any Lender pursuant to Section 2.18 or 2.19(a). 2.22 Replacement of Lenders under Certain Circumstances. The -------------------------------------------------- Borrower shall be permitted to replace any Lender which (a) requests reimbursement for amounts owing pursuant to Section 2.18 or 2.19 or (b) defaults in its obligation to make Loans hereunder, with a replacement financial institution; provided that (i) such replacement does not conflict with any -------- Requirement of Law, (ii) no Event of Default shall have occurred and be continuing at the time 36 of such replacement, (iii) prior to any such replacement, such Lender shall not have eliminated the continued need for payment of amounts owing pursuant to Section 2.18 or 2.19, (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) the Borrower shall be liable to such replaced Lender under Section 2.20 if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (vi) the replacement financial institution, if not already a Lender, shall be reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 10.6 (provided that the Borrower shall be obligated to pay the registration and processing fee referred to therein), (viii) until such time as such replacement shall be consummated, the Borrower shall pay all additional amounts (if any) required pursuant to Section 2.18 or 2.19, as the case may be, and (ix) any such replacement shall not be deemed to be a waiver of any rights which the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender. SECTION 3. LETTERS OF CREDIT 3.1 L/C Commitment. (a) Subject to the terms and conditions hereof, -------------- the Issuing Lender, in reliance on the agreements of the other Revolving Credit Lenders set forth in Section 3.4(a), agrees to issue letters of credit ("Letters ------- of Credit") for the account of the Borrower on any Business Day during the - --------- Revolving Credit Commitment Period in such form as may be approved from time to time by the Issuing Lender; provided that the Issuing Lender shall have no -------- obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the Available Revolving Credit Commitments would be less than zero. Each Letter of Credit shall (i) be denominated in Dollars and (ii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date which is five Business Days prior to the Scheduled Revolving Credit Termination Date, provided that any Letter of Credit with a -------- one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above). (b) Each Letter of Credit shall be subject to the Uniform Customs and, to the extent not inconsistent therewith, the laws of the State of New York. (c) The Issuing Lender shall not at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause the Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 3.2 Procedure for Issuance of Letter of Credit. The Borrower may ------------------------------------------ from time to time request that the Issuing Lender issue a Letter of Credit by delivering to the Issuing Lender at its address for notices specified herein an Application therefor, completed to the satisfaction of the Issuing Lender, and such other certificates, documents and other papers and information as the Issuing Lender may request. Upon receipt of any Application, the Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby (but in no event shall the Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto) by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by the Issuing Lender and the Borrower. The Issuing 37 Lender shall furnish a copy of such Letter of Credit to the Borrower promptly following the issuance thereof. The Issuing Lender shall promptly furnish to the Administrative Agent, which shall in turn promptly furnish to the Lenders, notice of the issuance of each Letter of Credit (including the amount thereof). 3.3 Commissions, Fees and Other Charges. (a) The Borrower will pay ----------------------------------- a commission on all outstanding Letters of Credit at a per annum rate equal to the Applicable Margin then in effect with respect to Eurodollar Loans under the Revolving Credit Facility, shared ratably among the Revolving Credit Lenders and payable quarterly in arrears on each L/C Fee Payment Date after the issuance date. In addition, the Borrower shall pay to the Issuing Lender for its own account a fronting fee of 1/4 of 1% per annum, payable quarterly in arrears on each L/C Fee Payment Date after the Issuance Date. (b) In addition to the foregoing fees and commissions, the Borrower shall pay or reimburse the Issuing Lender for such normal and customary costs and expenses as are incurred or charged by the Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit. 3.4 L/C Participations. (a) The Issuing Lender irrevocably agrees ------------------ to grant and hereby grants to each L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from the Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk an undivided interest equal to such L/C Participant's Revolving Credit Percentage in the Issuing Lender's obligations and rights under each Letter of Credit issued hereunder and the amount of each draft paid by the Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with the Issuing Lender that, if a draft is paid under any Letter of Credit for which the Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to the Issuing Lender upon demand at the Issuing Lender's address for notices specified herein an amount equal to such L/C Participant's Revolving Credit Percentage of the amount of such draft, or any part thereof, which is not so reimbursed. (b) If any amount required to be paid by any L/C Participant to the Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any payment made by the Issuing Lender under any Letter of Credit is paid to the Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to the Issuing Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to the Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to Section 3.4(a) is not made available to the Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, the Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to ABR Loans under the Revolving Credit Facility. A certificate of the Issuing Lender submitted to any L/C Participant with respect to any amounts owing under this Section shall be conclusive in the absence of manifest error. 38 (c) Whenever, at any time after the Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its pro --- rata share of such payment in accordance with Section 3.4(a), the Issuing Lender - ---- receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, including proceeds of collateral applied thereto by the Issuing Lender), or any payment of interest on account thereof, the Issuing Lender will distribute to such L/C Participant its pro rata share thereof; --- ---- provided, however, that in the event that any such payment received by the - -------- ------- Issuing Lender shall be required to be returned by the Issuing Lender, such L/C Participant shall return to the Issuing Lender the portion thereof previously distributed by the Issuing Lender to it. 3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to ---------------------------------------- reimburse the Issuing Lender on each date on which the Issuing Lender notifies the Borrower of the date and amount of a draft presented under any Letter of Credit and paid by the Issuing Lender for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by the Issuing Lender in connection with such payment. Each such payment shall be made to the Issuing Lender at its address for notices specified herein in lawful money of the United States of America and in immediately available funds. Interest shall be payable on any and all amounts remaining unpaid by the Borrower under this Section from the date such amounts become payable (whether at stated maturity, by acceleration or otherwise) until payment in full at the rate set forth in Section 2.14(c). Each drawing under any Letter of Credit shall (unless an event of the type described in clause (i) or (ii) of Section 8(f) shall have occurred and be continuing with respect to the Borrower, in which case the procedures specified in Section 3.4 for funding by L/C Participants shall apply) constitute a request by the Borrower to the Administrative Agent for a borrowing pursuant to Section 2.5 of ABR Loans (or, at the option of each of the Administrative Agent and the Swing Line Lender in its respective sole discretion, a borrowing pursuant to Section 2.7 of Swing Line Loans) in the amount of such drawing. The Borrowing Date with respect to such borrowing shall be the date of such drawing. 3.6 Obligations Absolute. The Borrower's obligations under this -------------------- Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment which the Borrower may have or have had against the Issuing Lender, any beneficiary of a Letter of Credit or any other Person. The Borrower also agrees with the Issuing Lender that the Issuing Lender shall not be responsible for, and the Borrower's Reimbursement Obligations under Section 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. The Issuing Lender shall not be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions resulting from the gross negligence or willful misconduct of the Issuing Lender. The Borrower agrees that any action taken or omitted by the Issuing Lender under or in connection with any Letter of Credit or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards or care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Borrower and shall not result in any liability of the Issuing Lender to the Borrower. 39 3.7 Letter of Credit Payments. If any draft shall be presented for ------------------------- payment under any Letter of Credit, the Issuing Lender shall promptly notify the Borrower of the date and amount thereof. The responsibility of the Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit shall, in addition to any payment obligation expressly provided for in such Letter of Credit, be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment are substantially in conformity with such Letter of Credit. 3.8 Applications. To the extent that any provision of any ------------ Application related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit, the Company and (from and after the Push-Down Date) the Borrower hereby jointly and severally represent and warrant to the Administrative Agent and each Lender that: 4.1 Financial Condition. (a) The unaudited pro forma consolidated ------------------- --- ----- balance sheets (including a detailed statement of shareholder's equity) of (i) the Borrower and its consolidated Subsidiaries as at September 30, 1997 (including the notes thereto) (the "Borrower Pro Forma Balance Sheet") and (ii) -------------------------------- the Company and its consolidated Subsidiaries as at September 30, 1997 (including the notes thereto) (the "Company Pro Forma Balance Sheet"; and ------------------------------- collectively with the Borrower Pro Forma Balance Sheet, the "Pro Forma Balance ----------------- Sheets"), copies of which have heretofore been furnished to each Lender, have - ------ been prepared giving effect (as if such events had occurred on September 30, 1997) to (i) the consummation of the Transaction and the contribution of assets to the Successor Subsidiary which is to occur on the Push-Down Date, (ii) (x) the Loans to be made and (y) the Senior Subordinated Notes to be issued or the loans to be made under the Senior Subordinated Credit Facility, in any case, on the Closing Date and the use of proceeds thereof (iii) the Company Zeros to be issued or the loans to be made under the Company Interim Credit Facility, in each case, on the Closing Date and the use of proceeds thereof and (iv) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheets have been prepared giving consideration, among other factors, to the requirements of Regulation S-X of the Securities Act based on the best information available to the Company and the Borrower as of the date of delivery thereof, are consistent in all material respects with the forecasts previously delivered to the Lenders and present fairly in all material respects on a pro --- forma basis the estimated financial position of the Company and its consolidated - ----- Subsidiaries and the Borrower and its consolidated Subsidiaries, as the case may be, as at September 30, 1997, assuming that the events specified in the preceding sentence had actually occurred at such date. (b) The audited consolidated balance sheets of the Company as at December 31, 1996, December 31, 1995 and December 31, 1994, and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, reported on by and accompanied by an unqualified report from McGladrey & Pullen, present fairly in all material respects the consolidated financial condition of the Company as at such date, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. The unaudited consolidated balance sheet of the Company as at June 30, 1997, and the related unaudited consolidated statements of income and cash flows for the six- 40 month period ended on such date, present fairly in all material respects the consolidated financial condition of the Company as at such date, and the consolidated results of its operations and its consolidated cash flows for the six-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). The Company and its Subsidiaries do not have any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including, without limitation, any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, which are not reflected in the most recent audited financial statements referred to in this paragraph (b). During the period from December 31, 1996 to and including the date hereof there has been no Disposition by the Company or any of its Subsidiaries of any material part of its business or Property. 4.2 No Change. Since June 30, 1997 there has been no development or --------- event which has had or could reasonably be expected to have a Material Adverse Effect. 4.3 Corporate Existence; Compliance with Law. Each of the Company ---------------------------------------- and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its Property, to lease the Property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 4.4 Corporate Power; Authorization; Enforceable Obligations. Each ------------------------------------------------------- Loan Party has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary corporate action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the borrowings on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the Transaction and the borrowings hereunder or with the execution, delivery, performance, validity or enforceability of this Agreement or any of the Loan Documents, except (i) consents, authorizations, filings and notices described in Schedule 4.4, (ii) those consents, authorizations, filings and notices (to the extent material) which have been obtained or made and are in full force and effect and (iii) the filings referred to in Section 4.19. Each Loan Document has been duly executed and delivered on behalf of each Loan Party party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party party thereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 4.5 No Legal Bar. The execution, delivery and performance of this ------------ Agreement and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder and 41 the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of the Company or any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents). No Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 4.6 No Material Litigation. No litigation, investigation or ---------------------- proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of the Company or the Borrower, threatened by or against the Company or any of its Subsidiaries or against any of their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) which could reasonably be expected to have a Material Adverse Effect. 4.7 No Default. Neither the Company nor any of its Subsidiaries is ---------- in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 4.8 Ownership of Property; Liens. Each of the Company and each of ---------------------------- its Subsidiaries has title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other Property, and none of such Property is subject to any Lien except as permitted by Section 7.3. 4.9 Intellectual Property. The Company and each of its Subsidiaries --------------------- owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted. No material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does the Company or Borrower know of any valid basis for any such claim. The use by the Company and its Subsidiaries of Intellectual Property which is material to the operations of the Company and its Subsidiaries does not infringe on the rights of any Person in any material respect. 4.10 Taxes. Each of the Company and each of its Subsidiaries has ----- filed or caused to be filed all Federal, state and other material tax returns which are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its Property and all other taxes, fees or other charges imposed on it or any of its Property by any Governmental Authority (other than any the amount or validity of which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of the Company or its Subsidiaries, as the case may be); no tax Lien has been filed, and (except as disclosed on Schedule 4.10), to the knowledge of the Company and the Borrower, no claim is being asserted, with respect to any such tax, fee or other charge. 4.11 Federal Regulations. No part of the proceeds of any Loans will ------------------- be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation G or Regulation U of the Board as now and from time to time hereafter in effect or for any purpose which violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the 42 Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in said Regulation G or Regulation U, as the case may be. 4.12 Labor Matters. There are no strikes or other labor disputes ------------- against the Company or any of its Subsidiaries pending or, to the knowledge of the Company or the Borrower, threatened that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. Hours worked by, and payment made to, employees of the Company and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. All payments due from the Company or any of its Subsidiaries on account of employee health and welfare insurance that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of the Company or such Subsidiary or otherwise disclosed in writing to the Lenders. 4.13 ERISA. Neither a Reportable Event nor an "accumulated funding ----- deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a material amount. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan which has resulted or could reasonably be expected to result in a material liability under ERISA, and neither the Borrower nor any Commonly Controlled Entity would become subject to any material liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. 4.14 Investment Company Act; Other Regulations. No Loan Party is an ----------------------------------------- "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Loan Party is subject to regulation under any Requirement of Law (other than Regulation X of the Board) which limits its ability to incur Indebtedness. 4.15 Subsidiaries. The Subsidiaries listed on Schedule 4.15 ------------ constitute all the Subsidiaries of the Company at the date hereof. 4.16 Use of Proceeds. The proceeds of the Term Loans shall be used --------------- to finance a portion of the Transaction and to pay related fees and expenses. The proceeds of the Revolving Credit Loans, the Swing Line Loans and the Letters of Credit shall be used for working capital needs and general corporate purposes of the Borrower and its Subsidiaries in the ordinary course of business. 43 4.17 Environmental Matters. --------------------- (a) The facilities and properties owned, leased or operated by the Company or any of its Subsidiaries (the "Real Properties") do not contain, --------------- and have not previously contained, any Materials of Environmental Concern in amounts or concentrations or under circumstances which (i) constitute or constituted a violation of, or (ii) could give rise to liability under, any Environmental Law, except in either case insofar as such violation or liability, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. (b) The Real Properties and all operations at the Real Properties are in material compliance, and have in the last five years been in material compliance, with all applicable Environmental Laws, and there is no contamination at, under or about the Real Properties or violation of any Environmental Law with respect to the Real Properties or the business operated by the Company or any of its Subsidiaries (the "Business") which -------- could materially interfere with the continued operation of the Real Properties or materially impair the fair saleable value thereof. Neither the Company nor any of its Subsidiaries has assumed any liability of any other Person under Environmental Laws. (c) Neither the Company nor any of its Subsidiaries has received or is aware of any notice of violation, alleged violation, non-compliance, liability or potential liability regarding environmental matters or compliance with Environmental Laws with regard to any of the Real Properties or the Business, nor does the Company or the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened, except insofar as such notice or threatened notice, or any aggregation thereof, does not involve a matter or matters that could reasonably be expected to result in the payment of a Material Environmental Amount. (d) Materials of Environmental Concern have not been transported or disposed of from the Real Properties in violation of, or in a manner or to a location which could give rise to liability under, any Environmental Law, nor have any Materials of Environmental Concern been generated, treated, stored or disposed of at, on or under any of the Real Properties in violation of, or in a manner that could give rise to liability under, any applicable Environmental Law, except insofar as any such violation or liability referred to in this paragraph, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. (e) No judicial proceeding or governmental or administrative action is pending or, to the knowledge of the Company and the Borrower, threatened, under any Environmental Law to which the Company or any of its Subsidiary is or will be named as a party with respect to the Real Properties or the Business, nor are there any consent decrees or other decrees, consent orders, administrative orders or other orders, or other administrative or judicial requirements outstanding under any Environmental Law with respect to the Real Properties or the Business, except insofar as such proceeding, action, decree, order or other requirement, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. (f) There has been no release or threat of release of Materials of Environmental Concern at or from the Real Properties, or arising from or related to the operations of the 44 Company or any of its Subsidiaries in connection with the Real Properties or otherwise in connection with the Business, in violation of or in amounts or in a manner that could give rise to liability under Environmental Laws, except insofar as any such violation or liability referred to in this paragraph, or any aggregation thereof, could not reasonably be expected to result in the payment of a Material Environmental Amount. 4.18 Accuracy of Information, etc. No statement or information ---------------------------- (other than the projections and the pro forma financial information described in --- ----- the immediately following sentence) contained in this Agreement, any other Loan Document, the Confidential Information Memorandum or any other document, certificate or statement furnished to the Administrative Agent or the Lenders or any of them, by or on behalf of any Loan Party for use in connection with the transactions contemplated by this Agreement or the other Loan Documents taken as a whole, contained as of the date such statement, information, document or certificate was so furnished (or, in the case of the Confidential Information Memorandum, as of the Closing Date), any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements contained herein or therein not misleading. The projections and pro forma --- ----- financial information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount. As of the date hereof, the representations and warranties contained in the Transaction Agreement are true and correct in all material respects. There is no fact known to any Loan Party that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents, in the Confidential Information Memorandum or in any other documents, certificates and statements furnished to the Administrative Agent and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents. 4.19 Security Documents. The Guarantee and Collateral Agreement is ------------------ effective to create in favor of the Administrative Agent, for the benefit of the Lenders, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. When financing statements in appropriate form are filed in the offices specified on Schedule 4.19(a), the Guarantee and Collateral Agreement shall constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in the Collateral and the proceeds thereof, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person (other than Liens permitted by Section 7.3). 4.20 Solvency. Each Loan Party is, and after giving effect to the -------- Transaction and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. 4.21 Senior Indebtedness. The Obligations constitute "Senior ------------------- Indebtedness" of the Borrower under and as defined in the Senior Subordinated Note Indenture and the Senior Subordinated Credit Facility (and, prior to the Push-Down Date, under and as defined in Company Indenture and the Company Interim Credit Facility. The obligations of each Subsidiary Guarantor under the Guarantee and Collateral Agreement constitute "Guarantor Senior Indebtedness" of such Subsidiary Guarantor under and as defined in the Senior Subordinated Note Indenture and the Senior Subordinated Credit Facility. 45 SECTION 5. CONDITIONS PRECEDENT 5.1 Conditions to Initial Extension of Credit. The agreement of each ----------------------------------------- Lender to make the initial extension of credit requested to be made by it is subject to the satisfaction, prior to or concurrently with the making of such extension of credit on the Closing Date, of the following conditions precedent: (a) Loan Documents. The Administrative Agent shall have received (i) -------------- this Agreement, executed and delivered by a duly authorized officer of the Company and (ii) the Guarantee and Collateral Agreement, executed and delivered by a duly authorized officer of the Company and each Subsidiary Guarantor. (b) Transaction, etc. The following transactions shall have been ---------------- consummated, in each case on terms and conditions reasonably satisfactory to the Lenders: (i) DI Acquisition shall be merged into the Company and, as a result of such merger (A) the Bain Investors shall own not less than 52% of the issued and outstanding capital stock of the Company, and (B) the Company shall have redeemed approximately 90% of its issued and outstanding capital stock (collectively with all other transactions in connection therewith including the financing thereof, the "Transaction"), all pursuant to the Transaction Documents and in ----------- form and substance consistent with the terms previously disclosed to the Administrative Agent in writing and on other terms reasonably satisfactory to the Administrative Agent; and (ii) The Company shall have (A) at least $86,500,000 of equity (valued at the Transaction Value), of which at least $48,500,000 shall be in the form of cash equity from DI Acquisition, (B) received $55,000,000 in gross cash proceeds from the issuance of the Company Zeros or the making of the loans under the Company Interim Credit Facility and (C) received $85,000,000 in gross cash proceeds from the issuance of the Senior Subordinated Notes or the making of the loans under the Senior Subordinated Credit Facility. (c) Pro Forma Balance Sheets; Financial Statements. The Lenders ---------------------------------------------- shall have received (i) the Pro Forma Balance Sheets, (ii) audited consolidated financial statements of the Company for the 1996, 1995 and 1994 fiscal years and (iii) unaudited interim consolidated and consolidating financial statements of the Company for each fiscal month and quarterly period ended subsequent to the date of the latest applicable financial statements delivered pursuant to clause (ii) of this paragraph as to which such financial statements are available, and such financial statements shall not, in the reasonable judgment of the Lenders, reflect any material adverse change in the consolidated financial condition of the Company, as reflected in the financial statements or projections previously distributed by the Company to the Administrative Agent or the Lenders in writing or which are contained in the Confidential Information Memorandum. (d) Capitalization. The capitalization and structure of each Loan -------------- Party after giving effect to the Transaction shall be consistent with the capitalization and structure previously disclosed to the Lenders in writing. 46 (e) Payment of Outstanding Indebtedness. All outstanding ----------------------------------- Indebtedness of the Company or any of its Subsidiaries for borrowed money or Guarantee Obligations in respect thereof (other than the Indebtedness described in Section 7.2(e) and the capital lease with respect to the Borrower's principal manufacturing facility, all of which shall be permitted to remain outstanding after the Closing Date) shall be paid off in full on terms reasonably satisfactory to the Administrative Agent on or prior to the Closing Date. (f) Lien Searches. The Administrative Agent shall have received the ------------- results of a recent lien search in each of the jurisdictions where assets of the Loan Parties are located, and such search shall reveal no liens on any of the assets of the Company or its Subsidiaries except for liens permitted by Section 7.3 and liens to be discharged on or prior to the Closing Date pursuant to documentation reasonably satisfactory to the Administrative Agent. (g) Closing Certificate. The Administrative Agent shall have ------------------- received, with a counterpart for each Lender, a certificate of each Loan Party, dated the Closing Date, substantially in the form of Exhibit C, with appropriate insertions and attachments. (h) Legal Opinions. The Administrative Agent shall have received the -------------- following executed legal opinions: (i) the legal opinion of Ropes & Gray, counsel to the Company and its Subsidiaries, substantially in the form of Exhibit E; (ii) to the extent consented to by the relevant counsel, each legal opinion, if any, delivered in connection with the Transaction Agreement, accompanied by a reliance letter in favor of the Lenders; and (iii) the legal opinion of local counsel in California and of such other special and local counsel as may be required by the Administrative Agent. Each such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (i) Filings, Registrations and Recordings. Each document (including, ------------------------------------- without limitation, any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to create in favor of the Administrative Agent, for the benefit of the Lenders, a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 7.3), shall be in proper form for filing, registration or recordation. (j) Solvency Opinion. The Administrative Agent shall have received a ---------------- satisfactory solvency opinion from Murray, Devine & Co. which shall document the solvency of the Company and its Subsidiaries on a consolidated basis after giving effect to the Transaction, the financing thereof and the other transactions contemplated hereby. (k) Insurance. The Administrative Agent shall have received --------- insurance certificates satisfying the requirements of Section 5.3 of the Guarantee and Collateral Agreement. 47 (l) Transaction Documents. The Company and its Subsidiaries and --------------------- Affiliates (i) shall not be in breach or violation of any of their obligations under the Transaction Documents and (ii) shall not be subject to any Requirements of Law or Contractual Obligations that would be violated by the Transaction and none of the provisions of any of the Transaction Documents shall have been amended, modified or waived in any material respect without the written consent of the Administrative Agent. (m) Funded Debt to Consolidated EBITDA. The Administrative Agent ---------------------------------- shall be satisfied that the ratio of (i) the total amount of Funded Debt of the Borrower and its Subsidiaries (other than the Company Interim Credit Facility and the Company Zeros) outstanding on the Closing Date to (ii) the amount of pro forma Consolidated EBITDA of the Borrower and its --- ----- Subsidiaries for the latest twelve month period ended prior to the Closing Date for which relevant financial information is available shall not be greater than 5.80 to 1.0, and the Borrower shall provide support for such calculation which is reasonably satisfactory to the Administrative Agent (giving consideration, among other factors, to the requirements of Regulation S-X of the Securities Act). 5.2 Conditions to Each Extension of Credit. The agreement of each -------------------------------------- Lender to make any extension of credit requested to be made by it on any date (including, without limitation, its initial extension of credit) is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. Each of the representations and ------------------------------ warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct on and as of such date as if made on and as of such date. (b) No Default. No Default or Event of Default shall have occurred ---------- and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date. (c) Subsequent Term Loans. With respect to any Tranche A Term Loans --------------------- requested to be made on a date other than the Closing Date, (i) the proceeds of such Tranche A Term Loans shall be utilized by the Borrower to pay the consideration for an acquisition of all or substantially all of the Capital Stock or assets of any Person or business unit of a Person permitted pursuant to Section 7.8(i) or (j) and any fees and expenses relating to such acquisition, (ii) such acquisition shall be consummated on the Borrowing Date with respect to such Tranche A Term Loans and (iii) after giving effect to the making of such Tranche A Term Loans and the consummation of the related acquisition, the Consolidated Leverage Ratio of the Borrower and its Subsidiaries shall be not greater than 5.5 to 1.0 and the Consolidated Interest Coverage Ratio of the Company and its Subsidiaries shall be not less than 1.75 to 1.0 (with each such ratio being calculated on a pro forma basis, as if such borrowing and acquisition had occurred on the first day of the relevant fiscal period and as if the interest rate applicable to such Tranche A Term Loans throughout such period was the rate in effect on the requested Borrowing Date for Tranche A Term Loans which are Eurodollar Loans; provided that, in the event that the -------- borrowing date for such Tranche A Term Loans occurs prior to the date upon which the financial statements for the fiscal year ending December 31, 1997 have been delivered pursuant to subsection 6.1(a), each of Consolidated EBITDA and Consolidated Interest Expense shall be determined for purposes of this clause (c) only based upon the Borrower's good faith estimate thereof for such fiscal year). 48 Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such extension of credit that the conditions contained in this Section 5.2 have been satisfied. SECTION 6. AFFIRMATIVE COVENANTS The Company and (from and after the Push-Down Date) the Borrower hereby jointly and severally agree that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, each of the Company and (from and after the Push-Down Date) the Borrower shall and shall cause each of its Subsidiaries to: 6.1 Financial Statements. Furnish to the Administrative Agent: -------------------- (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Company and the Borrower, a copy of the audited consolidated balance sheet of the Company and its consolidated Subsidiaries and the Borrower and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by Price Waterhouse LLP or other independent certified public accountants of nationally recognized standing; (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Company and the Borrower, the unaudited consolidated balance sheet of the Company and its consolidated Subsidiaries and the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end and audit adjustments); and (c) as soon as available, but in any event not later than 30 days after the end of each month occurring during each fiscal year of the Company and the Borrower (other than the third, sixth, ninth and twelfth such month), the unaudited consolidated balance sheets of the Company and its consolidated Subsidiaries and the Borrower and its consolidated Subsidiaries as at the end of such month and the related unaudited consolidated statements of income and of cash flows for such month and the portion of the fiscal year through the end of such month, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); all such financial statements shall be complete and correct in all material respects and shall be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except (x) as approved by such accountants or officer, as the case may be, and disclosed therein and (y) in the case of the financial statements delivered pursuant to clauses (b) and (c) above, for the absence of footnotes). 49 6.2 Certificates; Other Information. Furnish to the Administrative ------------------------------- Agent or, in the case of clause (g), to the relevant Lender: (a) concurrently with the delivery of the financial statements referred to in Section 6.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default under the financial covenants set forth in Section 7.1, except as specified in such certificate; (b) concurrently with the delivery of any financial statements pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating that, to the best of each such Responsible Officer's knowledge, each Loan Party during such period has in all material respects observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) in the case of quarterly or annual financial statements, (x) a Compliance Certificate containing all information necessary for determining compliance by the Company and its Subsidiaries with the provisions of this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of the Borrower, as the case may be, and (y) to the extent not previously disclosed to the Administrative Agent, a listing of any county or state within the United States where any Loan Party keeps inventory or equipment and of any Intellectual Property acquired by any Loan Party since the date of the most recent list delivered pursuant to this clause (y) (or, in the case of the first such list so delivered, since the Closing Date); (c) as soon as available, and in any event no later than 45 days after the end of each fiscal year of the Borrower, a detailed consolidated budget for the then-current fiscal year (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such then-current fiscal year, and the related consolidated statements of projected cash flow, projected changes in financial position and projected income), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such fiscal year (collectively, the "Projections"), which Projections shall in each case be accompanied by a ----------- certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect; (d) within 45 days after the end of each fiscal quarter of the Borrower, a narrative discussion and analysis of the financial condition and results of operations of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, as compared to the portion of the Projections covering such periods and to the comparable periods of the previous year; (e) no later than 3 Business Days prior to the effectiveness thereof (or, to the extent that the consent of all or any portion of the Lenders is required hereunder in connection with such amendment, supplement, waiver or modification, no later than 10 Business Days prior to the effectiveness thereof), copies of substantially final drafts of any proposed amendment, supplement, waiver or other modification with respect to the 50 Company Indenture, the Senior Subordinated Note Indenture or the Transaction Agreement; (f) within five days after the same are sent, copies of all financial statements and reports which the Company or the Borrower sends to the holders of any class of its debt securities or public equity securities and within five days after the same are filed, copies of all financial statements and reports which the Company or the Borrower may make to, or file with, the Securities and Exchange Commission or any successor or analogous Governmental Authority; and (g) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 6.3 Payment of Obligations. Pay, discharge or otherwise satisfy at ---------------------- or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of the Company or its Subsidiaries, as the case may be. 6.4 Conduct of Business and Maintenance of Existence, etc. (a) (i) ------------------------------------------------------ Continue to engage in business of the same general type as now conducted by it, (ii) preserve, renew and keep in full force and effect its corporate existence and (iii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 7.4 and except, in the case of clause (iii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.5 Maintenance of Property; Insurance. (a) Keep all Property ---------------------------------- useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its Property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business. 6.6 Inspection of Property; Books and Records; Discussions. (a) ------------------------------------------------------ Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and (b) permit, upon two Business Days' prior notice to the chief financial officer or other Responsible Officer of the Company or the Borrower (except when a Default or Event of Default has occurred and is continuing, in which case, no notice shall be required), representatives of any Lender to visit and inspect any of its properties and examine and make abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of the Company and its Subsidiaries with officers and employees of the Company and its Subsidiaries and with its independent certified public accountants; provided -------- that all such visits and inspections shall be coordinated through the Administrative Agent. 51 6.7 Notices. Promptly give notice to the Administrative Agent and ------- each Lender of: (a) the occurrence of any Default or Event of Default; (b) any litigation, investigation or proceeding which may exist at any time affecting the Company or any of its Subsidiaries which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; (c) the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan; and (d) any development or event which has had or could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section 6.7 shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action the Company or the relevant Subsidiary of the Company proposes to take with respect thereto. 6.8 Environmental Laws. (a) Comply in all material respects with, ------------------ and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws. (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws. 6.9 Interest Rate Protection. In the case of the Borrower, within 60 ------------------------ days after the Closing Date, enter into Interest Rate Protection Agreements to the extent necessary to provide that at least 50% of the aggregate principal amount of the Senior Subordinated Notes and the Term Loans is subject to either a fixed interest rate or interest rate protection for a period of not less than three years, which Interest Rate Protection Agreements shall have terms and conditions reasonably satisfactory to the Administrative Agent. 6.10 Additional Collateral, etc. (a) With respect to any Property -------------------------- acquired after the Closing Date by the Company or any of its Subsidiaries (other than (x) any Property described in paragraph (b), (c) or (d) below and (y) any Property subject to a Lien expressly permitted by Section 7.3(g)) as to which the Administrative Agent, for the benefit of the Lenders, does not have a perfected Lien, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the 52 Administrative Agent deems necessary or advisable in order to grant to the Administrative Agent, for the benefit of the Lenders, a security interest in such Property and (ii) take all actions necessary or advisable to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in such Property, including without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent. (b) With respect to any fee interest in any real estate having a value (together with improvements thereof) of at least $1,000,000 acquired after the Closing Date by the Company or any of its Subsidiaries (other than any such real estate subject to a Lien expressly permitted by Section 7.3(g)), promptly upon request of the Administrative Agent or the Required Lenders (i) execute and deliver a first priority mortgage or deed of trust, as the case may be, in favor of the Administrative Agent, for the benefit of the Lenders, covering such real estate, in form and substance reasonably satisfactory to the Administrative Agent, (ii) if requested by the Administrative Agent, provide the Lenders with (x) title and extended coverage insurance covering such real estate in an amount at least equal to the purchase price of such real estate (or such other amount as shall be reasonably specified by the Administrative Agent) as well as a current ALTA survey thereof, together with a surveyor's certificate and (y) any consents or estoppels reasonably deemed necessary or advisable by the Administrative Agent in connection with such mortgage or deed of trust, each of the foregoing in form and substance reasonably satisfactory to the Administrative Agent and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (c) With respect to any new Subsidiary (other than an Excluded Foreign Subsidiary) created or acquired after the Closing Date by the Company (which, for the purposes of this paragraph (c), shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary) or any of its Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable in order to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital Stock of such new Subsidiary which is owned by the Company or any of its Subsidiaries, (ii) cause such new Subsidiary (A) to become a party to the Guarantee and Collateral Agreement and (B) to take such actions necessary or advisable to grant to the Administrative Agent for the benefit of the Lenders a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement with respect to such new Subsidiary, including, without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent, and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (d) With respect to any new Excluded Foreign Subsidiary created or acquired after the Closing Date by the Company or any of its Subsidiaries, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable in order to grant to the Administrative Agent, for the benefit of the Lenders, a perfected first priority security interest in the Capital 53 Stock of such new Subsidiary which is owned by the Company or any of its Subsidiaries (provided that in no event shall more than 65% of the total outstanding Capital Stock of any such new Subsidiary be required to be so pledged), and (ii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. SECTION 7. NEGATIVE COVENANTS The Company and (from and after the Push-Down Date) the Borrower hereby jointly and severally agree that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or the Administrative Agent hereunder, each of the Company and (from and after the Push-Down Date) the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: 7.1 Financial Condition Covenants. ----------------------------- (a) Consolidated Leverage Ratio. Permit the Consolidated Leverage --------------------------- Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending during any period set forth below to exceed the ratio set forth below opposite such period:
Consolidated Period Leverage Ratio ------ -------------- Closing Date through December 30, 1998 6.25 to 1.0 December 31, 1998 through December 30, 1999 5.75 to 1.0 December 31, 1999 through December 30, 2000 5.00 to 1.0 December 31, 2000 through December 30, 2001 4.25 to 1.0 December 31, 2001 through December 30, 2002 3.50 to 1.0 December 31, 2002 through December 30, 2003 3.00 to 1.0 December 31, 2003 through thereafter 2.75 to 1.0
(b) Consolidated Interest Coverage Ratio. Permit the Consolidated ------------------------------------ Interest Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower ending during any period set forth below to be less than the ratio set forth below opposite such period:
Consolidated Interest Period Coverage Ratio ------ --------------------- Closing Date through December 30, 1998 1.60 to 1.0 December 31, 1998 through December 30, 1998 1.70 to 1.0 December 31, 1999 through December 30, 1999 1.85 to 1.0 December 31, 2000 through December 30, 2000 2.25 to 1.0 December 31, 2001 through December 30, 2001 2.50 to 1.0 December 31, 2002 through December 30, 2002 2.75 to 1.0 December 31, 2003 through thereafter 2.00 to 1.0
54 (c) Consolidated Fixed Charge Coverage Ratio. Permit the ---------------------------------------- Consolidated Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters (commencing with the period of four consecutive fiscal quarters ending on December 31, 1998) of the Borrower to be less than 1.05 to 1.0. (d) Minimum EBITDA. Permit Consolidated EBITDA for any fiscal year -------------- set forth below to be less than the amount set forth opposite such fiscal year:
Consolidated Fiscal Year EBITDA ----------- ------------ 1997 $30,000,000 1998 32,000,000 1999 35,000,000 2000 38,500,000 2001 42,500,000 2002 45,000,000 2003 45,000,000 2004 45,000,000
7.2 Limitation on Indebtedness. Create, incur, assume or suffer to -------------------------- exist (in each case, to "Incur") any Indebtedness, except: ----- (a) Indebtedness of any Loan Party pursuant to any Loan Document; (b) Indebtedness of the Borrower to any Subsidiary and of any Wholly Owned Subsidiary Guarantor to the Borrower or any other Subsidiary; (c) Indebtedness secured by Liens permitted by Section 7.3(g) in an aggregate principal amount not to exceed $2,000,000 at any one time outstanding; (d) Capital Lease Obligations with respect to the Borrower's principal manufacturing facility and the equipment located therein in an aggregate principal amount not to exceed $6,600,000 at any one time outstanding and other Capital Lease Obligations in an aggregate principal amount not to exceed $5,000,000 at any one time outstanding; (e) Indebtedness outstanding on the date hereof and listed on Schedule 7.2(e) and any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof); (f) guarantees made in the ordinary course of business by the Borrower or any of its Subsidiaries of obligations of any Wholly Owned Subsidiary Guarantor; (g) (i) Indebtedness of the Borrower in respect of the Senior Subordinated Credit Facility in an aggregate principal amount not to exceed $85,000,000 and Indebtedness of the Borrower in respect of the Senior Subordinated Notes in an aggregate principal amount not to exceed $110,000,000 (any excess of the Net Cash Proceeds from the issuance of the Senior Subordinated Notes over the aggregate principal amount refinanced thereby under the Senior Subordinated Credit Facility, the "Excess Note ----------- 55 Proceeds"), to the extent the proceeds thereof (net of any dividends paid -------- by the Borrower to the Company as described in Section 7.6(e)(iv)) are used to prepay the Senior Subordinated Credit Facility and, to the extent of any excess proceeds after prepayment in full of the Senior Subordinated Credit Facility, to prepay the Loans in accordance with Section 2.11(e) and (ii) Indebtedness of the Company in respect of the Company Interim Credit Facility and Indebtedness of the Company in respect of the Company Zeros to the extent the Net Cash Proceeds thereof are used to prepay the loans under the Company Interim Credit Facility (including accrued interest thereon), in each case, in an aggregate, unaccreted principal amount not to exceed $60,100,000; (h) Indebtedness of (i) the Company evidenced by the increase in the principal amount of the Company Zeros or the Company Interim Credit Facility and (ii) the Borrower evidenced by the increase in the principal amount of the Senior Subordinated Notes or the Senior Subordinated Credit Facility, (in each such case) in connection with the payment in kind of interest thereon prior to the fifth anniversary of the Closing Date; (i) Indebtedness of a Person which becomes a Subsidiary after the date hereof; provided, that (i) such Indebtedness existed at the time such -------- Person became a Subsidiary and was not created in anticipation of the acquisition and (ii) such Indebtedness was not created in contemplation of such Person becoming a Subsidiary; (j) Indebtedness of the Borrower and its Subsidiaries on account of the deferred purchase price for acquisitions of Capital Stock and assets permitted pursuant to Section 7.8; (k) guarantees made by Subsidiaries of the Borrower on account of the Senior Subordinated Notes and the Senior Subordinated Credit Facility; provided, that such guarantees are subordinated to the obligations of such -------- Subsidiaries under the Guarantee and Collateral Agreement and the other Security Documents upon terms satisfactory to the Administrative Agent; and (l) additional Indebtedness of the Borrower or any of its Subsidiaries in an aggregate principal amount (for the Borrower and all Subsidiaries) not to exceed $10,000,000 at any one time outstanding. 7.3 Limitation on Liens. Create, incur, assume or suffer to exist ------------------- any Lien upon any of its Property or revenues, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with -------- respect thereto are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; 56 (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (e) Liens in existence on the date hereof listed on Schedule 7.3(e), securing Indebtedness permitted by Section 7.2(e), provided that no such -------- Lien is spread to cover any additional Property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (f) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the Property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (g) Liens securing Indebtedness of the Borrower or any other Subsidiary incurred pursuant to Section 7.2(c) to finance the acquisition of fixed or capital assets, provided that (i) such Liens shall be created -------- substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any Property other than the Property financed by such Indebtedness and (iii) the amount of Indebtedness secured thereby is not increased; (h) Liens created pursuant to the Security Documents; (i) any interest or title of a lessor under any lease entered into by the Borrower or any Subsidiary in the ordinary course of its business and covering only the assets so leased (including, without limitation, with respect to the capital leases of the Borrower's principal manufacturing facility and related equipment and covering only such facility and related equipment); and (j) Liens not otherwise permitted by this Section 7.3 so long as neither (i) the aggregate principal amount of the obligations secured thereby nor (ii) the aggregate fair market value (determined as of the date such Lien is incurred) of the assets subject thereto exceeds (as to the Borrower and all Subsidiaries) $2,000,000 at any one time outstanding. 7.4 Limitation on Fundamental Changes. Enter into any merger, --------------------------------- consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of, all or substantially all of its Property or business, or make any material change in its present method of conducting business, except: (a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower (provided that the Borrower shall be the continuing or -------- surviving corporation) or with or into any Wholly Owned Subsidiary Guarantor (provided that the Wholly Owned Subsidiary Guarantor shall be the -------- continuing or surviving corporation); (b) the Borrower or any of its Subsidiaries may Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower or any Wholly Owned Subsidiary Guarantor (including, in any event, the transfers to the Successor Subsidiary described in Section 7.17 which are contemplated to occur on the Push-Down Date); and 57 (c) any Person may be merged or consolidated with or into the Borrower or any of its Subsidiaries pursuant to an investment permitted subsection 7.8(i) or (j) (provided that the Borrower or the applicable -------- Subsidiary shall be the continuing or surviving corporation). 7.5 Limitation on Sale of Assets. Dispose of any of its Property or ---------------------------- business (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person, except: (a) the Disposition of property or assets that are no longer used or useful in the ordinary course of business; (b) the sale of inventory in the ordinary course of business; (c) Dispositions permitted by Section 7.4(b); (d) the sale or issuance of any Subsidiary's Capital Stock to the Borrower or any Wholly Owned Subsidiary Guarantor; (e) the Borrower and its Subsidiaries may, in the ordinary course of business, license Intellectual Property to third Persons and to one another, so long as each such license does not otherwise prohibit the granting of a Lien by the Borrower or any of its Subsidiaries pursuant to the Security Documents in the Intellectual Property which is the subject of such license; and (f) the sale of other assets having a fair market value not to exceed $5,000,000 in the aggregate for any fiscal year of the Borrower. 7.6 Limitation on Dividends. Declare or pay any dividend (other than ----------------------- dividends payable solely in common stock of the Person making such dividend) on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any shares of any class of Capital Stock of the Borrower or any of its Subsidiaries or any warrants or options to purchase any such Capital Stock, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of the Borrower or any of its Subsidiaries (collectively, "Restricted Payments"), except that: ------------------- (a) any Subsidiary may make Restricted Payments to the Borrower or any Wholly Owned Subsidiary Guarantor; (b) any payments made to the former shareholders of the Company pursuant to Section 1.11 of the Transaction Agreement; (c) payments made on or before the Closing Date in respect of the redemption of Capital Stock of the Company held by existing shareholders in connection with the merger of DI Acquisition into the Company; (d) so long as no Default or Event of Default shall have occurred and be continuing, the Borrower may pay dividends to the Company to permit the Company to 58 (i) purchase the Company's common stock or common stock options from present or former officers or employees of the Company or any of its Subsidiaries upon the death, disability or termination of employment of such officer or employee, provided, that the aggregate amount of payments -------- under this clause (i) shall not exceed $2,000,000 during any fiscal year of the Borrower and $5,000,000 during the term of this Agreement, net, in any case, of any proceeds received by the Company and contributed to the Borrower in connection with resales of any common stock or common stock options so purchased during the relevant period and (ii) pay management fees to Bain Capital and Bain Affiliates expressly permitted by Section 7.10(iii); and (e) the Borrower may pay dividends to the Company to permit the Company to (i) pay corporate overhead expenses incurred in the ordinary course of business not to exceed $250,000 in any fiscal year, (ii) pay any taxes which are due and payable by the Company and the Borrower as part of a consolidated group, (iii) pay fees and expenses (other than to Affiliates) relating to the Company Interim Credit Facility and any refinancing thereof which is not prohibited by Section 7.9, (iv) repay the amount by which the net proceeds to the Company from the issuance of the Company Zeros are insufficient to repay in full the Company Interim Credit Facility and (v) beginning in fiscal year 2002, pay interest in cash on the Company Zeros. 7.7 Limitation on Capital Expenditures. Make or commit to make (by ---------------------------------- way of the acquisition of securities of a Person or otherwise) any Capital Expenditure, except Capital Expenditures of the Borrower and its Subsidiaries in the ordinary course of business not exceeding in any fiscal year of the Borrower the amount set forth below opposite such fiscal year (the "Base CapEx Amount") ----------------- plus the then unused Permitted Expenditure Amount: - ----
Fiscal Year Base CapEx Amount ----------- ----------------- Closing Date through December 31, 1997 $3,000,000 1998 $7,500,000 1999 $7,500,000 2000 $7,500,000 2001 $8,500,000 2002 $8,500,000 2003 $9,500,000 2004 $9,500,000
provided, that (i) up to 50% of the Base CapEx Amount not expended in the - -------- fiscal year for which it is permitted may be carried over for expenditure in the next succeeding fiscal year, and (ii) Capital Expenditures made during any fiscal year shall be deemed made, first, in respect of the Base CapEx Amount ----- permitted for such fiscal year as provided above and, second, in respect of any ------ portion of such Base CapEx Amount carried over from the prior fiscal year pursuant to subclause (i) above; provided, further, that notwithstanding the -------- ------- foregoing, the Borrower and its Subsidiaries may make Capital Expenditures (which Capital Expenditures shall not be included in the amount of Capital Expenditures permitted to be made pursuant to this Section 7.7 without giving effect to this second proviso) with Reinvestment Deferred Amounts. 7.8 Limitation on Investments, Loans and Advances. Make any advance, --------------------------------------------- loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any 59 stock, bonds, notes, debentures or other securities of or any assets constituting all or a material part of a business unit of, or make any other investment in, any Person, except: (a) extensions of trade credit in the ordinary course of business; (b) investments in Cash Equivalents; (c) Guarantee Obligations permitted by Section 7.2; (d) loans and advances to employees of the Company and its Subsidiaries in the ordinary course of business (including, without limitation, for travel, entertainment and relocation expenses) in an aggregate amount for the Company and its Subsidiaries not to exceed $500,000 at any one time outstanding; (e) (i) the Company may acquire and hold obligations of one or more officers or other employees of the Company or its Subsidiaries in connection with such officers' or employees' acquisition of shares of common stock of the Company so long as no cash is paid by the Company or any of its Subsidiaries in connection with the acquisition of any such obligations, (ii) the Borrower may lend up to $500,000 in an aggregate principal amount at any one time outstanding to officers and employees of the Company and its Subsidiaries on or after the date on which any such officers and employees exercise their options to purchase common stock of the Company issued to them in connection with the Transaction so long as the proceeds of such loans are promptly used by such officers and employees to pay taxes payable by them as a result of such exercise and (iii) investments consisting of loans by the Borrower or its Subsidiaries to employees of the Company or its Subsidiaries, not exceeding (x) $650,000 for loans made in connection with the Transaction and (y) $1,000,000 for loans made after the Closing Date, in each case, in aggregate principal amount at any time outstanding and made solely for the purpose of funding purchases by such employees of common stock of the Company; (f) the Transaction; (g) deposits made in the ordinary course of business consistent with past practices to secure the performance of leases; (h) investments by the Company or any of its Subsidiaries in the Borrower or any Person that, prior to such investment, is a Wholly Owned Subsidiary Guarantor; (i) the Borrower and its Subsidiaries may acquire all or substantially all of the Capital Stock or assets of any Person or business unit of a Person; provided that (i) no Default or Event of Default has -------- occurred and is continuing or would result therefrom, (ii) the Company would have been in compliance, on a pro forma basis, with each of the financial covenants contained in Section 7.1 if such acquisition had been made on the first day of the most recently completed period of calculation thereof, (iii) the aggregate consideration (including the aggregate principal amount of Indebtedness which is assumed or guaranteed, the aggregate amount of any deferred consideration and the fair market value of any non-cash consideration) paid on account of all such acquisitions which are consummated after the Closing Date does not exceed the sum of $30,000,000 and the then unused Permitted Expenditure Amount; and 60 (j) in addition to investments otherwise expressly permitted by this Section 7.8, investments by the Borrower or any of its Subsidiaries in an aggregate amount (valued at cost, but net of returns of capital from such investments) not to exceed during the term of this Agreement the sum of $5,000,000 and the then unused Permitted Expenditure Amount on the date upon which such investment is made. 7.9 Limitation on Optional Payments and Modifications of Debt --------------------------------------------------------- Instruments, etc. (a) Make or offer to make any payment, prepayment, - ----------------- repurchase or redemption of or otherwise defease or segregate funds with respect to the Senior Subordinated Credit Facility (other than with the proceeds of the Senior Subordinated Notes), the Company Interim Credit Facility (other than with the proceeds of the Company Zeros), the Senior Subordinated Notes or the Company Zeros (other than scheduled interest payments required to be made in cash), (b) amend, modify, waive or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of the Senior Subordinated Credit Facility, the Company Interim Credit Facility, the Senior Subordinated Notes or the Company Zeros (other than any such amendment, modification, waiver or other change which (i) would extend the maturity or reduce the amount of any payment of principal thereof or which would reduce the rate or extend the date for payment of interest thereon or (ii) is not adverse in any respect to the interests of the Lenders in the reasonable opinion of the Administrative Agent in its sole discretion) or (c) designate any Indebtedness as "Designated Senior Indebtedness" for the purposes of the Senior Subordinated Credit Facility or the Senior Subordinated Note Indenture. 7.10 Limitation on Transactions with Affiliates. Enter into any ------------------------------------------ transaction, including, without limitation, any purchase, sale, lease or exchange of Property, the rendering of any service or the payment of any management, advisory or similar fees, with any Affiliate (other than the Company, the Borrower or any Wholly Owned Subsidiary Guarantor) unless such transaction is (a) not otherwise prohibited under this Agreement and (b) upon fair and reasonable terms no less favorable to the Company, the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person which is not an Affiliate; provided, that the -------- following transactions shall not be prohibited: (i) the Transaction; (ii) the payment to Bain Capital and/or Bain Affiliates of (A) one time fees on or about the Closing Date in an aggregate amount (for all such Persons taken together) not to exceed $3,100,000 (plus reasonable out-of- pocket expenses incurred by such Persons in providing services to the Company or the Borrower) and (B) in connection with any acquisition consummated pursuant to Section 7.8(i) or (j), an additional fee in an amount not to exceed 2% of the aggregate consideration paid by the Company and its Subsidiaries on account of such acquisition; (iii) so long as no Default or Event of Default shall have occurred and is continuing, the payment, on a quarterly basis, of management fees to Bain Capital and/or the Bain Affiliates in an aggregate amount (for all such Persons taken together) not to exceed $250,000 in any fiscal quarter of the Borrower; provided that the portion of such fee which accrued but -------- was not payable during the existence and continuance of such Default or Event of Default shall be permitted to be paid at such time as all Defaults and Events of Default have been cured or waived; and 61 (iv) the reimbursement of Bain Capital and/or the Bain Affiliates for their reasonable out-of-pocket expenses incurred by them in connection with performing management services to the Borrower and its Subsidiaries. Notwithstanding anything to the contrary contained in this Section 7.10, at no time will the Company or any of its Subsidiaries make any payments to Bain Capital and/or any of its Affiliates in an amount which would exceed that amount permitted to be paid pursuant to the Senior Subordinated Note Indenture or the Company Indenture at such time. 7.11 Limitation on Sales and Leasebacks. Enter into any arrangement ---------------------------------- with any Person providing for the leasing by the Company or any of its Subsidiary of real or personal property which has been or is to be sold or transferred by the Company or such Subsidiary to such Person or to any other Person to whom funds have been or are to be advanced by such Person on the security of such property or rental obligations of the Company or such Subsidiary. 7.12 Limitation on Changes in Fiscal Periods. Permit the fiscal year --------------------------------------- of the Company or the Borrower to end on a day other than December 31 or change the Company's or the Borrower's method of determining fiscal quarters. 7.13 Limitation on Negative Pledge Clauses. Enter into or suffer to ------------------------------------- exist or become effective any agreement which prohibits or limits the ability of the Company or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its Property or revenues, whether now owned or hereafter acquired, other than (a) this Agreement and the other Loan Documents and (b) any agreements governing any purchase money Liens or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby). 7.14 Limitation on Restrictions on Subsidiary Distributions. Enter ------------------------------------------------------ into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary of the Borrower to (a) pay dividends or make any other distributions in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other Subsidiary of the Borrower, (b) make loans or advances to the Borrower or any other Subsidiary of the Borrower or (c) transfer any of its assets to the Borrower or any other Subsidiary of the Borrower, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents and (ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement which has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary. 7.15 Limitation on Lines of Business. Enter into any business, ------------------------------- either directly or through any Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or which are reasonably related thereto. 7.16 Limitation on Amendments to Transaction Documents. (a) Amend, ------------------------------------------------- supplement or otherwise modify (pursuant to a waiver or otherwise) the terms and conditions of the indemnities and licenses furnished to the Borrower or any of its Subsidiaries pursuant to any of the Transaction Documents such that after giving effect thereto such indemnities or licenses shall be materially less favorable to the interests of the Loan Parties or the Lenders with respect thereto or (b) otherwise amend, supplement or otherwise modify the terms and 62 conditions of the Transaction Documents except to the extent that any such amendment, supplement or modification could not reasonably be expected to have a Material Adverse Effect. 7.17 Limitation on Activities of the Company. In the case of the --------------------------------------- Company: (a) fail to contribute to a wholly-owned domestic Subsidiary (the "Successor Subsidiary") (i) all of its material assets (other than the --------------------- Capital Stock of the Successor Subsidiary and the deferred financing fees relating to the Company Zeros or the Company Interim Credit Facility) and (ii) all of its material liabilities (other than the Company Zeros or the loans under the Company Interim Credit Facility) on or prior to the date which is two Business Days following the Closing Date; provided, that the -------- Company shall not be required to contribute to the Successor Subsidiary any of its rights or interests under the Excluded Agreements; (b) fail to cause the Successor Subsidiary to execute and deliver to the Administrative Agent an Assumption Agreement on the date upon which the contribution contemplated by Section 7.17(a) is consummated (such date, the "Push-Down Date"); or -------------- (c) from and after the Push-Down Date and notwithstanding anything to the contrary in this Agreement or any other Loan Document, (i) conduct, transact or otherwise engage in, or commit to conduct, transact or otherwise engage in, any business or operations other than those incidental to its ownership of the Capital Stock of the Borrower, (ii) incur, create, assume or suffer to exist any Indebtedness or other liabilities or financial obligations, other than (A) nonconsensual obligations imposed by operation of law, (B) pursuant to the Loan Documents to which it is a party, (C) the Company Interim Credit Facility and the Company Zeros and the Company Indenture and (D) obligations with respect to its Capital Stock, or (iii) own, lease, manage or otherwise operate any properties or assets (including cash and Cash Equivalents), other than Capital Stock of the Borrower and cash received in connection with dividends made by the Borrower in accordance with Section 7.6 pending application in the manner contemplated by said Section. Notwithstanding anything to the contrary contained herein, from and after the Push-Down Date, the Company shall for all purposes cease to be the "Borrower" hereunder and the Successor Subsidiary shall be deemed to be the "Borrower" for all purposes hereunder. SECTION 8. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation, or any other amount payable hereunder or under any other Loan Document, within three days after any such interest or other amount becomes due in accordance with the terms hereof; or (b) Any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or which is contained in any certificate, document 63 or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made; or (c) Any Loan Party shall default in the observance or performance of any agreement contained in clause (i) or (ii) of Section 6.4(a) (with respect to the Company and the Borrower only) or in Section 7; or (d) Any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as provided in paragraphs (a) through (c) of this Section), and (to the extent that such default is susceptible of remedy) such default shall continue unremedied for a period of 30 days after the earlier of (x) the date upon which the Borrower knows or should reasonably be expected to know of the existence of such default or (y) the date upon which the Borrower receives notice of such event from the Administrative Agent or any Lender; or (e) The Company or any of its Subsidiaries shall (i) default in making any payment of any principal of any Indebtedness (including, without limitation, any Guarantee Obligation, but excluding the Loans) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; provided, that a default, event or -------- condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default under this Agreement unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness the outstanding principal amount of which exceeds in the aggregate $1,000,000; or (f) (i) The Company or any of its Material Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or the Company or any of its Material Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against the Company or any of its Material Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or 64 a period of 60 days; or (iii) there shall be commenced against the Company or any of its Material Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) the Company or any of its Material Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the Company or any of its Material Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or (g) (i) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders is likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could, in the sole judgment of the Required Lenders, reasonably be expected to have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against the Company or any of its Subsidiaries involving in the aggregate a liability (not paid or fully covered by insurance) of $1,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or (i) Any of the Security Documents shall cease, for any reason, to be in full force and effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (j) The guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason, to be in full force and effect or any Loan Party or any Affiliate of any Loan Party shall so assert; or (k) A Change of Control or a Specified Change of Control shall occur; or (l) After the Push-Down Date, the Company shall cease to own directly 100% on a fully diluted basis of the economic and voting interest in the Borrower's capital stock, free of Liens except Liens created by the Guarantee and Collateral Agreement; 65 (m) The Senior Subordinated Notes or the Senior Subordinated Credit Facility shall cease, for any reason, to be validly subordinated to the Obligations as provided in the Senior Subordinated Note Indenture or the Senior Subordinated Credit Facility, as the case may be, or any Loan Party, any Affiliate of any Loan Party, the trustee in respect of the Senior Subordinated Notes or the holders of at least 25% in aggregate principal amount of the Senior Subordinated Notes shall so assert; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Majority Revolving Credit Facility Lenders, the Administrative Agent may, or upon the request of the Majority Revolving Credit Facility Lenders, the Administrative Agent shall, by notice to the Borrower declare the Revolving Credit Commitments to be terminated forthwith, whereupon the Revolving Credit Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable. With respect to all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto). Except as expressly provided above in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived by the Borrower. SECTION 9. THE ADMINISTRATIVE AGENT 9.1 Appointment. Each Lender hereby irrevocably designates and ----------- appoints the Administrative Agent as the agent of such Lender under this Agreement and the other Loan Documents, and each such Lender irrevocably authorizes the Administrative Agent, in such capacity, to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. 66 Notwithstanding any provision to the contrary elsewhere in this Agreement, the Administrative Agent shall not have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Administrative Agent. 9.2 Delegation of Duties. The Administrative Agent may execute any -------------------- of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Administrative Agent shall not be responsible for the negligence or misconduct of any agents or attorneys in-fact selected by it with reasonable care. 9.3 Exculpatory Provisions. Neither the Administrative Agent nor any ---------------------- of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing result from its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party a party thereto to perform its obligations hereunder or thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. 9.4 Reliance by Administrative Agent. The Administrative Agent shall -------------------------------- be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Company or the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may deem and treat the payee of any Note as the owner thereof for all purposes unless a written notice of assignment, negotiation or transfer thereof shall have been filed with the Administrative Agent. The Administrative Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 9.5 Notice of Default. The Administrative Agent shall not be deemed ----------------- to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless the 67 Administrative Agent has received notice from a Lender, the Company or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent receives such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders); provided that unless and until the Administrative Agent shall have -------- received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly ---------------------------------------- acknowledges that neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by the Administrative Agent hereinafter taken, including any review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party or any affiliate of a Loan Party which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 9.7 Indemnification. The Lenders agree to indemnify the --------------- Administrative Agent in its capacity as such (to the extent not reimbursed by the Company or the Borrower and without limiting the obligation of the Company or the Borrower to do so), ratably according to their respective Revolving Credit Percentages, Tranche A Term Loan Percentages and Tranche B Term Loan Percentages in effect on the date on which indemnification is sought under this Section 9.7 (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such percentages immediately prior to such date), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever which may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by the 68 Administrative Agent under or in connection with any of the foregoing; provided -------- that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements which result from the Administrative Agent's gross negligence or willful misconduct. The Administrative Agent shall have the right to deduct any amount owed to it by any Lender under this Section from any payment made by it to such Lender hereunder. The agreements in this Section 9.7 shall survive the payment of the Loans and all other amounts payable hereunder. 9.8 Administrative Agent in Its Individual Capacity. The ----------------------------------------------- Administrative Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Loan Party as though the Administrative Agent was not the Administrative Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued or participated in by it, the Administrative Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall include the Administrative Agent in its individual capacity. 9.9 Successor Administrative Agent. The Administrative Agent may ------------------------------ resign as Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 8(a) or Section 8(f) with respect to the Borrower shall have occurred and be continuing) be approved by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 30 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under this Agreement and the other Loan Documents. 9.10 Authorization to Release Liens. The Administrative Agent is ------------------------------ hereby irrevocably authorized by each of the Lenders to release any Lien covering any Property of the Company or any of its Subsidiaries that is the subject of a Disposition which is permitted by this Agreement or which has been consented to in accordance with Section 10.1. SECTION 10. MISCELLANEOUS 10.1 Amendments and Waivers. Neither this Agreement, any other Loan ---------------------- Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 10.1. The Required Lenders and each Loan Party party to the relevant Loan Document may, or, with the written consent of the Required 69 Lenders, the Administrative Agent and each Loan Party party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as the Required Lenders or the Administrative Agent, as the case may be, may specify in such instrument, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default and its consequences; provided, however, that no -------- ------- such waiver and no such amendment, supplement or modification shall (i) forgive or reduce the principal amount or extend the final scheduled date of maturity of any Loan, extend the scheduled date of any amortization payment in respect of any Term Loan, reduce the stated rate of any interest, fee or letter of credit commission payable hereunder or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any Lender's Revolving Credit Commitment, in each case without the consent of each Lender directly affected thereby; (ii) amend, modify or waive any provision of this Section 10.1 or reduce any percentage specified in the definition of Required Lenders or Required Prepayment Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release all or substantially all of the Guarantors from their obligations under the Guarantee and Collateral Agreement, in each case without the written consent of all Lenders; (iii) reduce the percentage specified in the definition of Majority Facility Lenders without the written consent of all Lenders under each affected Facility; (iv) amend, modify or waive any provision of Section 9 without the written consent of the Administrative Agent; (v) amend, modify or waive any provision of Section 2.6 or 2.7 without the written consent of the Swing Line Lender or (vi) amend, modify or waive any provision of Section 3 without the written consent of the Issuing Lender. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Administrative Agent and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. 10.2 Notices. All notices, requests and demands to or upon the ------- respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed as follows in the case of the Company and the Administrative Agent, and as set forth in an administrative questionnaire delivered to the Administrative Agent in the case of the Lenders, or to such other address as may be hereafter notified by the respective parties hereto: 70 The Company: Details, Inc. 1231 Simon Circle Anaheim, California 92806 Attention: Chief Financial Officer Telecopy: (714) 630-9438 with copies to: Bain Capital, Inc. Two Copley Plaza 6th Floor Boston, Massachusetts 02116 Attention: David Dominik/Prescott Ashe/Steve Zide Telecopy: (617) 572-3274 Ropes & Gray One International Place Boston, Massachusetts 02110 Attention: Philip J. Smith Telecopy: (617) 951-7050 The Administrative Agent: The Chase Manhattan Bank c/o The Loan and Agency Services Group 1 Chase Manhattan Plaza 8th Floor New York, New York, 10081 Attention: Janet Belden Telecopy: (212) 552-5658 with a copy to: The Chase Manhattan Bank 270 Park Avenue New York, New York 10017 Attention: John Huber Telecopy: (212) 270-4584 provided that any notice, request or demand to or upon the Administrative Agent - -------- or the Lenders shall not be effective until received. 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no ------------------------------ delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.4 Survival of Representations and Warranties. All representations ------------------------------------------ and warranties made hereunder, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. 71 10.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay ----------------------------- or reimburse the Administrative Agent for all its out-of-pocket costs and expenses incurred in connection with the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements of counsel to the Administrative Agent, (b) to pay or reimburse each Lender and the Administrative Agent for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any such other documents, including, without limitation, the fees and disbursements of counsel (including the allocated fees and expenses of in-house counsel) to each Lender and of counsel to the Administrative Agent, (c) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify, and hold each Lender and the Administrative Agent and their respective officers, directors, employees, affiliates, agents and controlling persons (each, an "indemnitee") harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including, without limitation, any of the foregoing relating to the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of the Company or any of its Subsidiaries or any of the Properties (all the foregoing in this clause (d), collectively, the "indemnified liabilities"), provided, that the Borrower shall have no obligation hereunder to any indemnitee - -------- with respect to indemnified liabilities to the extent such indemnified liabilities result from the gross negligence or willful misconduct of such indemnitee. The agreements in this Section 10.5 shall survive repayment of the Loans and all other amounts payable hereunder. 10.6 Successors and Assigns; Participations and Assignments. (a) ------------------------------------------------------ This Agreement shall be binding upon and inure to the benefit of the Company, the Borrower, the Lenders, the Administrative Agent, all future holders of the Loans and their respective successors and assigns, except that the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of each Lender (it being understood that the transfer of the rights and obligations of the Company hereunder to the Successor Subsidiary on the Push-Down Date shall not require the consent of the Administrative Agent or any Lender). (b) Any Lender may, without the consent of the Borrower, in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities (each, a "Participant") participating interests ----------- in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes 72 under this Agreement and the other Loan Documents, and the Borrower and the Administrative Agent shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and the other Loan Documents. In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Loans or any fees payable hereunder, or postpone the date of the final maturity of the Loans, in each case to the extent subject to such participation. The Borrower agrees that if amounts outstanding under this Agreement and the Loans are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, provided that, in purchasing such participating -------- interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if it were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.16, 2.17 and 2.18 with respect to its participation in the Commitments and the Loans outstanding from time to time as if it was a Lender; provided that, in the case of Section 2.19, such Participant -------- shall have complied with the requirements of said Section and provided, further, -------- ------- that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender (an "Assignor") may, in accordance with applicable -------- law, at any time and from time to time assign to any Lender or any affiliate thereof or, with the consent of the Borrower and the Administrative Agent (which, in each case, shall not be unreasonably withheld or delayed), to an additional bank, financial institution or other entity (an "Assignee") all or -------- any part of its rights and obligations under this Agreement pursuant to an Assignment and Acceptance, substantially in the form of Exhibit D, executed by such Assignee and such Assignor (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Borrower and the Administrative Agent) and delivered to the Administrative Agent for its acceptance and recording in the Register; provided that no such assignment to an Assignee -------- (other than any Lender or any affiliate thereof) shall be in an aggregate principal amount of less than $5,000,000 (other than in the case of an assignment of all of a Lender's interests under this Agreement), unless otherwise agreed by the Borrower and the Administrative Agent. Any such assignment need not be ratable as among the Facilities. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with a Commitment and/or Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of an Assignor's rights and obligations under this Agreement, such assigning Lender shall cease to be a party hereto). Notwithstanding any provision of this Section 10.6, the consent of the Borrower shall not be required, and, unless requested by the Assignee and/or the Assignor, new Notes shall not be required to be executed and delivered by the Borrower, for any assignment which occurs at any time when any of the events described in Section 8 shall have occurred and be continuing. 73 (d) The Administrative Agent shall maintain at its address referred to in Section 10.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of -------- the Lenders and the Commitments of, and the principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, each other Loan Party, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loan recorded therein for all purposes of this Agreement. (e) Upon its receipt of an Assignment and Acceptance executed by an Assignor and an Assignee (and, in the case of an Assignee that is not then a Lender or an affiliate thereof, by the Borrower and the Administrative Agent) together with payment to the Administrative Agent of a registration and processing fee of $3,500, the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) record the information contained therein in the Register on the effective date determined pursuant thereto. (f) (i) To the extent requested by any Lender, the Loans made by such Lender shall be evidenced by a Note issued by the Borrower, substantially in the form of Exhibit F-1, F-2, F-3 or F-4, as the case may be, payable to the order of such Lender (or, in the case of any Alternative Note, payable to such Lender or its registered assigns); provided that no such Notes need be issued or -------- delivered until after the Push-Down Date. Each Lender is hereby authorized to record, on the schedule annexed to and constituting a part of the relevant Note, information regarding the relevant Loans made by such Lender, and any such recordation shall constitute prima facie evidence of the accuracy of the ----- ----- information so recorded, provided that the failure to make any such recordation -------- or any error in such recordation shall not affect the Borrower's obligations hereunder or under any Note. On or prior to the effective date of an Assignment and Acceptance, the Borrower, at its own expense, shall, to the extent requested by the Assignee, execute and deliver to the Administrative Agent, in exchange for the relevant Notes, new Notes to the order of the Assignee and, if applicable, the Assignor. Such new Notes shall be dated the Closing Date. (ii) Any Non-U.S. Lender that could become completely exempt from withholding of any tax, assessment or other charge or levy imposed by or on behalf of the United States or any taxing authority thereof ("U.S. Taxes") in ---------- respect of payment of any Obligations due to such Non-U.S. Lender under this Agreement if the Obligations were in registered form for U.S. federal income tax purposes may request the Borrower (through the Administrative Agent), and the Borrower agrees thereupon, to exchange any promissory note(s) evidencing such Obligations for promissory note(s) substantially in the form of Exhibit F-3 or F-4, as the case may be (each, an "Alternative Note"). Alternative Notes may ---------------- not be exchanged for promissory notes that are not Alternative Notes. Each Non- U.S. Lender that holds Alternative Note(s) (an "Alternative Noteholder") (or, if ---------------------- such Alternative Noteholder is not the beneficial owner thereof, such beneficial owner) shall deliver to the Borrower prior to or at the time such Non-U.S. Lender becomes an Alternative Noteholder each of the forms and certifications required by Section 2.19(b). An Alternative Note and the Obligation(s) evidenced thereby may be assigned or otherwise transferred in whole or in part only by registration of such assignment or transfer of such Alternative Note and the Obligation(s) evidenced thereby on the Register (and each Alternative Note shall expressly so provide). Any assignment or transfer of all or part of such Obligation(s) and the Alternative Note(s) evidencing the same shall be registered on the Register only upon surrender for registration of assignment or transfer of the Alternative Note(s) evidencing such Obligation(s), duly endorsed by (or accompanied by a written 74 instrument of assignment or transfer duly executed by) the Alternative Noteholder thereof, and thereupon one or more new Alternative Note(s) in the same aggregate principal amount shall be issued to the designated Assignee(s). No assignment of an Alternative Note and the Obligations evidenced thereby shall be effective unless it has been recorded in the Register. (g) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section 10.6 concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. 10.7 Adjustments; Set-off. (a) Except to the extent that this -------------------- Agreement provides for payments to be allocated to the Lenders under a particular Facility, if any Lender (a "Benefitted Lender") shall at any time ----------------- receive any payment of all or part of its Loans or the Reimbursement Obligations owing to it, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 8(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Loans or the Reimbursement Obligations owing to such other Lender, or interest thereon, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Loan and/or of the Reimbursement Obligations owing to each such other Lender, or shall provide such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits - -------- ------- is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to the Company or the Borrower, any such notice being expressly waived by the Company and the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by the Company or the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise) to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of the Company or the Borrower. Each Lender agrees promptly to notify the Company, the Borrower and the Administrative Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect -------- the validity of such setoff and application. 10.8 Counterparts. This Agreement may be executed by one or more of ------------ the parties to this Agreement on any number of separate counterparts (including by telecopy), and all of said counterparts taken together shall be deemed to constitute one and the same instrument. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 10.9 Severability. Any provision of this Agreement which is ------------ prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such 75 prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.10 Integration. This Agreement and the other Loan Documents ----------- represent the agreement of the Company, the Borrower, the Administrative Agent and the Lenders with respect to the subject matter hereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS ------------- OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 10.12 Submission To Jurisdiction; Waivers. Each of the Company and ----------------------------------- the Borrower hereby irrevocably and unconditionally: (a) submits for itself and its Property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Company or the Borrower, as the case may be at its address set forth in Section 10.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section 10.12 any special, exemplary, punitive or consequential damages. 10.13 Acknowledgements. Each of the Company and the Borrower hereby ---------------- acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; 76 (b) neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to the Company or the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between Administrative Agent and Lenders, on one hand, and the Company and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Company, the Borrower and the Lenders. 10.14 WAIVERS OF JURY TRIAL. THE COMPANY, THE BORROWER, THE --------------------- ADMINISTRATIVE AGENT AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 10.15 Confidentiality. Each of the Administrative Agent and each --------------- Lender agrees to use reasonable efforts to keep confidential all non-public information provided to it by any Loan Party pursuant to this Agreement that is designated by such Loan Party as confidential; provided that nothing herein -------- shall prevent the Administrative Agent or any Lender from disclosing any such information (a) to the Administrative Agent, any other Lender or any affiliate of any Lender, (b) to any Participant or Assignee (each, a "Transferee") or ---------- prospective Transferee which agrees to comply with the provisions of this Section 10.15, (c) to the employees, directors, agents, attorneys, accountants and other professional advisors of such Lender or its affiliates, (d) upon the request or demand of any Governmental Authority having jurisdiction over the Administrative Agent or such Lender, (e) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (f) if requested or required to do so in connection with any litigation or similar proceeding, (g) which has been publicly disclosed other than in breach of this Section 10.15, (h) to the National Association of Insurance Commissioners or any similar organization or any nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender, or (i) in connection with the exercise of any remedy hereunder or under any other Loan Document. 10.16 Assumption by Subsequent Lenders. Notwithstanding anything to -------------------------------- the contrary contained herein (including, without limitation, the provisions of Section 10.6), each of the Company, the Borrower, the Administrative Agent and each Lender hereby: (a) acknowledges that the only Lender on the Closing Date will be The Chase Manhattan Bank and that it is the intention of each party hereto that the Commitments held by The Chase Manhattan Bank will be syndicated after the Closing Date; (b) agrees that each financial institution which acquires a Commitment hereunder from The Chase Manhattan Bank in such primary syndication may become a "Lender" party hereto by executing and delivering to the Administrative Agent a Lender Assumption Agreement, substantially in the form of Exhibit H-2 hereto. From and after the receipt by the Administrative Agent of such a Lender Assumption Agreement, The Chase Manhattan Bank shall be absolutely and irrevocably released from its 77 obligations hereunder to the extent set forth therein and such new Lender shall be deemed to have assumed all rights and obligations of The Chase Manhattan Bank with respect to the portion of the Commitments described in such Lender Assumption Agreement to which it is a party. 78 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. DETAILS, INC. By: /s/ Joseph P. Gisch --------------------------------- Name: Joseph P. Gisch Title: Chief Financial Officer THE CHASE MANHATTAN BANK, as Administrative Agent and as a Lender By: /s/ Lawrence Palumbo, Jr. --------------------------------- Name: Lawrence Palumbo, Jr. Title: Vice President Annex A ------- PRICING GRID FOR REVOLVING CREDIT LOANS, SWING LINE LOANS TRANCHE A TERM LOANS AND COMMITMENT FEES
================================================================================================================= Applicable Margin Applicable Consolidated for Eurodollar Margin for ABR Interest Consolidated Loans and Letters Loans and Swing Commitment Coverage Ratio Leverage Ratio of Credit Line Loans Fee Rate - ----------------------------------------------------------------------------------------------------------------- less than or equal to greater than or equal to 2.50% 1.50% .50% 2.00 to 1.0 5.00 to 1.0 - ----------------------------------------------------------------------------------------------------------------- greater than 2.00 to 1.0 and less than 5.00 to 1.0 and 2.25% 1.25% .50% less than or equal to 2.50 greater than or equal to to 1.0 4.00 to 1.0 - ----------------------------------------------------------------------------------------------------------------- greater than 2.50 to 1.0 and less than 4.00 to 1.0 and 2.00% 1.00% .50% less than or equal to greater than or equal to 3.00 to 1.0 3.00 to 1.0 - ----------------------------------------------------------------------------------------------------------------- greater than 3.00 to 1.0 and less than 3.00 to 1.0 and 1.75% .75% .375% less than or equal to greater than or equal to 3.50 to 1.0 2.50 to 1.0 - ----------------------------------------------------------------------------------------------------------------- greater than 3.50 to 1.0 less than 2.50 to 1.0 1.50% .50% .375% =================================================================================================================
Changes in the Applicable Margin with respect to Tranche A Term Loans or Revolving Credit Loans or in the Commitment Fee Rate resulting from changes in the Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio shall become effective on the date (the "Adjustment Date") on which financial --------------- statements are delivered to the Lenders pursuant to Section 6.1 (but in any event not later than the 45th day after the end of each of the first three quarterly periods of each fiscal year or the 90th day after the end of each fiscal year, as the case may be) and shall remain in effect until the next change to be effected pursuant to this paragraph. If any financial statements referred to above are not delivered within the time periods specified above, then, until such financial statements are delivered, if the Administrative Agent or the Required Lenders so determine, the Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio as at the end of the fiscal period that would have been covered thereby shall for the purposes of this definition be deemed to be less than 2.00 to 1 and greater than 5.00 to 1, respectively. In addition, at all times while an Event of Default shall have occurred and be continuing and the Administrative Agent or the Required Lenders so determine, the Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio shall for the purposes of this definition be deemed to be less than 2.00 to 1 and greater than 5.00 to 1, respectively. If on any Adjustment Date the Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio would result in different Applicable Margins or Commitment Fee Rates, the higher Applicable Margin or Commitment Fee Rate shall govern. Each determination of the Consolidated Interest Coverage Ratio and the Consolidated Leverage Ratio pursuant to this definition shall be made with respect to the period of four consecutive fiscal quarters of the Borrower ending at the end of the period covered by the relevant financial statements. EX-10.4 9 STOCKHOLDERS AGREEMENT STOCKHOLDERS AGREEMENT This Stockholders Agreement (the "Agreement") is made as of October 28, --------- 1997 by and among: (i) Details, Inc., a California corporation (the "Company"); ------- (ii) each of Bain Capital Fund V, L.P., Bain Capital Fund V-B, L.P., BCIP Associates and BCIP Trust Associates, L.P., RGIP, LLC (collectively, the "Investors"); --------- (iii) DI Investors, L.L.C., Chase Manhattan Capital, L.P., PMI Mezzanine Fund, LP, Celerity Details, L.L.C., Celerity Liquids, L.L.C. (the "Other Investors"); --------------- (iv) The holders, from time to time, of the Lender Warrants (together with such others who acquire Lender Shares, the "Lenders"); ------- (v) Bruce McMaster, Lee Muse, Terry Wright, Joseph P. Gisch and Kathleen M. Gisch (together with such others who shall become party to this Agreement as a Manager, the "Managers"); -------- (vi) Bob Barante, Jorge Hernandez, Steve Garcia, Mihaela Ioana Dotiu, Jerry Neidhart, Anil Verma, Paul Balius, Ricki Blain, Joe Gardeski, Paul Walker, Ken Phillips, Armando Tongko, Michael Mosian, and Tom Ingham (together with such others who shall become party to this Agreement as an Employee, the "Employees" and together with the --------- Investors, the Other Investors, the Lenders and the Managers, the "Stockholders"). ------------ Recitals -------- 1. Pursuant to the Amended and Restated Recapitalization Agreement, dated as of the date hereof (the "Recapitalization Agreement"), the Company is -------------------------- being recapitalized through a merger of DI Acquisition Corp., a California corporation with and into the Company. 2. As a result of the transactions contemplated by the Recapitalization Agreement and certain related transactions, and immediately after giving effect to the recapitalization and such transactions, the Company's Class A-1 Common Stock, no par value per share, Class A-2 Common Stock, no par value per share, Class A-3 Common Stock, no par value per share, Class A-4 Common Stock, no par value per share, Class A-5 Common Stock, no par value per share and Class A-6 Common Stock, no par value per share (collectively, the "Class A Stock"), the Company's Class L Common Stock, no par value per share ------------- (the "Class L Stock" and together with the Class A Stock, the "Common Stock"), ------------- ------------ and certain Options will be held as set forth on Schedule 1 hereto. 3. The parties believe that it is in the best interests of the Company and the Stockholders to: (i) provide that the Shares shall be transferable only upon compliance with the terms hereof; (ii) provide the Company with certain rights and obligations with respect to the purchase of the Shares under certain circumstances; (iii) provide for certain rights and obligations with respect to the election of directors of the Company; and (iv) set forth their agreements on certain other matters. Agreement --------- Therefore, the parties hereto hereby agree as follows: 1. EFFECTIVENESS; DEFINITIONS. 1.1 Closing. This Agreement shall become effective upon consummation of ------- the closing (the "Closing") under the Recapitalization Agreement. ------- 1.2 Definitions. Certain terms are used in this Agreement as specifically ----------- defined herein. These definitions are set forth or referred to in Section 13 hereof. 2. VOTING AGREEMENT. 2.1 Election of Directors. Each holder of Shares hereby agrees to cast --------------------- all votes to which such holder is entitled in respect of the Shares, whether at any annual or special meeting, by written consent or otherwise, to fix the number of members of the board of directors of the Company (the "Board") at five ----- or such higher number as may be specified from time to time by the Majority Investors. The Company's directors shall be elected in accordance with Section 3.5 of the Charter. 2.2 Significant Transactions. Subject to the provisions of Section 14.2, ------------------------ if applicable, each holder of Shares agrees to cast all votes to which such holder is entitled in respect of the Shares, whether at any annual or special meeting, by written consent or otherwise, in the same proportion as Investor Shares are voted by the Majority Investors to approve any recapitalization, merger, consolidation, reorganization, sale of all or substantially all of the assets of the Company or similar transaction involving the Company. The provisions of this Section 2.2 shall apply only to (a) transactions to which Section 3.2 applies and (b) transactions in connection with which (i) the Board's good faith determination of fair market value of the per Share consideration received by holders of Investor Shares is no greater than the Board's good faith determination of the fair market value of the per Share consideration received by other Stockholders and (ii) the holders of Other Shares and -2- Management Shares shall have had the rights which would have been available to them under Section 3.2.2 had such transaction been subject to Section 3.2. 2.3 Consent to Amendment. Each holder of Shares covenants and agrees to -------------------- cast all votes to which such holder is entitled in respect of the Shares, whether at any annual or special meeting, by written consent or otherwise, in the same proportion as Investor Shares are voted by the Majority Investors (a) to convert the shares of one Class of Common Stock into shares of any other Class of Common Stock pursuant to Sections 3.8 and 3.9 of the Charter and (b) to increase the number of authorized shares of Class A Stock to the extent necessary to permit the conversion of Common Stock as set forth in the Charter. 2.4 Grant of Proxy. Each holder of Shares other than the Investors hereby -------------- grants to the Company an irrevocable proxy to vote his Shares in accordance with his agreements contained in this Section 2. 2.5 The Company. The Company agrees not to give effect to any action by ----------- any holder of Shares or any other Person which is in contravention of this Section 2. 2.6 Period. The foregoing provisions of this Section 2 shall expire on ------ the earliest of (i) a Change of Control and (ii) the last date permitted by law. 3. INVESTOR TRANSFER RIGHTS; "TAG ALONG" AND "DRAG ALONG" RIGHTS. 3.1 Tag Along. No holder of Investor Shares (each such holder, a --------- "Prospective Selling Investor") shall Transfer for value (a "Sale") any such - ----------------------------- ---- Shares to any Prospective Buyer except in the manner and on the terms set forth in this Section 3.1. Any attempted Transfer of Investor Shares not permitted by this Section 3 shall be null and void, and the Company shall not in any way give effect to any such impermissible Transfer. 3.1.1 Notice. A written notice (the "Tag Along Notice") shall be ------ ---------------- furnished by the Prospective Selling Investors to each other holder of Shares (the "Tag Along Offerors") at least ten business days prior to such ------------------ Transfer. The Tag Along Notice shall include: (a) The principal terms of the proposed Sale insofar it relates to the Common Stock, including the number of Shares to be purchased from the Prospective Selling Investors, the percentage of the total number of Investor Shares held by all holders of Investor Shares which such number of Shares constitutes (the "Tag Along Sale -------------- Percentage"), the maximum and minimum per share purchase price and the ---------- name and address of the Prospective Buyer; and -3- (b) An invitation to each Tag Along Offeror to make an offer to include in the proposed Sale to the Prospective Buyer an additional number of Shares (not in any event to exceed the Tag Along Sale Percentage of the total number of Shares held by such Tag Along Offeror) owned by such Tag Along Offeror, on the same terms and conditions subject to Section 3.3.3 in the case of Options, with respect to each Share Sold, as the Prospective Selling Investors shall Sell each of their Shares. 3.1.2. Exercise. Within ten business days after the effectiveness of -------- the Tag Along Notice, each Tag Along Offeror desiring to make an offer to include Shares in the proposed Sale (each a "Participating Seller" and, together -------------------- with the Prospective Selling Investors, collectively, the "Tag Along Sellers") ----------------- shall send a written offer (the "Tag Along Offer") to the Prospective Selling --------------- Investors specifying the number of Shares (not in any event to exceed the Tag Along Sale Percentage of the total number of Shares held by such Participating Seller) which such Participating Seller desires to have included in the proposed Sale. Each Tag Along Offeror who does not accept the Prospective Selling Investors' invitation to make an offer to include Shares in the proposed Sale shall be deemed to have waived all of his rights with respect to such Sale, and the Tag Along Sellers shall thereafter be free to Sell to the Prospective Buyer, at a per share price no greater than the maximum per share price set forth in the Tag Along Notice and on other principal terms which are not materially more favorable to the Tag Along Sellers than those set forth in the Tag Along Notice, without any further obligation to such non-accepting Tag Along Offerors. 3.1.3. Reduction of Shares Sold. The Prospective Selling Investors ------------------------ shall attempt to obtain the inclusion in the proposed Sale of the entire number of Shares which the Tag Along Sellers desire to have included in the Sale (as evidenced in the case of the Prospective Selling Investors by the Tag Along Notice and in the case of each Participating Seller by such Participating Seller's Tag Along Offer). In the event the Prospective Selling Investors shall be unable to obtain the inclusion of such entire number of Shares in the proposed Sale, the number of Shares to be sold in the proposed Sale by the each Tag Along Seller shall be reduced on a pro rata basis according to the proportion which the number of Shares which each such Tag Along Seller desires to have included in the Sale bears to the total number of Shares which all of the Tag Along Sellers desire to have included in the Sale. 3.1.4. Irrevocable Offer. The offer of each Participating Seller ----------------- contained in his Tag Along Offer shall be irrevocable, and, to the extent such offer is accepted, such Participating Seller shall be bound and obligated to Sell in the proposed Sale on the same terms and conditions, with respect to each Share Sold (subject to Section 3.3.3 in the case of Options), as the Prospective Selling Investors, up to such number of Shares as such Participating Seller shall have specified in his Tag Along Offer; provided, however, that (a) if the -------- ------- principal terms of the proposed Sale change with the result that -4- the per share price shall be less than the minimum per share price set forth in the Tag Along Notice or the other principal terms shall be materially less favorable to the Tag Along Sellers than those set forth in the Tag Along Notice, each Participating Seller shall be permitted to withdraw the offer contained in his Tag Along Offer and shall be released from his obligations thereunder and (b) if, at the end of the 180th day following the date of the effectiveness of the Tag Along Notice, the Prospective Selling Investors have not completed the proposed Sale, each Participating Seller shall be released from his obligations under his Tag Along Offer, the Tag Along Notice shall be null and void, and it shall be necessary for a separate Tag Along Notice to be furnished, and the terms and provisions of this Section 3.1 separately complied with, in order to consummate such proposed Sale pursuant to this Section 3.1, unless the failure to complete such Sale resulted from any failure by any Participating Seller to comply with the terms of this Section 3.1. 3.1.5. Additional Compliance. If, prior to consummation, the terms of --------------------- the proposed Sale shall change with the result that the per share price to be paid in such proposed Sale shall be greater than the maximum per share price set forth in the Tag Along Notice or the other principal terms of such proposed Sale shall be materially more favorable to the Tag Along Sellers than those set forth in the Tag Along Notice, the Tag Along Notice shall be null and void, and it shall be necessary for a separate Tag Along Notice to be furnished, and the terms and provisions of this Section 3.1 separately complied with, in order to consummate such proposed Sale pursuant to this Section 3.1; provided, however, -------- ------- that in the case of such a separate Tag Along Notice, the applicable period to which reference is made in Sections 3.1.1 and 3.1.2 shall be five business days. 3.1.6. Excluded Transactions. Notwithstanding the foregoing, no other --------------------- holder of Shares shall have any right of participation pursuant to the provisions of this Section 3.1 or otherwise with respect to any Transfer of Investor Shares: (a) to an Investor or an Affiliated Fund; (b) by a holder of Investor Shares or an Affiliated Fund to its partners or to Affiliates of such partners; (c) to any director, officer or employee of, or any bona fide consultant or adviser to, the Company or its subsidiaries; (d) in a Public Offering or, after the closing of the Initial Public Offering, to the public under Rule 144; or (e) with respect to which the Majority Investors exercise their "drag along" rights under Section 3.2 of this Agreement. -5- 3.2 Drag Along. Each holder of Shares hereby agrees, if requested by the ---------- Majority Investors, to Sell a specified percentage (the "Drag Along Sale --------------- Percentage") of such Shares, directly or indirectly, to a Prospective Buyer in - ---------- the manner and on the terms set forth in this Section 3.2 in connection with the Sale by one or more holders of Investor Shares (each such holder, a "Prospective ----------- Selling Investor") of the Drag Along Sale Percentage of the total number of - ---------------- Investor Shares held by all holders of Investor Shares to the Prospective Buyer. 3.2.1. Exercise. If the Majority Investors elect to exercise their -------- rights under this Section 3.2, a written notice (the "Drag Along Notice") shall ----------------- be furnished by the Prospective Selling Investors to each other holder of Shares. The Drag Along Notice shall set forth the principal terms of the proposed Sale including the number of Shares to be acquired from the Prospective Selling Investors, the manner in which such Shares are to be Sold, the Drag Along Sale Percentage, the per share consideration to be received in the proposed Sale and the name and address of the Prospective Buyer. If the Prospective Selling Investors consummate the proposed Sale to which reference is made in the Drag Along Notice, each other holder of Shares (each a "Participating Seller", and, together with the Prospective Selling Investors, - --------------------- collectively, the "Drag Along Sellers") shall be bound and obligated to Sell the ------------------ Drag Along Sale Percentage of his Shares in the proposed Sale on the same terms and conditions, with respect to each Share Sold (subject to Section 3.3.3 in the case of Options), as the Prospective Selling Investors shall Sell each Investor Share in the Sale (subject to Section 3.3.3 in the case of Options). Notwithstanding the foregoing, with respect to the consideration to be paid in connection with any proposed Sale to which reference is made in a Drag Along Notice, the provisions of the preceding sentence shall be deemed to be satisfied if the Fair Market Value of the per Share consideration received by each Stockholder other than the Investors is not less than the Fair Market Value of the per Share consideration received by the Investors. If at the end of the 180th day following the date of the effectiveness of the Drag Along Notice the Prospective Selling Investors have not completed the proposed Sale, each Participating Seller shall be released from his obligation under the Drag Along Notice, the Drag Along Notice shall be null and void, and it shall be necessary for a separate Drag Along Notice to be furnished and the terms and provisions of this Section 3.2 separately complied with, in order to consummate such proposed Sale pursuant to this Section 3.2. 3.2.2. Drag Along Fairness Opinion. --------------------------- 3.2.2.1. Objection Notice. In the case of a proposed Sale of ---------------- Other Shares or Management Shares pursuant to Section 3.2 to a Prospective Buyer which is an Affiliate of any of the Majority Investors, if, within ten business days after the effectiveness of the Drag Along Notice in respect of such proposed Sale, the Majority Other Holders or the Majority Managers shall furnish a written notice to the Company and the Majority Investors to the effect that they dispute the fairness of the per share price to be paid in the proposed -6- Sale as set forth in such Drag Along Notice (an "Objection Notice"), then such proposed Sale shall not be effected pursuant to the provisions of Section 3.2 until the Company or the Prospective Selling Investors shall have complied with the terms of Section 3.2.2.2. 3.2.2.2. Consultation and Fairness Opinion. (a) After --------------------------------- receipt of an Objection Notice, the Majority Investors shall meet with the holders of Shares who shall have delivered such Objection Notice to discuss the per share price to be paid in such proposed Sale as set forth in the Drag Along Notice. The Prospective Selling Investors may effect a proposed Sale pursuant to Section 3.2 which shall have been the subject of a meeting described in the foregoing clause (a) unless on or prior to the third business day following such meeting the Majority Other Holders or the Majority Managers, as the case may be, furnish the Company and the Majority Investors with a written notice requesting a fairness opinion. Following such a request, such proposed Sale shall not be effected pursuant to Section 3.2 until the Company or the Prospective Selling Investors shall have furnished such requesting holders of Shares a notice which includes a written opinion of an Independent Investment Banking Firm to the effect that the Sale is fair to such holders of Shares from a financial point of view (a "Drag Along ---------- Fairness Opinion"). In rendering such Drag Along Fairness Opinion, ---------------- such Independent Investment Banking Firm shall consider (a) the form and amount and fair market value of consideration to be received pursuant to such Sale in respect of shares of Common Stock by holders of shares of Common Stock and (b) other factors it may deem relevant. In the event the Company or the Prospective Selling Investors shall furnish a Drag Along Fairness Opinion to the holders of Other Shares and Management Shares prior to the consummation of a Sale pursuant to the provisions of Section 3.2, there shall be no requirement that the Prospective Selling Investors comply with the foregoing provisions of this Section 3.2.2.2. All fees and costs of such Independent Investment Banking Firm shall be paid by the Company. 3.3 Miscellaneous. The following provisions shall be applied to any Sale ------------- to which Section 3.1 or 3.2 applies: 3.3.1. Certain Legal Requirements. In the event the consideration to -------------------------- be paid in exchange for Shares in a proposed Sale pursuant to Section 3.1 or Section 3.2 includes any securities, and the receipt thereof by a Participating Seller would require under applicable law (i) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities or (ii) the provision to any Tag Along Seller or Drag Along Seller of any information other than such information as would be required under Regulation D in an offering made pursuant to Regulation D solely to "accredited investors" as defined in Regulation D, the Prospective Selling -7- Investors shall be obligated only to use their reasonable efforts to cause the requirements under Regulation D to be complied with to the extent necessary to permit such Participating Seller to receive such securities, it being understood and agreed that the Prospective Selling Investors shall not be under any obligation to effect a registration of such securities under the Securities Act or similar statutes. Notwithstanding any provisions of this Section 3, if use of reasonable efforts does not result in the requirements under Regulation D being complied with to the extent necessary to permit such Participating Seller to receive such securities, the Prospective Selling Investors shall cause to be paid to such Participating Seller in lieu thereof, against surrender of the Shares (in accordance with Section 3.3.5 hereof) which would have otherwise been Sold by such Participating Seller to the Prospective Buyer in the Sale, an amount in cash equal to the Fair Market Value of such Shares as of the date of the issuance of securities in exchange for Shares. The obligation of the Prospective Selling Investors to use reasonable efforts to cause such requirements to have been complied with to the extent necessary to permit a Participating Seller to receive such securities shall be conditioned on such Participating Seller executing such documents and instruments, and taking such other actions (including, without limitation, if required by the Prospective Selling Investors, agreeing to be represented during the course of such transaction by a "purchaser representative" (as defined in Regulation D) in connection with evaluating the merits and risks of the prospective investment and acknowledging that he was so represented), as the Prospective Selling Investors shall reasonably request in order to permit such requirements to be complied with. Unless the Participating Seller in question shall have taken all actions reasonably requested by the Prospective Selling Investors in order to comply with the requirements under Regulation D, such Participating Seller shall have the right to require the payment of cash in lieu of securities under this Section 3.3.1. 3.3.2. Further Assurances. Each Participating Seller, whether in his ------------------ capacity as a Participating Seller, Stockholder, officer or director of the Company, or otherwise, shall take or cause to be taken all such actions as may be necessary or reasonably desirable in order expeditiously to consummate each Sale pursuant to Section 3.1 or Section 3.2 and any related transactions, including, without limitation, executing, acknowledging and delivering consents, assignments, waivers and other documents or instruments; furnishing information and copies of documents; filing applications, reports, returns, filings and other documents or instruments with governmental authorities; and otherwise cooperating with the Prospective Selling Investors and the Prospective Buyer; provided, however, -------- ------- that Participating Sellers shall be obligated to become liable in respect of any representations, warranties, covenants, indemnities or otherwise to the Prospective Buyer solely to the extent provided in the immediately following sentence. Without limiting the generality of the foregoing, each Participating Seller agrees to execute and deliver such agreements as may be reasonably specified by the Prospective Selling Investors to which such Prospective Selling Investors will also be party, including, without limitation, agreements to (a) make individual -8- representations, warranties, covenants and other agreements as to the unencumbered title to its Shares and the power, authority and legal right to Transfer such Shares and (b) be liable (whether by purchase price adjustment, indemnity payments, escrow provisions or otherwise) in respect of representations, warranties, covenants and agreements in respect of the Company and its subsidiaries to the extent the Prospective Selling Investors are also liable; provided, however, that, except with respect to -------- ------- individual representations, warranties, covenants, indemnities and other agreements of Participating Sellers of the type described in clause (a) above, the aggregate amount of such liability shall not exceed either (i) such Participating Seller's pro rata portion of any such liability, to be determined in accordance with such Participating Seller's portion of the total number of Shares included in such Sale or (ii) the proceeds to such Participating Seller in connection with such Sale. 3.3.3 Treatment of Options. If any Participating Seller shall Sell -------------------- Options in any Sale pursuant to Section 3.1 or 3.2, such Participating Seller shall receive in exchange for such Options consideration equal to the amount (if greater than zero) determined by multiplying (a) the purchase price per share of Common Stock received by the holders of the Prospective Selling Investors in such Sale less the exercise price per share of such Option by (b) the number of shares of Common Stock issuable upon exercise of such Option (to the extent exercisable at the time of such Sale). 3.3.4. Expenses. All reasonable costs and expenses incurred by any -------- Tag Along Seller, Drag Along Seller or the Company in connection with any proposed Sale pursuant to this Section 3 (whether or not consummated), including, without limitation, all attorneys fees and charges, all accounting fees and charges and all finders, brokerage or investment banking fees, charges or commissions, shall be paid by the Company. Notwithstanding the foregoing, the Company shall not be required to pay in connection with any such proposed Sale in excess of an aggregate of $25,000 in respect of the fees and expenses of separate legal counsel or other advisors retained by or on behalf of any and all of the Participating Sellers in connection with any such proposed Sale. Any such fees and expenses in excess of such limits shall be borne by such Participating Sellers. 3.3.5. Closing. The closing of a Sale pursuant to Section 3.1 shall ------- take place at such time and place as the Prospective Selling Investors shall specify, and the closing of a Sale pursuant to Section 3.2 shall take place at such time and place as the Majority Investors shall specify, in each case, by notice to each Participating Seller. At the closing of any Sale under this Section 3, each Participating Seller shall deliver the certificates evidencing the Shares to be Sold by such Participating Seller, duly endorsed, or with stock (or equivalent) powers duly endorsed, for transfer with signature guaranteed, free and clear of any liens or encumbrances, with any stock (or equivalent) transfer tax stamps affixed, against delivery of the applicable consideration. It is understood and agreed that no holder of Investor Shares shall have any liability to -9- any other holder of Shares arising from, relating to or in connection with any proposed Sale which has been the subject of a Tag Along Notice or a Drag Along Notice whether or not such proposed Sale is consummated 3.4 Period. The foregoing provisions of this Section 3 shall expire on the ------ earlier of (i) a Change of Control or (ii) on the second anniversary of the closing of a Qualified Public Offering. 4. LENDER TRANSFER RIGHTS. 4.1 Transfer Restrictions. No holder of Lender Shares shall Transfer --------------------- any such Shares to any Person except in the manner and on the terms set forth in this Section 4. Any attempted Transfer of Lender Shares not permitted by this Section 4 shall be null and void, and the Company shall not in any way give effect to any such impermissible Transfer. 4.1 Right of First Refusal. Any holder of Lender Shares who ---------------------- receives or otherwise negotiates with a Qualified Buyer a written bona fide, fully financed offer to purchase all or any portion of his Lender Shares (each such holder, a "Prospective Lender Seller") and who intends to ------------------------- accept such offer, shall provide each holder of Investor Shares written notice of such offer (a "First Refusal Notice"). The First Refusal Notice -------------------- shall include: (a) The principal terms of the proposed Sale, including the number of Shares to be Sold by the Prospective Selling Lender (the "Subject Lender Shares"), the per share (or equivalent) purchase ---------------------- price, the form of consideration (which may only be a form readily obtainable and deliverable by the Investors and the Company) and the name and address of the Qualified Buyer; and (b) An offer by the Prospective Selling Lender to Sell to each holder of Investor Shares, at the per share (or equivalent) purchase price and on other terms contained in the First Refusal Notice, an allocated portion (such portion to be allocated by agreement of the holders of Investor Shares or, failing such agreement, by proration among the holders who accept the offer contained in the First Refusal Notice on the basis of the number of Shares each such accepting holder wishes to purchase) of the Subject Lender Shares. 4.1.2. Exercise. Within 15 days after the effectiveness of the First -------- Refusal Notice, each holder of Investor Shares desiring to accept the offer contained in the First Refusal Notice (the "Accepting Purchasers") shall -------------------- send a written acceptance of the offer contained in the First Refusal Notice specifying the number of Subject Lender Shares such Accepting Investor wishes to purchase. Each holder of Investor Shares who does not so respond to the First Refusal Notice shall be deemed to have waived all of his rights to purchase such Lender Shares prior to such proposed Transfer and the -10- Prospective Selling Lender shall thereafter be free to Transfer to the Accepting Purchasers or, if permitted hereunder, the Qualified Buyer, at a per share (or equivalent) purchase price no less than 90% of the price set forth in the First Refusal Notice and on other principal terms not substantially more favorable to the buyer than those set forth in the First Refusal Notice, without any further obligation to such non-Accepting Purchasers pursuant to this Section 4.1. If, prior to consummation, the terms of such proposed Transfer shall change with the result that the per share (or equivalent) purchase price shall be less than 90% of the price set forth in the First Refusal Notice or the other principal terms shall be substantially more favorable to the buyer than those set forth in the First Refusal Notice, it shall be necessary for a separate First Refusal Notice to be furnished, and the terms and provisions of this Section 4.1 separately complied with, in order to consummate such proposed Transfer pursuant to this Section 4.1. If at the end of the 180th day following the date of the effectiveness of the First Refusal Notice the Prospective Selling Lender has not completed the Transfer, each Accepting Investor shall be released from his obligations under his written acceptance, the First Refusal Notice shall be null and void, and it shall be necessary for a separate First Refusal Notice to be furnished, and the terms and provisions of this Section 4.1 separately complied with, in order to consummate such Transfer pursuant to this Section 4.1. 4.1.3. Closing. The closing of any purchase of Lender Shares pursuant ------- to this Section 4.1 shall take place as soon as reasonably practicable and in no event later than 30 days after termination of the applicable exercise period at the principal office of the Company, or at such other time and location as the parties to such purchase may mutually determine. At the closing of any purchase and sale of Lender Shares pursuant this Section 4.1, the holder of Lender Shares to be sold shall deliver to the buyers a certificate or certificates representing the Lender Shares to be purchased duly endorsed, or with stock powers duly endorsed, for transfer with signature guaranteed, free and clear of any lien or encumbrance, with any necessary stock transfer tax stamps affixed, and the buyers shall pay to such holder by certified or bank check or wire transfer of immediately available federal funds or other applicable delivery the purchase price of the applicable Lender Shares. The delivery of a certificate or certificates for Shares by any Person selling Lender Shares pursuant to this Section 4.1 shall be deemed a representation and warranty by such Person that: (i) such Person has full right, title and interest in and to such Shares; (ii) such Person has all necessary power and authority and has taken all necessary action to sell such Shares as contemplated; and (iii) such Shares are free and clear of any and all liens or encumbrances. 4.1.4. Assignment. The Majority Investors may assign to the Company ---------- the rights granted to the Investors under this Section 4.1 in connection with any First Refusal Notice. -11- 4.2 Other Permitted Transfers. Notwithstanding the foregoing, any holder ------------------------- of Lender Shares may Transfer any or all Lender Shares held by him as set forth below: 4.2.1. Investors and Company. Any holder of Lender Shares may --------------------- Transfer any or all of such Lender Shares to (i) any Investor or (ii) with the Board's approval, the Company or any subsidiary of the Company. 4.2.2. Transfers Permitted under Warrant Agreement. Subject to the ------------------------------------------- provisions of Section 9.1, any holder of Lender Warrants may Transfer any or all of such Lender Warrants in accordance with the provisions of the Warrant Agreements. 4.2.3. Tag Alongs, Drag Alongs, etc. Any holder of Lender Shares may ---------------------------- Transfer any or all of such Lender Shares in accordance with the provisions, terms and conditions of Section 3 hereof. 4.2.4. Sales to Public. Subject to the restrictions set forth in --------------- Section 8.4.4, any holder of Lender Shares may Transfer any or all of such Lender Shares in a Public Offering registered under the Securities Act or, after the closing of the Initial Public Offering, pursuant to Rule 144. 4.3 Period. The foregoing provisions of this Section 4 shall expire on ------ the earlier of (i) the closing of a Qualified Public Offering or (ii) a Change of Control. 5. OTHER INVESTORS TRANSFER RIGHTS. No holder of Other Shares shall Transfer any of such Shares to any other Person except as permitted by this Section 5. Any attempted Transfer of Other Shares not permitted by this Section 5 shall be null and void, and the Company shall not in any way give effect to any such impermissible Transfer. 5.1 Transfers to Affiliates. Subject to the provisions of Section 9.1, ----------------------- any holder of Other Shares may Transfer any or all of such Other Shares to an Affiliate of such holder or to the members of such holder. 5.2 Other Permitted Transfers. Notwithstanding the foregoing, any holder ------------------------- of Other Shares may Transfer any or all Other Shares held by him as set forth below: 5.2.1. Investors and Company. Any holder of Other Shares may Transfer --------------------- any or all of such Other Shares to (i) any Investor or (ii) with the Board's approval, the Company or any subsidiary of the Company. 5.2.2. Tag Alongs, Drag Alongs, etc. Any holder of Other Shares may ---------------------------- Transfer any or all of such Other Shares in accordance with the provisions, terms and conditions of Section 3 hereof. -12- 5.2.3. Sales to Public. Subject to the restrictions set forth in --------------- Section 8.4.4, any holder of Other Shares may Transfer any or all of such Other Shares in a public offering registered under the Securities Act or, after the closing of the Initial Public Offering, pursuant to Rule 144. 5.2.4. Other Approved Transfers. Subject to the provisions of ------------------------ Section 9.1, any holder of Other Shares may Transfer any or all of such Other Shares with the Board's approval, which approval shall not be unreasonably withheld. In determining whether or not to grant approval to any proposed Transfer of Other Shares, the Board may take into account the proposed transaction, the proposed Transferee of the Other Shares and any other transactions involving the Company which the Board may or may not be considering or which the Company may or may not be pursuing. 5.3 Period. The foregoing provisions of this Section 5 shall expire upon ------ a Change of Control. 6. MANAGEMENT TRANSFER RIGHTS. No holder of Management Shares or Employee Shares shall Transfer any of such Shares to any other Person except as permitted by this Section 6. Any attempted Transfer of Management Shares or Employee Shares not permitted by this Section 6 shall be null and void, and the Company shall not in any way give effect to any such impermissible Transfer. 6.1 Transfers to Immediate Family. Subject to the provisions of Section ----------------------------- 9.1, any holder of Management Shares or Employee Shares may Transfer any or all of his Management Shares or Employee Shares, as the case may be, to a Member of the Immediate Family of such holder. 6.2 Transfer Upon Death. Subject to the provisions of Section 9.1, upon ------------------- the death of any holder of Management Shares or Employee Shares, the Management Shares or Employee Shares, as the case may be, held by such holder may be distributed by will or other instrument taking effect at death or by applicable laws of descent and distribution to such holder's estate, executors, administrators and personal representatives, and then to such holder's heirs, legatees or distributes, whether or not such recipients are Members of the Immediate Family of such holder. 6.3 Other Permitted Transfers. Notwithstanding the foregoing, any holder ------------------------- of Management Shares or Employee Shares may Transfer any or all Management Shares or Employee Shares held by him as set forth below: 6.3.1 Investors and Company. Any holder of Management Shares or --------------------- Employee Shares may Transfer any or all of such Management Shares or Employee -13- Shares, as the case may be, to (i) any Investor or (ii) with the Board's approval, the Company or any subsidiary of the Company. 6.3.2. Tag Alongs, Drag Alongs, etc. Any holder of Management Shares ---------------------------- or Employee Shares may Transfer any or all of such Management Shares or Employee Shares, as the case may be, in accordance with the provisions, terms and conditions of Section 3 hereof. 6.3.3. Sales to Public. Subject to the restrictions set forth in --------------- Section 8.4.4, any holder of Management Shares or Employee Shares may Transfer any or all of such Management Shares or Employee Shares, as the case may be, in a public offering registered under the Securities Act or, after the closing of the Initial Public Offering, pursuant to Rule 144. 6.4 Period. The foregoing provisions of this Section 6 shall expire upon ------ a Change of Control. 7. PREEMPTIVE RIGHT. The Company shall not issue or sell any shares of any of its capital stock or any securities convertible into or exchangeable for any shares of its capital stock, issue or grant any options or warrants for the purchase of, or enter into any agreements providing for the issuance (contingent or otherwise) of, any of its capital stock or any stock or securities convertible into or exchangeable for any shares of its capital stock (each an "Issuance" of "Subject Securities"), except in compliance with the following - --------- ------------------ provisions of this Section 7. 7.1 Right of Participation. ---------------------- 7.1.1. Offer. Not fewer than 30 days prior to the consummation of the ----- Issuance, a notice (the "Preemption Notice") shall be furnished by the ----------------- Company to each Investor, Other Investor and Manager (the "Preemptive ---------- Offerees"). The Preemption Notice shall include: -------- (a) The principal terms of the proposed Issuance, including, without limitation, the amount and kind of Subject Securities to be included in the Issuance, the number of Equivalent Shares represented by such Subject Securities (if applicable), the percentage of the total number of Equivalent Shares outstanding as of immediately prior to giving effect to such Issuance which the number of Equivalent Shares held by such Preemptive Offeree constitutes (the "Preemptive ---------- Portion"), the maximum and minimum price (including, without ------- limitation, if applicable, the maximum and minimum Price Per Equivalent Share) per unit of the Subject Securities and the name and address of the Persons to whom the Subject Securities will be Issued (the "Prospective Subscriber"); and ---------------------- -14- (b) An offer by the Company to Issue, at the option of each Preemptive Offeree, to such Preemptive Offeree such portion of the Subject Securities to be included in the Issuance as may be requested by such Preemptive Offeree (not to exceed the Preemptive Portion of the total amount of Subject Securities to be included in the Issuance), on the same terms and conditions, with respect to each unit of Subject Securities issued to the Preemptive Offerees, as each of the Prospective Subscribers shall be Issued units of Subject Securities. 7.1 Exercise. -------- 7.1.2.1. General. Each Preemptive Offeree desiring to accept ------- the offer contained in the Preemption Notice shall send a written commitment to the Company specifying the amount of Subject Securities (not in any event to exceed the Preemptive Portion of the total amount of Subject Securities to be included in the Issuance) which such Preemptive Offeree desires to be issued within 20 days after the effectiveness of the Preemption Notice (each a "Participating Buyer"). ------------------- Each Preemptive Offeree who has not so accepted such offer shall be deemed to have waived all of his rights with respect to the Issuance, and the Company shall thereafter be free to Issue Subject Securities in the Issuance to the Prospective Subscriber and any Participating Buyers, at a price no less than the minimum price set forth in the Preemption Notice and on other principal terms not substantially more favorable to the Prospective Subscriber than those set forth in the Preemption Notice, without any further obligation to such non- accepting Preemptive Offerees. If, prior to consummation, the terms of such proposed Issuance shall change with the result that the price shall be less than the minimum price set forth in the Preemption Notice or the other principal terms shall be substantially more favorable to the Prospective Subscriber than those set forth in the Preemption Notice, it shall be necessary for a separate Preemption Notice to be furnished, and the terms and provisions of this Section 7.1 separately complied with, in order to consummate such Issuance pursuant to this Section 7.1. 7.1.2.2. Irrevocable Acceptance. The acceptance of each ---------------------- Participating Buyer shall be irrevocable except as hereinafter provided, and each such Participating Buyer shall be bound and obligated to acquire in the Issuance on the same terms and conditions, with respect to each unit of Subject Securities Issued, as the Prospective Subscriber, such amount of Subject Securities as such Participating Buyer shall have specified in such Participating Buyer's written commitment. 7.1.2.3. Time Limitation. If at the end of the 180th day --------------- following the date of the effectiveness of the Preemption Notice the Company has not -15- completed the Issuance, each Participating Buyer shall be released from his obligations under the written commitment, the Preemption Notice shall be null and void, and it shall be necessary for a separate Preemption Notice to be furnished, and the terms and provisions of this Section 7.1 separately complied with, in order to consummate such Issuance pursuant to this Section 7.1. 7.1.3. Certain Legal Requirements. In the event that the -------------------------- participation in the Issuance by a holder of Shares as a Participating Buyer would require under applicable law (i) the registration or qualification of such securities or of any person as a broker or dealer or agent with respect to such securities or (ii) the provision to any participant in the Sale of any information other than such information as would be required under Regulation D in an offering made pursuant to Regulation D solely to "accredited investors" as defined in Regulation D, the Company shall be obligated only to use its reasonable efforts to cause the requirements under Regulation D to be complied with to the extent necessary to permit such Participating Buyer to receive such securities, it being understood and agreed that the Company shall not be under any obligation to effect a registration of such securities under the Securities Act or similar state statutes. Notwithstanding any provision of this Section 8, if the use of reasonable efforts shall not result in such requirements being complied with to the extent necessary to permit such holder of Shares to participate in the Issuance, such holder shall not be entitled to participate in the Issuance. The obligation of the Company to use reasonable efforts to cause such requirements to be complied with to the extent necessary to permit a holder of Shares to participate in the Issuance shall be conditioned upon such holder of Shares executing such documents and instruments, and taking such other actions (including, without limitation, if required by the Company, agreeing to be represented during the course of such transaction by a "purchaser representative" (as defined in Regulation D) in connection with evaluating the merits and risks of the prospective investment and acknowledging that he was so represented), as the Company shall reasonably request in order to permit such requirements to have been complied with. 7.1.4. Further Assurances. Each Participating Buyer and each ------------------ Stockholder to whom the Shares held by such Participating Buyer were originally issued, shall, whether in his capacity as a Participating Buyer, Stockholder, officer or director of the Company, or otherwise, take or cause to be taken all such reasonable actions as may be necessary or reasonably desirable in order expeditiously to consummate each Issuance pursuant to this Section 7.1 and any related transactions, including, without limitation, executing, acknowledging and delivering consents, assignments, waivers and other documents or instruments; filing applications, reports, returns, filings and other documents or instruments with governmental authorities; and otherwise cooperating with the Company and the Prospective Subscriber. Without limiting the generality of the foregoing, each such Participating Buyer and Stockholder agrees to execute and deliver such subscription and other agreements specified by the Company to which the Prospective Subscriber will be party. -16- 7.1.5. Expenses. All costs and expenses incurred by any holder of -------- Shares or the Company in connection with any proposed Issuance of Subject Securities (whether or not consummated), including, without limitation, all attorney's fees and charges, all accounting fees and charges and all finders, brokerage or investment banking fees, charges or commissions, shall be paid by the Company; provided, however, that if holders of Other -------- ------- Shares or Management Shares, or any of such holders, retain separate legal counsel or other advisors in connection with such proposed Issuance, the fees and expenses of such separate attorneys or other advisors shall be borne by such holders. 7.1.6. Closing. The closing of an Issuance pursuant to Section 7.1 ------- shall take place at such time and place as the Company shall specify by notice to each Participating Buyer. At the Closing of any Issuance under this Section 7.1.7, each Participating Buyer shall be delivered the notes, certificates or other instruments evidencing the Subject Securities to be Issued to such Participating Buyer, registered in the name of such Participating Buyer or his designated nominee, free and clear of any liens or encumbrances, with any transfer tax stamps affixed, against delivery by such Participating Buyer of the applicable consideration. 7.2. Excluded Transactions. Notwithstanding the preceding provisions of --------------------- this Section 7, the preceding provisions of this Section 7 shall not restrict: (a) Any Issuance of shares of Common Stock, Options or Convertible Securities to officers, employees, directors or consultants of the Company or its subsidiaries; (b) Any Issuance of shares of Common Stock, Options or Convertible Securities in connection with any business combination or acquisition transaction involving the Company or any of its subsidiaries; (c) Any Issuance of Common Stock upon the exercise or conversion of any Options or Convertible Securities outstanding on the date hereof or Issued after the date hereof in compliance with the provisions of this Section 7; (d) Any Issuance of Subject Securities, the acquisition of which is conditioned upon the acquisition of securities of the Company or its subsidiaries other than Subject Securities; (e) Any Issuance of Common Stock pursuant to any Public Offering; and (f) The Issuance of Shares to the Investors, the Other Investors, the Lenders and the Managers at Closing. -17- 7.3. Period. The foregoing provisions of this Section 7 shall expire on the ------ earlier of (i) the closing of the Initial Public Offering or (ii) a Change of Control. 8. REGISTRATION RIGHTS. The Company will perform and comply, and cause each of their respective subsidiaries to perform and comply, with such of the following provisions as are applicable to it. Each holder of Shares will perform and comply with such of the following provisions as are applicable to such holder. 8.1. Demand Registration Rights for Investor Shares. ---------------------------------------------- 8.1.1. General. One or more holders of Investor Shares representing ------- at least 25% of the total amount of Investor Shares then outstanding ("Initiating Investors"), by notice to the Company specifying the intended ---------------------- method or methods of disposition, may request that the Company effect the registration under the Securities Act for a Public Offering of all or a specified part of the Registrable Securities held by such Initiating Investors (for purposes of this Agreement, "Registrable Investor -------------------- Securities" shall mean Registrable Securities constituting Investor ---------- Shares). The Company will then use its best efforts to effect the registration under the Securities Act of the Registrable Securities which the Company has been requested to register by such Initiating Investors together with all other Registrable Securities which the Company has been requested to register pursuant to Section 8.3 (which request shall specify the intended method of disposition of such Registrable Securities), all to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities which the Company has been so requested to register; provided, however, that the -------- ------- Company shall not be obligated to take any action to effect any such registration pursuant to this Section 8.1.1: (a) Within 180 days immediately following the effective date of any registration statement pertaining to an underwritten public offering of securities of the Company for its own account (other than a Rule 145 Transaction, or a registration relating solely to employee benefit plans); (b) (i) On any form other than Form S-3 (or any successor form) if the Company has previously effected five or more registrations of Registrable Securities under this Section 8.1.1 on any form other than Form S-3 (or any successor form); provided, however, that no registrations of Registrable -------- ------- Securities which shall not have become and remained effective in accordance with the provisions of this Section 8, and no registrations of Registrable Securities pursuant to which the Initiating Investors and all other holders of Registrable Investor Securities joining therein are not able to include at least 90% of the Registrable Securities which they desired to include, shall be included in -18- the calculation of numbers of registrations contemplated by this clause (b); (c) If the Company shall have furnished to the Initiating Investors and such other holders of Registrable Securities which the Company has been requested to register pursuant to this Section 8.1.1 a certificate, signed by the President of the Company, stating that in the good faith judgment of the Board it would be seriously detrimental to the Company and its shareholders for such Registration Statement to be filed at the date filing would have been required, in which case the Company shall have an additional period of not more than 60 days within which to file such Registration Statement; provided, however, that the Company shall not so postpone a -------- ------- registration pursuant to this clause (c) more than once in any twelve month period; (d) On any form other than Form S-3 (or any successor form), if the anticipated aggregate offering price to the public of the Registrable Securities to be included in the registration by all holders is less than $5,000,000; or (e) After five years after the closing of the Initial Public Offering. 8.1.1.1. Form. Except as otherwise provided above, each ---- registration requested pursuant to this Section 8.1.1 shall be effected by the filing of a registration statement on Form S-1 (or any other form which includes substantially the same information as would be required to be included in a registration statement on such form as currently constituted), unless the use of a different form has been agreed to in writing by holders of at least a majority of the Registrable Investor Securities to be included in the proposed registration statement in question (the "Majority Participating ---------------------- Investors"). --------- 8.1.2. Payment of Expenses. The Company shall pay all reasonable ------------------- expenses of holders of Investor Shares incurred in connection with each registration of Registrable Securities requested pursuant to this Section 8.1, other than underwriting discount and commission, if any, and applicable transfer taxes, if any. 8.1.3. Additional Procedures. In the case of a registration pursuant --------------------- to Section 8.1 hereof, whenever the Majority Participating Investors shall request that such registration shall be effected pursuant to an underwritten offering, the Company shall include such information in the written notices to holders of Registrable Securities referred to in Section 8.3. In such event, the right of any holder of Registrable Securities to have securities owned by such holder included in such registration -19- pursuant to Section 8.1 shall be conditioned upon such holder's participation in such underwriting and the inclusion of such holder's Registrable Securities in the underwriting (unless otherwise mutually agreed upon by the Majority Participating Investors and such holder) to the extent provided herein. If requested by such underwriters, the Company together with the holders of Registrable Securities proposing to distribute their securities through such underwriting will enter into an underwriting agreement with such underwriters for such offering containing such representations and warranties by the Company and such holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, customary indemnity and contribution provisions. 8.2. DI Investors Demand Registration Rights. --------------------------------------- 8.2.1. General. To the extent DI Investors, L.L.C. or its Affiliates ------- hold at least 50% of the Shares issued to them by the Company in connection with the consummation of the Recapitalization Agreement, DI Investors, L.L.C. or such Affiliate ("Initiating Other Investors"), by notice to the Company specifying -------------------------- the intended method or methods of disposition, may request that the Company effect the registration under the Securities Act for a Public Offering of all or a specified part of the Registrable Securities held by such Initiating Other Investors (for purposes of this Agreement, "Registrable Other Securities" shall ---------------------------- mean Registrable Securities constituting Other Shares). The Company will then use its reasonable efforts to effect the registration under the Securities Act of the Registrable Securities which the Company has been requested to register by such Initiating Other Investors together with all other Registrable Securities which the Company has been requested to register pursuant to Section 8.3 (which request shall specify the intended method of disposition of such Registrable Securities), all to the extent requisite to permit the disposition (in accordance with the intended methods thereof as aforesaid) of the Registrable Securities which the Company has been so requested to register; provided, however, that the Company shall not be obligated to take any action to - -------- ------- effect any such registration pursuant to this Section 8.2.1: (a) If the Company has previously effected two registrations of Registrable Securities under this Section 8.2.1; provided, however, that -------- ------- no registrations of Registrable Securities which either (i) shall not have become and remained effective in accordance with the provisions of this Section 8 or (ii) shall not have enabled the Initiating Other Investors to include in such registration at least 90% of the Registrable Securities which they desired to include shall be included in the calculation of the number of registrations contemplated by this clause (a); -20- (b) Prior to the 360th day following the closing of the Initial Public Offering; (c) Within 180 days immediately following the effective date of any registration statement pertaining to an underwritten public offering of securities of the Company for its own account (other than a registration on Form S-4 relating solely to a Rule 145 Transaction, or a registration relating solely to employee benefit plans); (d) If the Company shall have furnished to the Initiating Other Investors and such other holders of Registrable Securities which the Company has been requested to register pursuant to this Section 8.2.1 a certificate, signed by the President of the Company, stating that in the good faith judgment of the Board it would be seriously detrimental to the Company and its shareholders for such Registration Statement to be filed at the date filing would have been required, in which case the Company shall have an additional period of not more than 60 days within which to file such Registration Statement; provided, however, that the Company shall not so postpone a -------- ------- registration pursuant to this clause (d) more than once in any twelve month period; (e) On any form other than Form S-3 (or any successor form); or (f) After five years after the closing of the Initial Public Offering. 8.2.1.1. Form. Each registration requested pursuant to this ---- Section 8.2.1 shall be effected by the filing of a registration statement on Form S-3 (or any successor form). 8.2.2. Payment of Expenses. The Company shall pay all reasonable ------------------- expenses of holders of Other Shares incurred in connection with each registration of Registrable Securities requested pursuant to this Section 8.2, other than underwriting discount and commission, if any, and applicable transfer taxes, if any. 8.2.3. Additional Procedures. In the case of a registration pursuant --------------------- to Section 8.2 hereof, whenever the Majority Other Investors shall request that such registration shall be effected pursuant to an underwritten offering, the Company shall include such information in the written notices to holders of Registrable Securities referred to in Section 8.3. In such event, the right of any holder of Registrable Securities to have securities owned by such holder included in such registration pursuant to Section 8.2 shall be conditioned upon such holder's participation in such underwriting and the inclusion of such holder's Registrable Securities in the underwriting (unless otherwise mutually agreed upon by the Majority Participating Other Investors and such holder) to the extent provided herein. If requested by such -21- underwriters, the Company together with the holders of Registrable Securities proposing to distribute their securities through such underwriting will enter into an underwriting agreement with such underwriters for such offering containing such representations and warranties by the Company and such holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, customary indemnity and contribution provisions. 8.3. Piggyback Registration Rights. ----------------------------- 8.3.1. Piggyback Registration. ---------------------- 8.3.1.1. General. Each time the Company proposes to ------- register any shares of Common Stock under the Securities Act on a form which would permit registration of Registrable Securities for sale to the public, for its own account or for the account of any holder of its shares of Common Stock, for sale in a Public Offering, the Company will give notice to all holders of shares of Common Stock of its intention to do so. Any such holder may, by written response delivered to the Company within 20 days after the effectiveness of such notice, request that all or a specified part of the Registrable Securities held by such holder be included in such registration. The Company thereupon will use its reasonable efforts to cause to be included in such registration under the Securities Act all shares of Common Stock which the Company has been so requested to register by such holders, to the extent required to permit the disposition (in accordance with the methods to be used by the Company or other holders of shares of Common Stock in such Public Offering) of the Registrable Securities to be so registered. No registration of Registrable Securities effected under this Section 8.3 shall relieve the Company of any of its obligations to effect registrations of Registrable Securities pursuant to Section 8.1 hereof. 8.3.1.2. Excluded Transactions. The Company shall not be --------------------- obligated to effect any registration of Registrable Securities under this Section 8.3 incidental to the registration of any of its securities in connection with: (a) Any Public Offering relating to employee benefit plans or dividend reinvestment plans; (b) Any Public Offering relating to the acquisition or merger after the date hereof by the Company or any of its subsidiaries of or with any other businesses; or (c) The Initial Public Offering, unless one or more of the Investors has exercised its rights under Section 8.1 or 8.3. -22- 8.3.2. Payment of Expenses. The Company shall pay all reasonable ------------------- expenses of holders of Registrable Securities incurred in connection with each registration of Registrable Securities requested pursuant to this Section 8.3, other than underwriting discount and commission, if any, and applicable transfer taxes, if any; provided, however, that the Company -------- ------- shall not be required to pay in respect of the fees and expenses of any attorneys or other advisers retained by such holders more than an aggregate for all such holders of $25,000 in the case of each such registration. 8.3.3. Additional Procedures. Holders of Shares participating in any --------------------- Public Offering pursuant to this Section 8.3 shall take all such actions and execute all such documents and instruments that are reasonably requested by the Company to effect the sale of their Shares in such Public Offering, including, without limitation, being parties to the underwriting agreement entered into by the Company and any other selling shareholders in connection therewith and being liable in respect of the representations and warranties by, and the other agreements (including customary selling stockholder indemnifications and "lock-up" agreements) on the part of, the Company and any other selling shareholders to and for the benefit of the underwriters in such underwriting agreement; provided, however, that (i) -------- ------- with respect to individual representations, warranties and agreements of sellers of Shares in such Public Offering, the aggregate amount of such liability shall not exceed such holder's net proceeds from such offering and (ii) with respect to all other representations, warranties and agreements of sellers of shares in such Public Offering, the aggregate amount of such liability shall not exceed the lesser of (a) such holder's pro rata portion of any such liability, in accordance with such holder's portion of the total number of Shares included in the offering or (b) such holder's net proceeds from such offering. 8.4. Certain Other Provisions. ------------------------ 8.4.1. Underwriter's Cutback. In connection with any registration of --------------------- shares, the underwriter may determine that marketing factors (including, without limitation, an adverse effect on the per share offering price) require a limitation of the number of shares to be underwritten. Notwithstanding any contrary provision of this Section 8 and subject to the terms of this Section 8.4.1, the underwriter may limit the number of shares which would otherwise be included in such registration by excluding any or all Registrable Securities from such registration (it being understood that the number of shares which the Company seeks to have registered in such registration shall not be subject to exclusion, in whole or in part, under this Section 8.4.1). Upon receipt of notice from the underwriter of the need to reduce the number of shares to be included in the registration, the Company shall advise all holders of the Company's securities that would otherwise be registered and underwritten pursuant hereto, and the number of shares of such securities, including Registrable Securities, that may be included in the registration shall be allocated in the following manner, unless the underwriter shall determine that marketing factors require a different allocation: shares, other than -23- Registrable Securities, requested to be included in such registration by shareholders shall be excluded; and, if a limitation on the number of shares is still required, the number of Registrable Securities that may be included in such registration shall be allocated among the holders thereof in proportion, as nearly as practicable, to the respective amounts of Registrable Securities which each such holder requested be registered in such registration. For purposes of any underwriter cutback, all Registrable Securities held by any holder of Registrable Securities which is a partnership, corporation or limited liability company shall also include any Registrable Securities held by the partners, retired partners, shareholders, members or affiliated entities of such holder, or the estates and family members of any such partners, retired partners and members and any trusts for the benefit of any of the foregoing persons, and such holder and other persons shall be deemed to be a single selling holder, and any pro rata reduction with respect to such selling holder shall be based upon the aggregate amount of Registrable Securities owned by all entities and individuals included in such selling holder, as defined in this sentence. No securities excluded from the underwriting by reason of the underwriter's marketing limitation shall be included in such registration. If any holder of Registrable Securities disapproves of the terms of the underwriting, it may elect to withdraw therefrom by written notice to the Company and the underwriter. The Registrable Securities so withdrawn shall also be withdrawn from registration. 8.4.2. Other Actions. If and in each case when the Company is required ------------- to use its best efforts to effect a registration of any Registrable Securities as provided in this Section 9, the Company shall take appropriate and customary actions in furtherance thereof, including, without limitation: (i) promptly filing with the Commission a registration statement and using reasonable efforts to cause such registration statement to become effective, (ii) preparing and filing with the Commission such amendments and supplements to such registration statements as may be required to comply with the Securities Act and to keep such registration statement effective for a period not to exceed 270 days from the date of effectiveness or such earlier time as the Registrable Securities covered by such registration statement shall have been disposed of in accordance with the intended method of distribution therefor or the expiration of the time when a prospectus relating to such registration is required to be delivered under the Securities Act, (iii) use its best efforts to register or qualify such Registrable Securities under the state securities or "blue sky" laws of such jurisdictions as the sellers shall reasonably request; provided, -------- however, that the Company shall not be obligated to file any general ------- consent to service of process or to qualify as a foreign corporation in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it would not otherwise be so subject; and (iv) otherwise cooperate reasonably with, and take such customary actions as may reasonably be requested by the holders of Registrable Securities in connection with, such registration. -24- 8.4.3. Selection of Underwriters and Counsel. The underwriters and ------------------------------------- legal counsel to be retained in connection with any Public Offering shall be selected by the Board or, in the case of an offering following a request therefor under Section 8.1.1, the Initiating Investors. 8.4.4. Lock-Up. Without the prior written consent of the underwriters ------- managing any Public Offering, for a period beginning seven days immediately preceding and ending on (a) in the case of the IPO, the 180th day following the effective date of the registration statement used in connection with such offering or (b) in the case of any other Public Offering, the 90th day following the effective date of the registration statement used in connection with such offering, no holder of Shares (whether or not a selling shareholder pursuant to such registration statement) shall Transfer any Common Stock except pursuant to such registration statement or to a Permitted Transferee in accordance with the terms of this Agreement. 8.5. Indemnification and Contribution. -------------------------------- 8.5.1. Indemnities of the Company. In the event of any registration -------------------------- of any Registrable Securities or other debt or equity securities of the Company or any of its subsidiaries under the Securities Act pursuant to this Section 9 or otherwise, and in connection with any registration statement or any other disclosure document produced by or on behalf of the Company or any of its subsidiaries including, without limitation, reports required and other documents filed under the Exchange Act, and other documents pursuant to which any debt or equity securities of the Company or any of its subsidiaries are sold (whether or not for the account of the Company or its subsidiaries), the Company will, and hereby do, and will cause each of their respective subsidiaries, jointly and severally to, indemnify and hold harmless each seller of Registrable Securities, any Person who is or might be deemed to be a controlling Person of the Company or any of its subsidiaries within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, their respective direct and indirect partners, advisory board members, directors, officers, trustees, members and shareholders, and each other Person, if any, who controls any such seller or any such holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each such person being referred to herein as a "Covered Person"), against any losses, -------------- claims, damages or liabilities, joint or several, to which such Covered Person may be or become subject under the Securities Act, the Exchange Act, any other securities or other law of any jurisdiction, the common law or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained or incorporated by reference in any registration statement under the Securities Act, any preliminary prospectus or final prospectus included therein, or any related summary prospectus, or any amendment or supplement thereto, or any document incorporated by reference therein, or any other -25- such disclosure document (including without limitation reports and other documents filed under the Exchange Act and any document incorporated by reference therein) or other document or report, (ii) any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any violation or alleged violation by the Company or any of its subsidiaries of any federal, state, foreign or common law rule or regulation applicable to the Company or any of its subsidiaries and relating to action or inaction in connection with any such registration, disclosure document or other document or report, and will reimburse such Covered Person for any legal or any other expenses incurred by it in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that neither the -------- ------- Company nor any of its subsidiaries shall be liable to any Covered Person in any such case to the extent that any such loss, claim, damage, liability, action or proceeding arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, any such preliminary prospectus, final prospectus, summary prospectus, amendment or supplement, incorporated document or other such disclosure document or other document or report, in reliance upon and in conformity with written information furnished to the Company or to any of its subsidiaries through an instrument duly executed by such Covered Person specifically stating that it is for use in the preparation thereof. The indemnities of the Company and of its subsidiaries contained in this Section 8.5.1 shall remain in full force and effect regardless of any investigation made by or on behalf of such Covered Person and shall survive any transfer of securities. 8.5.2. Indemnities to the Company. The Company and any of its -------------------------- subsidiaries may require, as a condition to including any securities in any registration statement filed pursuant to this Section 9, that the Company and any of its subsidiaries shall have received an undertaking satisfactory to it from the prospective seller of such securities, to indemnify and hold harmless the Company and any of its subsidiaries, each director of the Company or any of its subsidiaries, each officer of the Company or any of its subsidiaries who shall sign such registration statement and each other Person (other than such seller), if any, who controls the Company and any of its subsidiaries within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act with respect to any statement in or omission from such registration statement, any preliminary prospectus or final prospectus included therein, or any amendment or supplement thereto, or any other disclosure document (including, without limitation, reports and other documents filed under the Exchange Act or any document incorporated therein) or other document or report, if such statement or omission was made in reliance upon and in conformity with written information furnished to the Company or any of its subsidiaries through an instrument executed by such seller specifically stating that it is for use in the preparation of such registration statement, preliminary prospectus, final prospectus, summary prospectus, amendment or supplement, incorporated document or other document or report. Such indemnity shall -26- remain in full force and effect regardless of any investigation made by or on behalf of the Company, any of its subsidiaries or any such director, officer or controlling Person and shall survive any transfer of securities. 8.5.3. Indemnification Procedures. Promptly after receipt by a Person -------------------------- entitled to indemnification pursuant to the foregoing provisions of this Section 8.5 (an "Indemnitee") of notice of the commencement of any action ---------- or proceeding involving a claim of the type referred to in the foregoing provisions of this Section 8.5, such Indemnitee will, if a claim in respect thereof is to be made by such Indemnitee against any indemnifying party, give written notice to each such indemnifying party of the commencement of such action; provided, however, that the failure of any Indemnitee to give -------- ------- notice to such indemnifying party as provided herein shall not relieve any indemnifying party of its obligations under the foregoing provisions of this Section 8.5, except and solely to the extent that such indemnifying party is actually and materially prejudiced by such failure to give notice. In case any such action is brought against an Indemnitee, each indemnifying party will be entitled to participate in and to assume the defense thereof, jointly with any other indemnifying party similarly notified, to the extent that it may wish, with counsel reasonably satisfactory to such Indemnitee (who shall not, except with the consent of the Indemnitee, be counsel to such an indemnifying party), and after notice from an indemnifying party to such Indemnitee of its election so to assume the defense thereof, such indemnifying party will not be liable to such Indemnitee for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof; provided, however, that (i) if the Indemnitee reasonably -------- ------- determines that there may be a conflict between the positions of such indemnifying party and the Indemnitee in conducting the defense of such action or if the Indemnitee reasonably concludes that representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, then counsel for the Indemnitee shall conduct the defense to the extent reasonably determined by such counsel to be necessary to protect the interests of the Indemnitee and such indemnifying party shall employ separate counsel for its own defense, (ii) in any event, the Indemnitee shall be entitled to have counsel chosen by such Indemnitee participate in, but not conduct, the defense and (iii) the indemnifying party shall bear the legal expenses incurred in connection with the conduct of, and the participation in, the defense as referred to in clauses (i) and (ii) above. If, within a reasonable time after receipt of the notice, such indemnifying party shall not have elected to assume the defense of the action, such indemnifying party shall be responsible for any legal or other expenses incurred by such Indemnitee in connection with the defense of the action, suit, investigation, inquiry or proceeding. No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnitee of a release from all liabilities in respect of such claim or litigation. -27- 8.5.4. Contribution. If the indemnification provided for in Sections ------------ 8.5.1 or 8.5.2 hereof is unavailable to a party that would have been an Indemnitee under any such Section in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each party that would have been an indemnifying party thereunder shall, in lieu of indemnifying such Indemnitee, contribute to the amount paid or payable by such Indemnitee as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative fault of such indemnifying party on the one hand and such Indemnitee on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions or proceedings in respect thereof). The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or such Indemnitee and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties agree that it would not be just or equitable if contribution pursuant to this Section 8.5.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the preceding sentence. The amount paid or payable by a contributing party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8.5.4 shall include any legal or other expenses reasonably incurred by such Indemnitee in connection with investigating or defending any such action or claim. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. 8.5.5. Limitation on Liability of Holders of Registrable Securities. ------------------------------------------------------------ The liability of each holder of Registrable Securities in respect of any indemnification or contribution obligation of such holder arising under this Section 8.5 shall not in any event exceed an amount equal to the net proceeds to such holder (after deduction of all underwriters' discounts and commissions) from the disposition of the Registrable Securities disposed of by such holder pursuant to such registration. 9. CERTAIN ISSUANCES AND TRANSFERS, ETC. 9.1. Transfers to Permitted Transferees. Each holder of Shares agrees that ---------------------------------- no Transfer of any such Shares (other than Lender Warrants) to any Permitted Transferee shall be effective unless such Permitted Transferee has delivered to the Company a written acknowledgment and agreement in form and substance reasonably satisfactory to the Company that such Shares to be received by such Permitted Transferee shall remain Investor Shares, Other Shares, Management Shares, Employee Shares or Lender Shares (and, if applicable, Restricted Common Stock) hereunder, as the case may be, and shall continue to be subject to -28- all of the provisions of this Agreement and that such Permitted Transferee shall be bound by and a party to this Agreement as the holder of Investor Shares, Other Shares, Management Shares, Employee Shares or Lender Shares, as the case may be, hereunder; provided, however, that no Transfer by any party to a -------- ------- Permitted Transferee shall relieve such party (including without limitation a holder of Lender Warrants) of any of its obligations hereunder. Each Permitted Transferee of a Lender Warrant shall automatically be bound by and a party to this Agreement as a holder of Lender Shares and such Lender Warrants shall remain Lender Shares hereunder and shall continue to be subject to all of the provisions of this Agreement. 9.2. Other Transfers and Issuances. Notwithstanding any other provision of ----------------------------- this Agreement, (i) Shares transferred pursuant to Section 3.1 (other than 3.1.3(a), (b) or (c)) or 3.2 hereof or in a Public Offering or to the public under Rule 144 shall be conclusively deemed thereafter not to be Shares under this Agreement and not to be subject to any of the provisions hereof or entitled to the benefit of any of the provisions hereof, (ii) Shares Transferred as described in Section 3.1.6(c) shall upon acquisition be deemed for all purposes hereof to be Management Shares or Employee Shares, as the case may be, hereunder and each holder of Investor Shares agrees that it will not Transfer any such Shares to any Person described in Section 3.1.6(c) unless such Person shall have executed a counterpart signature page to this Agreement and shall have delivered to the Company a written acknowledgment and agreement in form and substance reasonably satisfactory to the Company that such Shares to be received shall be deemed to be Management Shares or Employee Shares, as the case may be, and shall be subject to all of the provisions of this Agreement, that such Person shall be bound by and be a party to this Agreement as a holder of Management Shares or Employee Shares, as the case may be, hereunder and, if applicable, that such Shares are Restricted Common Stock, and (iii) any Other Shares acquired by any holder of Shares pursuant to Section 5.2.1, any Management Shares or Employee Shares acquired by any holder of Shares pursuant to Section 6.3.1, any Subject Securities constituting Common Stock acquired by any holder of Shares pursuant to Section 7 hereof and any Lender Shares acquired by any Investor pursuant to Section 4 hereof shall upon such acquisition be deemed for all purposes hereof to be Investor Shares, Other Shares, Management Shares or Employee Shares hereunder, as the case may be, of like kind with the other Shares held by such acquiring holder. 10. REMEDIES. 10.1. Generally. The Company and each holder of Shares shall have all --------- remedies available at law, in equity or otherwise in the event of any breach or violation of this Agreement or any default hereunder by the Company or any holder of Shares. The parties acknowledge and agree that in the event of any breach of this Agreement, in addition to any other remedies which may be available, each of the parties hereto shall be entitled to specific performance of the obligations of the other parties hereto and, in addition, to such other equitable remedies (including, without limitation, preliminary or temporary relief) as may be appropriate in the circumstances. -29- 10.2. Deposit. Without limiting the generality of Section 10.1, if any ------- Stockholder fails to deliver to the Company or the Prospective Buyer the certificate or certificates evidencing Shares to be Transferred pursuant to Section 3 hereof, the Company or the Prospective Buyer (as the case may be) may, at its option, in addition to all other remedies it may have, deposit the purchase price (including any promissory note constituting all or any portion thereof) for such Shares with any national bank or trust company having combined capital, surplus and undivided profits in excess of One Hundred Million Dollars ($100,000,000) (the "Escrow Agent") and the Company shall cancel on its books ------------ the certificate or certificates representing such Shares and thereupon all of such holder's rights in and to such Shares shall terminate. Thereafter, upon delivery to the Company by such holder of the certificate or certificates evidencing such Shares (duly endorsed, or with stock powers duly endorsed, for transfer, with signature guaranteed, free and clear of any liens or encumbrances, and with any stock transfer tax stamps affixed), the Company shall instruct the Escrow Agent to deliver the purchase price (without any interest from the date of the closing to the date of such delivery, any such interest to accrue to the Company) to such holder. 11. LEGENDS. 11.1. Restrictive Legend. Each certificate representing Shares shall have ------------------ the following legend endorsed conspicuously thereupon: The voting of the shares of stock represented by this certificate, and the sale, encumbrance or other disposition thereof, are subject to the provisions of a Stockholders Agreement to which the issuer and certain of its stockholders are party, a copy of which may be inspected at the principal office of the issuer or obtained from the issuer without charge. ________________________. Each certificate representing Investor Shares, Other Shares, Lender Shares, Management Shares or Employee Shares shall also have the following legend endorsed conspicuously thereupon: The shares of stock represented by this certificate were originally issued to, or issued with respect to shares originally issued to, the following [insert Investor, Other Investor, Lender, Employee or Manager, as appropriate]: __________________________. Any person who acquires Shares which are not subject to all or part of the terms of this Agreement shall have the right to have such legend (or the applicable portion thereof) removed from certificates representing such Shares. 11.2. 1933 Act Legends. Each certificate representing Shares shall have the ---------------- following legend endorsed conspicuously thereupon: -30- The securities represented by this certificate were issued in a private placement, without registration under the Securities Act of 1933, as amended (the "Act"), and may not be sold, assigned, pledged or otherwise transferred in the absence of an effective registration under the Act covering the transfer or an opinion of counsel, satisfactory to the issuer, that registration under the Act is not required. 11.3. Stop Transfer Instruction. The Company will instruct any transfer ------------------------- agent not to register the Transfer of any Shares until the conditions specified in the foregoing legends are satisfied. 11.4, Termination of Certain Restrictions. The legend set forth in Section ----------------------------------- 11.2 shall cease to be required as to any particular Shares (i) when, in the opinion of Ropes & Gray, or other counsel reasonably acceptable to the Company, such restrictions are no longer required in order to assure compliance with the Securities Act or (ii) when such Shares have been effectively registered under the Securities Act or transferred pursuant to Rule 144. Wherever (i) such restrictions shall cease and terminate as to any Shares or (ii) such Shares shall be transferable under paragraph (k) of Rule 144, the holder thereof shall be entitled to receive from the Company, without expense, new certificates not bearing the legend set forth in Section 11.2 hereof. 12. AMENDMENT, TERMINATION, ETC. 12.1. Oral Modifications. This Agreement may not be orally amended, ------------------ modified, extended or terminated, nor shall any oral waiver of any of its terms be effective. 12.2. Written Modifications. This Agreement may be amended, modified, --------------------- extended or terminated, and the provisions hereof may be waived, only by an agreement in writing signed by the Majority Investors; provided, however, that -------- ------- (a) the consent of the Majority Other Holders shall be required for any amendment, modification, extension, termination or waiver which has a material adverse effect on the rights or obligations of the holders of Other Shares as such under this Agreement, (b) the consent of the Majority Managers shall be required for any amendment, modification, extension, termination or waiver which has a material adverse effect on the rights or obligations of the holders of Management Shares as such under this Agreement, (c) the consent of the Majority Employees shall be required for any amendment modification, extension, termination or waiver which has a material adverse effect on rights or obligations of the holders of Employee Shares as such under this Agreement, (d) the consent of the Majority Lenders shall be required for any amendment, modification, extension, termination or waiver which has a material adverse effect on the rights or obligations of the holders of Lender Shares as such under this Agreement and (e) the consent of the Majority Senior Lenders shall be required for any amendment, modification, extension, termination or waiver which has a material adverse effect on the rights or obligations of the holders of Senior Lender Shares as such under this Agreement. Each such -31- amendment, modification, extension, termination and waiver shall be binding upon each party hereto and each holder of Shares subject hereto. In addition, each party hereto and each holder of Shares subject hereto may waive any right hereunder by an instrument in writing signed by such party or holder. 12.3. Termination. No termination under this Agreement shall relieve any ----------- Person of liability for breach prior to termination. 13. DEFINITIONS. For purposes of this Agreement: 13.1. Certain Matters of Construction. In addition to the definitions ------------------------------- referred to or set forth below in this Section 13: (a) The words "hereof", "herein", "hereunder" and words of similar import shall refer to this Agreement as a whole and not to any particular Section or provision of this Agreement, and reference to a particular Section of this Agreement shall include all subsections thereof; (b) Definitions shall be equally applicable to both the singular and plural forms of the terms defined; and (c) The masculine, feminine and neuter genders shall each include the other. 13.2. Definitions. The following terms shall have the following meanings: ----------- "AAA" shall have the meaning set forth in Section 1.6.1. --- "Accepting Purchasers" shall have the meaning set forth in Section -------------------- 4.1.2. "Affiliate" shall mean, with respect to any specified Person, any --------- other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person (for the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise). "Affiliated Fund" shall mean each corporation, trust, general or --------------- limited partnership or other entity under common control with any Investor. "Agreement" shall have the meaning set forth in the Preamble. --------- -32- "Board" shall have the meaning set forth in Section 2.1. ----- "Change of Control" shall mean (i) any change in the ownership of the ----------------- capital stock of the Company if, immediately after giving effect thereto, any Person (or group of Persons acting in concert) other than the Investor and its Affiliates will have the direct or indirect power to elect a majority of the members of the Board; or (ii) any sale or other disposition of all or substantially all of the assets of the Company (including without limitation by way of a merger or consolidation or through the sale of all or substantially all of the stock of its subsidiaries or sale of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole) to another Person (the "Change of Control Transferee") if, ---------------------------- immediately after giving effect thereto, any Person (or group of Persons acting in concert) other than the Investor and its Affiliates will have the power to elect a majority of the members of the board of directors (or other similar governing body) of the Change of Control Transferee. "Charter" shall mean the Company's Articles of Incorporation, as in ------- effect from time to time. "Class A Stock" shall have the meaning set forth in the Recitals. ------------- "Class L Stock" shall have the meaning set forth in the Recitals. ------------- "Closing" shall have the meaning set forth in Section 1.1. ------- "Commission" shall mean the Securities and Exchange Commission. ---------- "Common Stock" shall have the meaning set forth in the Recitals. ------------ "Company" shall have the meaning set forth in the Preamble. ------- "Convertible Securities" shall mean any evidence of indebtedness, ---------------------- shares of stock (other than Common Stock) or other securities directly or indirectly convertible into or exchangeable or exercisable for shares of Common Stock. "Covered Person" shall have the meaning set forth in Section 8.5.1. -------------- "Drag Along Notice" shall have the meaning set forth in Section 3.2.1. ----------------- "Drag Along Sale Percentage" shall have the meaning set forth in -------------------------- Section 3.2. "Drag Along Sellers" shall have the meaning set forth in Section ------------------ 3.2.1. -33- "Employee Shares" shall mean (i) all shares of Common Stock (other --------------- than shares of Restricted Common Stock or Common Stock issued pursuant to the exercise of any Option) originally issued to, or issued with respect to shares originally issued to, or held by, an Employee, whenever issued and (ii) for all purposes of this Agreement except as used in Section 7, all Options (treating such Options as a number of Shares equal to the number of Equivalent Shares represented by such Options), all shares of Common Stock issued pursuant to the exercise of any Option and all shares of Restricted Common Stock originally granted or issued to, or issued with respect to shares or options originally issued to, or held by, an Employee, whenever issued. "Employees" shall have the meaning set forth in the Recitals. --------- "Equivalent Shares" shall mean as to any outstanding shares of Common ----------------- Stock, such number of shares of Common Stock, and as to any outstanding Options or Convertible Securities, the maximum number of shares of Common Stock for which or into which such Options or Convertible Securities may at the time be exercised or converted. "Escrow Agent" shall have the meaning set forth in Section 10.2. ------------ "Exchange Act" shall mean the Securities Exchange Act of 1934, as in ------------ effect from time to time. "Fair Market Value" shall mean, as of any date, the Board's good faith ----------------- determination of the fair value of one Share of Common Stock as of the applicable reference date (and if such term applies to any Option then exercisable for Common Stock, such fair value of one share of Common Stock as of the applicable reference date minus the exercise price per share of such Option); provided, however, that in each case a Lender Share is the -------- ------- Share to be valued (the "Relevant Share"), holders of at least a majority of the Relevant Shares to be valued hereunder may deliver to the Company a written objection to the value of the Relevant Shares which is set forth in the applicable Drag Along Notice or Tag Along Notice. If the Board and holders of a majority of the Relevant Shares thereafter agree on a Fair Market Value of the Relevant Shares, such agreement shall be binding on the Company and all of the holders of the Relevant Shares. If the parties are unable to agree on the Fair Market Value of the Relevant Shares, they shall submit such dispute to arbitration in accordance with Section 15. In the event the Fair Market Value of the Relevant Shares shall not have been agreed upon by the Board and the holders of a majority of the Lender Shares (or, absent such agreement, through arbitration) prior to the closing to which reference is made in Section 7.3.4, the Prospective Investor Seller shall be entitled to deposit with an Escrow Agent, substantially simultaneously with such closing, cash in an amount equal to the Fair Market Value of the Relevant Shares as determined by the holders of the majority of the Relevant Shares as set forth in their written objection to the -34- Company referred to above and thereby require the surrender, against such delivery of cash to an Escrow Agent, of the Relevant Shares at such closing. "First Refusal Notice" shall have the meaning set forth in Section -------------------- 4.1.1. "Indemnitee" shall have the meaning set forth in Section 8.5.3. ---------- "Independent Investment Banking Firm" shall mean a nationally ----------------------------------- recognized investment banking firm selected by the Board which does not hold any equity interest in the Company or in any shareholder of the Company and which is not employed by either the Company or the Investor at the time the applicable fairness opinion is furnished (other than employment for the purpose of providing such fairness opinion). "Initial Public Offering" means the initial Public Offering registered ----------------------- on Form S-1 (or any successor form under the Securities Act). "Initiating Investors" shall have the meaning set forth in Section -------------------- 8.1.1. "Initiating Other Investors" shall have the meaning set forth in -------------------------- Section 8.2.1. "Investor Shares" shall mean (i) all shares of Common Stock (other --------------- than shares of Common Stock issued pursuant to the exercise of any Option) originally issued to, or issued with respect to shares originally issued to, or held by, any Investor, whenever issued and (ii) for all purposes of this Agreement except as used in Section 7, all Options (treating such Options as a number of Shares equal to the number of Equivalent Shares represented by such Options) and all shares of Common Stock issued pursuant to the exercise of any Option originally granted or issued to, or issued with respect to shares or options originally issued to, or held by, an Investor, whenever issued. "Investors" shall have the meaning set forth in the Preamble. --------- "Issuance" shall have the meaning set forth in Section 7. -------- "Lender Shares" shall mean (i) all shares of Common Stock (other than ------------- shares of Common Stock issued pursuant to the exercise of any Lender Warrant or other Option) originally issued to, or issued with respect to shares originally issued to, or held by, any Lender, whenever issued and (ii) for all purposes of this Agreement except as used in Section 7, all Lender Warrants or other Options (treating such Lender Warrants or other Options as a number of Shares equal to the number of Equivalent Shares represented by such Lender Warrants or other Options) and all shares of Common Stock issued pursuant to the exercise of any Lender Warrant or other Option -35- originally granted or issued to, or issued with respect to shares or options originally issued to, or held by, a Lender, whenever issued. "Lender Warrants" shall mean the warrants issued under the Warrant --------------- Agreements to acquire Class A Stock and Class L Stock. "Lenders" shall have the meaning set forth in the Preamble. ------- "Majority Employees" shall mean, as of any date, the holders of a ------------------ majority of the Employee Shares outstanding on such date. "Majority Investors" shall mean, as of any date, the holders of a ------------------ majority of the Investor Shares outstanding on such date. "Majority Lenders" shall mean, as of any date, the holders of a ---------------- majority of the Lender Shares outstanding on such date. "Majority Managers" shall mean, as of any date, the holders of a ----------------- majority of the Management Shares outstanding on such date. "Majority Other Holders" shall mean, as of any date, the holders of a ---------------------- majority of Other Shares outstanding on such date. "Majority Participating Investors" shall have the meaning set forth in -------------------------------- Section 8.1.1. "Majority Participating Other Investors" shall mean holders of at -------------------------------------- least a majority of the Registrable Other Securities to be included in any given proposed registration statement. "Management Shares" shall mean (i) all shares of Common Stock (other ----------------- than shares of Restricted Common Stock or Common Stock issued pursuant to the exercise of any Option) originally issued to, or issued with respect to shares originally issued to, or held by, a Manager, whenever issued and (ii) for all purposes of this Agreement except as used in Section 7, all Options (treating such Options as a number of Shares equal to the number of Equivalent Shares represented by such Options), all shares of Common Stock issued pursuant to the exercise of any Option and all shares of Restricted Common Stock originally granted or issued to, or issued with respect to shares or options originally issued to, or held by, a Manager, whenever issued. "Managers" shall have the meaning set forth in the Preamble. -------- -36- "Members of the Immediate Family" shall mean, with respect to any ------------------------------- individual, each spouse, child or other lineal descendent of such individual (and their respective spouses), each partnership, limited liability company, trust or other non-natural Person created solely for the benefit of one or more of the aforementioned Persons and each custodian or guardian of any property of one or more of the aforementioned Persons in his capacity as such custodian or guardian. "Options" shall mean any options or warrants (including without ------- limitation the Lender Warrants) to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities. "Other Investors" shall have the meaning set forth in the Preamble. --------------- "Other Shares" shall mean (i) all shares of Common Stock (other than ------------ shares of Common Stock issued pursuant to the exercise of any Option) originally issued to, or issued with respect to shares originally issued to, or held by, an Other Investor, whenever issued and (ii) for all purposes of this Agreement except as used in Section 7, all Options (treating such Options as a number of Shares equal to the number of Equivalent Shares represented by such Options) and all shares of Common Stock issued pursuant to the exercise of any Option originally granted or issued to, or issued with respect to shares or options originally issued to, or held by, an Other Investor, whenever issued. "Participating Buyer" shall have the meaning set forth in Section ------------------- 7.1.2. "Participating Seller" shall have the meaning set forth in Section -------------------- 3.1.2 and 3.2.1. "Permitted Transferee" shall mean (i) as to each Investor Share, a -------------------- Transferee of such Investor Share resulting from a Transfer described in Section 3.1.6(a) or (b), (ii) as to each Lender Share, a Transferee of such Lender Share in compliance with Section 4.2.2, (iii) as to each Other Share, a Transferee of such Other Share in compliance with Section 5.1 or 5.2.4 and (iv) as to each Management Share, a Transferee of such Management Share in compliance with Section 6.1 or 6.2. "Person" shall mean any individual, partnership, corporation, company, ------ association, trust, joint venture, unincorporated organization, entity or division, or any government, governmental department or agency or political subdivision thereof. "Preemption Notice" shall have the meaning set forth in Section 7.1.1. ----------------- "Preemptive Offerees" shall have the meaning set forth in Section ------------------- 7.1.1. -37- "Preemptive Portion" shall have the meaning set forth in Section ------------------ 7.1.1. "Price Per Equivalent Share" shall mean in the case of any Issuance -------------------------- pursuant to Section 7 hereof, the price per Equivalent Share included in the Issuance, calculated, in the case of Shares constituting Convertible Securities, with appropriate deductions for amounts in respect of accrued but unpaid interest or dividends added in determining the proceeds payable in the Issuance to the Company and, in the case of Options, with appropriate additions for amounts payable in the Issuance to the Company. "Prospective Buyer" shall mean any Person; provided, however, that for ----------------- -------- ------- purposes of Sections 5, the term Prospective Buyer shall not include any Person engaged in a business that is directly or indirectly competitive or potentially competitive with any business of the Company and its subsidiaries as conducted or under consideration from time to time. "Prospective Lender Seller" shall have the meaning set forth in ------------------------- Section 4.1.1. "Prospective Selling Investor" shall have the meaning set forth in ---------------------------- Section 3.1 and 3.2. "Prospective Subscriber" shall have the meaning set forth in Section ---------------------- 7.1.1. "Public Offering" shall mean a public offering and sale of Common --------------- Stock for cash pursuant to an effective registration statement under the Securities Act. "Qualified Buyer" shall mean any domestic or foreign bank, savings --------------- bank, savings and loan association, trust company, insurance company, employee benefit plan or trust, investment company registered under the Investment Company Act of 1940, as amended, business development company (as defined in that Act), registered securities broker or dealer, investment adviser registered under the Investment Advisers Act of 1940, or other institutional lender or institutional investor, if in each such case (i) such Person is acting for its own account or the accounts of other Qualified Institutional Investors (as defined in the Act), (ii) such Person in the aggregate owns and invests on a discretionary basis at least $100,000,000 in securities of issuers that are not Affiliates of such Person; provided, that for purposes of this Section 13.3.33 any two or more -------- Persons who are Affiliates of each other shall be treated as a single Person and (iii) such Person is not a Person which, to the knowledge of the holder of Lender Shares to proposing Transfer the same, (x) is engaged in any business which is directly or indirectly competitive or potentially competitive with any business of the Company and its subsidiaries or under consideration from time to time or (y) beneficially owns any of the voting stock of any corporation which is so engaged in such business (if such voting stock is not registered under Section 11 of the Securities Exchange Act of 1934), or (z) beneficially owns more than 5% of the voting stock of any corporation which is so -38- engaged in such business (if such voting stock is not registered under Section 11 of the Securities Exchange Act of 1934). "Qualified Public Offering" shall mean a Public Offering, other than ------------------------- any Public Offering or sale pursuant to a registration statement on Form S- 8 or comparable form, in which the aggregate price to the public of all such common stock sold in such offering shall exceed $20,000,000. "Recapitalization Agreement" shall have the meaning set forth in the -------------------------- Recitals. "Registrable Investor Securities" shall have the meaning set forth in ------------------------------- Section 8.1.1. "Registrable Other Securities" shall have the meaning set forth in ---------------------------- Section 8.2.1. "Registrable Securities" shall mean (i) all shares of Class A Stock, ---------------------- (ii) all shares of Class A Stock issuable upon conversion of Shares of Class L Stock, (iii) all shares of Class A Stock issuable upon exercise of any Option or any Warrant, and (iv) all shares of Class A Stock directly or indirectly issued or issuable with respect to the securities referred to in clauses (i), (ii) or (iii) above by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization, in each case which (a) constitute Shares or (b) are the subject of a separate registration rights agreement, other than Shares transferred pursuant to Section 3.1 (other than Section 3.1(a) or (b)) or 3.2 hereof. As to any particular Registrable Securities, such shares shall cease to be Registrable Securities when (a) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act and such securities shall have been disposed of in accordance with such registration statement, (b) such securities shall have been distributed to the public pursuant to Rule 144 (or any successor provision) under the Securities Act, (c) subject to the provisions of Section 11 hereof, such securities shall have been otherwise transferred, new certificates for them not bearing a legend restricting further transfer shall have been delivered by the Company and subsequent disposition of them shall not require registration of them under the Securities Act or such securities may be distributed without volume limitation or other restrictions on transfer under Rule 144 (including without application of paragraphs (c), (e) (f) and (h) of Rule 144), or (d) such securities shall have ceased to be outstanding. "Regulation D" shall mean Regulation D under the Securities Act. ------------ "Relevant Share" shall have the meaning set forth in the definition of -------------- Fair Market Value. "Rule 144" shall mean Rule 144 under the Securities Act. -------- -39- "Rule 145 Transaction" shall mean a registration on Form S-4 pursuant -------------------- to Rule 145 of the Securities Act. "Restricted Common Stock" shall mean Shares issued or sold to Managers ----------------------- with respect to which there are restrictions on Transfer independent of this Agreement. "Sale" shall have the meaning set forth in Section 3.1. ---- "Securities Act" shall mean the Securities Act of 1933, as in effect -------------- from time to time. "Shares" shall mean all Investor Shares, Lender Shares, Other Shares ------ and Management Shares. "Stockholders" shall have the meaning set forth in the Preamble. ------------ "Subject Lender Shares" shall have the meaning set forth in Section --------------------- 4.1.1. "Subject Securities" shall have the meaning set forth in Section 7. ------------------ "Tag Along Notice" shall have the meaning set forth in Section 3.1.1. ---------------- "Tag Along Offerees" shall have the meaning set forth in Section ------------------ 3.1.1. "Tag Along Sale Percentage" shall have the meaning set forth in ------------------------- Section 3.1.1. "Tag Along Sellers" shall have the meaning set forth in Section 3.1.2. ----------------- "Transfer" shall mean any sale, pledge, assignment, encumbrance or -------- other transfer or disposition of any Shares to any other Person, whether directly, indirectly, voluntarily, involuntarily, by operation of law, pursuant to judicial process or otherwise. "Warrant Agreements" shall mean those certain Warrant Agreements, each ------------------ dated as of the date hereof, between the Company and ChaseMellon Shareholder Services, L.L.C., as Warrant Agent. 14. MISCELLANEOUS. 14.1 Authority; Effect. Each party hereto represents and warrants to and ----------------- agrees with each other party that the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized on behalf of such party and do not violate any agreement or other instrument applicable to such party or by which its assets -40- are bound. This Agreement does not, and shall not be construed to, give rise to the creation of a partnership among any of the parties hereto, or to constitute any of such parties members of a joint venture or other association. 14.2 Transactions with Affiliates. Prior to the consummation of a ---------------------------- transaction with an Affiliate of an Investor involving consideration of more than $10 million, the Company will secure a fairness opinion from an Independent Investment Banking Firm as to the fairness of such transaction to the Company from a financial point of view. 14.3 Notices. Any notices and other communications required or permitted ------- in this Agreement shall be effective if in writing and (a) delivered personally or (b) sent (i) by Federal Express, DHL or UPS, delivery charges prepaid or (ii) by registered or certified mail, return receipt requested, postage prepaid, in each case, addressed as follows: If to the Company or the Investors, to them: c/o Bain Capital, Inc. Two Copley Place, 7th Floor Boston, Massachusetts 02116 Attention: David Dominik Ed Conard with a copy to: Ropes & Gray One International Place Boston, Massachusetts 02110 Attention: Alfred O. Rose If to an Other Investor, a Manager, an Employee or a Lender, to it at the address set forth on the records of the Company. Notice to the holder of record of any shares of capital stock shall be deemed to be notice to the holder of such shares for all purposes hereof. Unless otherwise specified herein, such notices or other communications shall be deemed effective (a) on the date received, if personally delivered, (b) two business days after being sent by Federal Express, DHL or UPS and (c) three business days, if sent by registered or certified mail. Each of the parties hereto shall be entitled to specify a different address by giving notice as aforesaid to each of the other parties hereto. 14.4 Binding Effect, etc. This Agreement constitutes the entire agreement ------------------- of the parties with respect to its subject matter, supersedes all prior or contemporaneous oral or -41- written agreements or discussions with respect to such subject matter, and shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives, successors and assigns. 14.5 Descriptive Headings. The descriptive headings of this Agreement are -------------------- for convenience of reference only, are not to be considered a part hereof and shall not be construed to define or limit any of the terms or provisions hereof. 14.6 Counterparts. This Agreement may be executed in multiple ------------ counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one instrument. 14.7 Severability. In the event that any provision hereof would, under ------------ applicable law, be invalid or unenforceable in any respect, such provision shall be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law. The provisions hereof are severable, and in the event any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof. 15. GOVERNING LAW, ARBITRATION. 15.1 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the domestic substantive laws of the State of Delaware without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction; provided, however, that any dispute relating to the provisions of Section 15.2 hereof shall be governed by the United States Arbitration Act as then in force. 15.2 Arbitration. ----------- 15.2.1 Generally. Except solely as set forth in Section 15.2.3 --------- hereof, each dispute, difference, controversy or claim arising in connection with or related or incidental to, or question occurring under, this Agreement or the subject matter hereof shall be finally settled under the Commercial Arbitration Rules of the American Arbitration Association (the "AAA") by an arbitral tribunal composed of three arbitrators, at least --- one of whom shall be an attorney experienced in corporate transactions, appointed by agreement of the parties in accordance with said Rules. In the event the parties fail to agree upon a panel of arbitrators from the first list of potential arbitrators proposed by the AAA, the AAA will submit a second list in accordance with said Rules. In the event the parties shall have failed to agree upon a full panel of arbitrators from said second list, any remaining arbitrators to be selected shall be appointed by the AAA in accordance with said Rules. If, at the time of the arbitration, the parties agree in writing to submit the dispute to a single arbitrator, said -42- single arbitrator shall be appointed by agreement of the parties in accordance with the foregoing procedure, or, failing such agreement, by the AAA in accordance with said Rules. The foregoing arbitration proceedings may be commenced by any party by notice to the other parties. 15.2.2. Place of Arbitration. The place of arbitration shall be New -------------------- York, New York. 15.2.3 Recourse to Courts. The parties hereby exclude any right of ------------------ appeal to any court on the merits of the dispute. The provisions of this Section 15.2 may be enforced in any court having jurisdiction over the award or any of the parties or any of their respective assets, and judgment on the award (including, without limitation, equitable remedies) granted in any arbitration hereunder may be entered in any such court. Nothing contained in this Section 15.2 shall prevent any party from seeking interim measures of protection in the form of pre-award attachment of assets or preliminary or temporary equitable relief. 15.3 Reliance. Each of the parties hereto acknowledges that he has been -------- informed by each other party that the provisions of Section 15 constitute a material inducement upon which such party is relying and will rely in entering into this Agreement and the transactions contemplated hereby. -43- Stockholders Agreement October 28, 1997 IN WITNESS WHEREOF, each of the undersigned has duly executed this Agreement (or caused this Agreement to be executed on its behalf by its officer or representative thereunto duly authorized) under seal as of the date first above written. THE COMPANY: DETAILS, INC. By: /s/ Bruce McMaster -------------------------------- Title: Bruce McMaster THE INVESTORS: BAIN CAPITAL FUND V, L.P. By Bain Capital Partners V, L.P., its general partner By Bain Capital Investors V, Inc., its general partner By: /s/ David Dominic ----------------------------- Title: Managing Director BAIN CAPITAL FUND V-B, L.P. By Bain Capital Partners V, L.P., its general partner By Bain Capital Investors V, Inc., its general partner By: /s/ David Dominic ----------------------------- Title: Managing Director -44- Stockholders Agreement October 28, 1997 BCIP ASSOCIATES By /s/ David Dominic ----------------------------------- Title: a general partner BCIP TRUST ASSOCIATES, L.P. By /s/ David Dominic ----------------------------------- Title: a general partner RGIP, LLC By [SIGNATURE APPEARS HERE] ----------------------------------- OTHER INVESTORS: DI INVESTORS, L.L.C. By Chase Manhattan Capital, L.P., its managing member By Chase Manhattan Capital Corporation, its general partner By [SIGNATURE APPEARS HERE] ----------------------------- Title: CHASE MANHATTAN CAPITAL, L.P. By Chase Manhattan Capital Corporation, its general partner By [SIGNATURE APPEARS HERE] ----------------------------- Title: -45- Stockholders Agreement October 28, 1997 PMI Mezzanine Fund, L.P. By Pacific Mezzanine Investors, LLC, its general partner By [SIGNATURE APPEARS HERE] ---------------------------- Title: PRINCIPAL CELERITY DETAILS, L.L.C. By [SIGNATURE APPEARS HERE] ------------------------------- Title: Celerity Liquids, L.L.C. By [SIGNATURE APPEARS HERE] ------------------------------- Title: MANAGERS: By /s/ Bruce McMaster -------------------------------- Bruce McMaster By /s/ Lee Muse -------------------------------- Lee Muse By /s/ Terry Wright -------------------------------- Terry Wright -46- Stockholders Agreement October 28, 1997 By /s/ Lee Muse -------------------------------- Lee Muse By /s/ Terry Wright -------------------------------- Terry Wright By /s/ Joseph P. Gisch -------------------------------- Joseph P. Gisch By /s/ Kathleen M. Gisch -------------------------------- Kathleen M. Gisch EMPLOYEES: By /s/ Bob Barante -------------------------------- Bob Barante By /s/ Jorge Hernandez -------------------------------- Jorge Hernandez By /s/ Steve Garcia -------------------------------- Steve Garcia By N A -------------------------------- Mihaela Ioana Dotiu By N A -------------------------------- Jerry Neidhart By /s/ Anil Verma -------------------------------- Anil Verma By /s/ Joe Gardeski -------------------------------- Joe Gardeski By /s/ Paul Walker -------------------------------- Paul Walker By /s/ Ken Phillips -------------------------------- Ken Phillips By /s/ Armando Tongko -------------------------------- Armando Tongko By /s/ Michael Mosian -------------------------------- Michael Mosian By /s/Tom Ingham -------------------------------- Tom Ingham -47- Stockholders Agreement October 28, 1997 By /s/ Paul Balius -------------------------------- Paul Balius By /s/ Ricki Blain -------------------------------- Ricki Blain -48- Stockholders Agreement October 28, 1997 The undersigned, the sole beneficial owners of DI Investors, L.L.C., Celerity Details, L.L.C., Celerity Liquids, L.L.C. (the "LLC Stockholders"), (i) agree to cause the LLC Stockholder of which they are a member to perform each of its obligations and responsibilities under this Agreement and (ii) agree that they shall not Transfer any membership interests of, or other beneficial interests in, the LLC Stockholders (the "LLC Interests") or permit the LLC Stockholders issue or otherwise Transfer any membership interests or other beneficial interests except to the extent such Transfer or issuance (treating such issuance as a Transfer by such beneficial owners) would be permitted under Section 5 of this Agreement if the LLC Interests were Other Shares. [MEMBER] By: ---------------------------- Title: [MEMBER] By: ---------------------------- Title: EX-10.5 10 1997 DETAILS, INC. EQUITY INCENTIVE PLAN THE 1997 DETAILS, INC. EQUITY INCENTIVE PLAN 1. DEFINED TERMS Exhibit A, which is incorporated by reference, defines the terms used in the Plan and sets forth certain operational rules related to those terms. 2. IN GENERAL The Plan has been established to advance the interests of the Company by giving selected Employees, directors and other persons (including both individuals and entities) who provide services to the Company or its Affiliates Stock-based incentives or incentives based on other performance measures relating to the Company or its Affiliates. 3. ADMINISTRATION The Administrator has discretionary authority, subject only to the express provisions of the Plan, to interpret the Plan; determine eligibility for and grant Awards; determine, modify or waive the terms and conditions of any Award; prescribe forms, rules and procedures (which it may modify or waive); and otherwise do all things necessary to carry out the purposes of the Plan. Once an Award has been communicated in writing to a Participant, the Administrator may not, without the Participant's consent, alter the terms of the Award so as to affect adversely the Participant's rights under the Award, unless the Administrator expressly reserved the right to do so in writing at the time of such communication. 4. SHARES SUBJECT TO THE PLAN a. A maximum of 235,000 Class A-5 shares of Stock may be delivered in satisfaction of Awards under the Plan. For purposes of the preceding sentence, the following shares shall not be considered to have been delivered under the Plan: (i) shares remaining under an Award that terminates without having been exercised in full; (ii) shares subject to an Award, where cash is delivered to a Participant in lieu of such shares; (iii) shares of Restricted Stock that have been forfeited in accordance with the terms of the applicable Award; and (iv) 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, if any, or of withholding taxes. -1- b. Stock delivered by the Company under the Plan may be authorized but unissued Stock or previously issued Stock acquired by the Company and held in treasury. No fractional shares of Stock will be delivered under the Plan. 5. ELIGIBILITY AND PARTICIPATION The Administrator will select Participants from among those key Employees, directors and other individuals or entities providing services to the Company or its Affiliates who, in the opinion of the Administrator, are in a position to make a significant contribution to the success of the Company and its Affiliates. Eligibility for ISOs is further limited to those individuals whose employment status would qualify them for the tax treatment described in Sections 421 and 422 of the Code. 6. RULES APPLICABLE TO AWARDS a. ALL AWARDS (1) Performance Objectives. Where rights under an Award depend in ----------------------- whole or in part on attainment of performance objectives, actions by the Company that have an effect, however material, on such performance objectives or on the likelihood that they will be achieved will not be deemed an amendment or alteration of the Award unless accomplished by a change in the express terms of the Award or other action that is without substantial consequence except as it affects the Award. (2) Alternative Settlement. The Company retains the right at any ----------------------- time to extinguish rights under an Award in exchange for payment in cash, Stock (subject to the limitations of Section 4) or other property on such terms as the Administrator determines, provided the holder of the Award consents to such exchange. (3) Transferability Of Awards. Except as the Administrator otherwise -------------------------- expressly provides, Awards (other than an Award in the form of an outright transfer of cash or Unrestricted Stock) may not be transferred other than by will or by the laws of descent and distribution, and during a Participant's lifetime an Award requiring exercise may be exercised only by the Participant (or in the event of the Participant's incapacity, the person or persons legally appointed to act on the Participant's behalf). (4) Vesting, Etc. Without limiting the generality of Section 3 and ------------- subject to subsections (a) and (b) below, the Administrator may determine the time or times at which an Award will vest (i.e., become free of forfeiture restrictions) or become exercisable and the terms on which an Award requiring exercise will remain exercisable. -2- (a) Death. Except as the Administrator may otherwise determine, if a Participant dies, the following will apply: i) All Awards requiring exercise held by the Participant immediately prior to death, to the extent then exercisable, may be exercised by the Participant's executor or administrator or the person or persons to whom the Award is transferred by will or the applicable laws of descent and distribution, at any time within the one year period ending with the first anniversary of the Participant's death, and shall thereupon terminate. In no event, however, shall an Award requiring exercise remain exercisable beyond the latest date on which it could have been exercised without regard to this Section 6.a.(4)(a). All Awards requiring exercise held by a Participant immediately prior to death that are not then exercisable shall terminate at death. ii) All Restricted Stock held by the Participant must be transferred to the Company together with duly executed stock powers (and, in the event the certificates representing such Restricted Stock are held by the Company, such Restricted Stock will be so transferred without any further action by the Participant provided that the Participant deliver a duly executed stock power at such time) in consideration of the payment by the Company of an amount equal to $5.00 for each share of Restricted Stock and will be deemed for all purposes to have been so transferred when the Company has tendered such payment. iii) Any payment or benefit under a Performance Award to which the Participant was not irrevocably entitled prior to death will be forfeited and the Award canceled as of the time of death. (b) Termination of Service (Other Than By Death). If a Participant who is an Employee ceases to be an Employee for any reason other than death or retirement with consent of the Company after attainment of age 65, or if there is a termination (other than by reason of death or satisfactory completion of the project or service as determined by the Administrator) of the consulting, service or similar relationship in respect of which a Non-Employee Participant was granted an Award hereunder (such termination of the employment or other relationship being hereinafter referred to as a "Status Change"), then, except as the Administrator may otherwise determine, the following will apply: i) All Awards requiring exercise held by the Participant that were not exercisable immediately prior to the Status Change shall terminate at the time of the Status Change. Any Awards requiring exercise that were exercisable immediately prior to the Status Change will continue to be -3- exercisable for a period of three months, and shall thereupon terminate, unless the Award provides by its terms for immediate termination in the event of a Status Change or unless the Status Change results from a discharge for cause which in the opinion of the Administrator casts such discredit on the Participant as to justify immediate termination of the Award. In no event, however, shall an Award requiring exercise remain exercisable beyond the latest date on which it could have been exercised without regard to this Section 6.a.(4)(b). For purposes of this paragraph, in the case of a Participant who is an Employee, a Status Change shall not be deemed to have resulted by reason of (i) a sick leave or other bona fide leave of absence approved for purposes of the Plan by the Administrator, so long as the Participant's right to reemployment is guaranteed either by statute or by contract, or (ii) a transfer of employment between the Company and a subsidiary or between subsidiaries, or to the employment of a corporation (or a parent or subsidiary corporation of such corporation) issuing or assuming an option in a transaction to which Section 424(a) of the Code applies. ii) All Restricted Stock held by the Participant at the time of the Status Change must be transferred to the Company (and, in the event the certificates representing such Restricted Stock are held by the Company, such Restricted Stock will be so transferred without any further action by the Participant) in consideration of the payment by the Company of an amount equal to $5.00 for each share of Restricted Stock and will be deemed for all purposes to have been so transferred when the Company has tendered such payment. iii) Any payment or benefit under a Performance Award to which the Participant was not irrevocably entitled prior to the Status Change will be forfeited and the Award canceled as of the date of such Status Change. (5) Taxes. The Administrator will make such provision for the ------ withholding of taxes as it deems necessary. The Administrator may, but need not, hold back shares of Stock from an Award or permit a Participant to tender previously owned shares of Stock in satisfaction of tax withholding requirements. (6) Dividend Equivalents, Etc. The Administrator may provide for the -------------------------- payment of amounts in lieu of cash dividends or other cash distributions with respect to Stock subject to an Award. (7) Rights Limited. Nothing in the Plan shall be construed as giving --------------- any person the right to continued employment or service with the Company or its Affiliates, or any -4- rights as a shareholder except as to shares of Stock actually issued under the Plan. The loss of existing or potential profit in Awards will not constitute an element of damages in the event of termination of employment or service for any reason, even if the termination is in violation of an obligation of the Company or Affiliate to the Participant. b. AWARDS REQUIRING EXERCISE (1) Time And Manner Of Exercise. Unless the Administrator expressly ---------------------------- provides otherwise, (a) an Award requiring exercise by the holder will not be deemed to have been exercised until the Administrator receives a written notice of exercise (in form acceptable to the Administrator) signed by the appropriate person and accompanied by any payment required under the Award; and (b) if the Award is exercised by any person other than the Participant, the Administrator may require satisfactory evidence that the person exercising the Award has the right to do so. (2) Payment Of Exercise Price, If Any. Where the exercise of an ---------------------------------- Award is to be accompanied by payment, the Administrator may specify one or more of the following forms of payment: i) cash or personal or certified check payable to the Company in an amount equal to the aggregate option price of the shares with respect to which the option is being exercised; ii) stock certificates (in negotiable form) representing shares of Stock (other than Restricted Stock) having a fair market value on the date of exercise equal to the aggregate option price of the shares with respect to which the option is being exercised; iii) Options to purchase Vested Shares, valued for such purposes at the fair market value per share of Common Stock on the date of exercise net of the exercise price for each such share; or iv) a combination of the methods set forth in clauses (i), (ii) and (iii). (3) Reload Awards. The Administrator may provide that upon the -------------- exercise of an Award, either by payment of cash or (if permitted under Section 6.b.(2) above) through the tender of previously owned shares of Stock, the Participant or other person exercising the Award will automatically receive a new Award of like kind covering a number of shares of Stock equal to the number of shares of Stock for which the first Award was exercised. (4) ISOs. No ISO may be granted under the Plan after October , ----- 2007, but ISOs previously granted may extend beyond that date. -5- c. AWARDS NOT REQUIRING EXERCISE Awards of Restricted Stock and Unrestricted Stock may be made in return for either (i) services determined by the Administrator to have a value not less than the par value of the awarded shares of Stock, or (ii) cash or other property having a value not less than the par value of the awarded shares of Stock plus such additional amounts (if any) as the Administrator may determine payable in such combination and type of cash, other property (of any kind) or services as the Administrator may determine. 7. EFFECT OF CERTAIN TRANSACTIONS a. MERGERS, ETC. Except to the extent set forth in the next succeeding paragraph, in the event of (i) a consolidation or merger in which the Company is not the surviving corporation or which results in the acquisition of all or substantially all of the Company's then outstanding common stock by a single person or entity or by a group of persons and/or entities acting in concert or (ii) a dissolution or liquidation of the Company (any of the foregoing, a "covered transaction"), all outstanding Awards (other than shares of Stock that are outstanding and fully vested) will be forfeited as of the effective time of the covered transaction unless assumed by an acquiring or surviving entity or its affiliate as provided in the following sentence. In connection with any covered transaction in which there is an acquiring or surviving entity, the Administrator may provide for substitute or replacement awards from, or the assumption of Awards by, the acquiring or surviving entity or its affiliates, any such substitution, replacement or assumption to be on such terms as the Administrator determines; but if there is no acquiring or surviving entity, or if the Administrator does not so provide for the substitution, replacement or assumption of Awards in connection with the covered transaction, all outstanding Awards shall vest and if relevant become exercisable and all deferrals, other than deferrals of amounts that are neither measured by reference to nor payable in shares of Stock, shall be accelerated, immediately prior to the covered transaction. In the event of a (i) Change of Control or (ii) a sale or transfer of all or substantially all the Company's assets (either of the foregoing, a "change of control transaction"), all outstanding Awards (other than shares of Stock that are outstanding and fully vested) shall vest and if relevant become exercisable and all deferrals, other than deferrals of amounts that are neither measured by reference to nor payable in shares of Stock, shall be accelerated, immediately prior to the covered transaction. -6- b. CHANGES IN AND DISTRIBUTIONS WITH RESPECT TO THE STOCK (1) Basic Adjustment Provisions. In the event of a stock dividend, ---------------------------- stock split or combination of shares, recapitalization or other change in the Company's capital structure, the Administrator will make appropriate adjustments to the maximum number of shares that may be delivered under the Plan under Section 4 and will also make appropriate adjustments to the number and kind of shares of stock or securities subject to Awards then outstanding or subsequently granted, any exercise prices relating to Awards and any other provision of Awards affected by such change. (2) Certain Other Adjustments. The Administrator may also make -------------------------- adjustments of the type described in paragraph (1) above to take into account distributions to common stockholders other than stock dividends or normal cash dividends, mergers, consolidations, acquisitions, dispositions or similar corporate transactions, or any other event, if the Administrator determines that adjustments are appropriate to avoid distortion in the operation of the Plan and to preserve the value of Awards made hereunder; provided, that no such adjustment shall be made to ISOs except to the extent consistent with their continued qualification under Section 422 of the Code. (3) Continuing Application of Plan Terms. References in the Plan to ------------------------------------ shares of Stock shall be construed to include any stock or securities resulting from an adjustment pursuant to Section 7.b.(1) or 7.b.(2) above. 8. CONDITIONS ON DELIVERY OF STOCK The Company will not be obligated to deliver any shares of Stock pursuant to the Plan or to remove any restriction from shares of Stock previously delivered under the Plan until: the Company's counsel has approved all legal matters in connection with the issuance and delivery of such shares; if the outstanding Stock is at the time of delivery listed on any stock exchange or national market system, the shares to be delivered have been listed or authorized to be listed on such exchange or system upon official notice of issuance; and all conditions of the Award have been satisfied or waived. If the sale of Stock has not been registered under the Securities Act of 1933, as amended, the Company may require, as a condition to exercise of the Award, such representations or agreements as counsel for the Company may consider appropriate to avoid violation of such Act. The Company may require that certificates evidencing Stock issued under the Plan bear an appropriate legend reflecting any restriction on transfer applicable to such Stock. -7- 9. AMENDMENT AND TERMINATION Subject to the last sentence of Section 3, the Administrator may at any time or times amend the Plan or any outstanding Award for any purpose which may at the time be permitted by law, or may at any time terminate the Plan as to any further grants of Awards; provided, that (except to the extent expressly required or permitted by the Plan) no such amendment will, without the approval of the stockholders of the Company, effectuate a change for which stockholder approval is required in order for the Plan to continue to qualify under Section 422 of the Code. 10. NON-LIMITATION OF THE COMPANY'S RIGHTS The existence of the Plan or the grant of any Award shall not in any way affect the Company's right to award a person bonuses or other compensation in addition to Awards under the Plan. 11. GOVERNING LAW The Plan shall be construed in accordance with the laws of the State of California. -8- EXHIBIT A Definition of Terms ------------------- The following terms, when used in the Plan, shall have the meanings and be subject to the provisions set forth below: "Administrator": The Board or, if one has been appointed, the Committee. "Affiliate": Any corporation or other entity owning, directly or indirectly, 50% or more of the outstanding Stock of the Company, or in which the Company or any such corporation or other entity owns, directly or indirectly, 50% of the outstanding capital stock (determined by aggregate voting rights) or other voting interests. "Award": Any of the following: (i) Options ("Stock Options") entitling the recipient to acquire shares of Stock upon payment of the exercise price. Each Stock Option (except as otherwise expressly provided by the Committee) will have an exercise price equal to the fair market value of the Stock subject to the option, determined as of the date of grant, except that an ISO granted to an Employee described in Section 422(b)(6) of the Code will have an exercise price equal to 110% of such fair market value. The Administrator will determine the medium in which the exercise price is to be paid, the duration of the option, the time or times at which an option will become exercisable, provisions for continuation (if any) of option rights following termination of the Participant's employment with the Company and its Affiliates, and all other terms of the Stock Option. No Stock Option awarded under the Plan will be an ISO unless the Administrator expressly provides for ISO treatment. (ii) Rights ("SARs") entitling the holder upon exercise to receive cash or Stock, as the Administrator determines, equal to a function (determined by the Administrator using such factors as it deems appropriate) of the amount by which the Stock has appreciated in value since the date of the Award. (iii) Stock subject to restrictions ("Restricted Stock") under the Plan requiring that such Stock be redelivered to the Company if specified conditions are not satisfied. The conditions to be satisfied in connection with any Award of Restricted Stock, the terms on which such Stock must be redelivered to the Company, the purchase price of such Stock, and all other terms shall be determined by the Administrator. (iv) Stock not subject to any restrictions under the Plan ("Unrestricted Stock"). (v) A promise to deliver Stock or other securities in the future on such terms and conditions as the Administrator determines. (vi) Securities (other than Stock Options) that are convertible into or exchangeable for Stock on such terms and conditions as the Administrator determines. (vii) Cash bonuses tied to performance criteria as described at (viii) below ("Cash Performance Awards"). (viii) Awards described in any of (i) through (vii) above where the right to exercisability, vesting or full enjoyment of the Award is conditioned in whole or in part on the satisfaction of specified performance criteria ("Performance Awards"). (ix) Grants of cash, or loans, made in connection with other Awards in order to help defray in whole or in part the economic cost (including tax cost) of the Award to the Participant. The terms of any such grant or loan shall be determined by the Administrator. Awards may be combined in the Administrator's discretion. "Board": The Board of Directors of the Company. "Change of Control": Any (i) change in the ownership of the capital stock of the Company if, immediately after giving effect thereto, any Person (or group of Persons acting in concert) other than the shareholders of the Company on October __, 1997 and their respective Affiliates will have the direct or indirect power to elect a majority of the members of the Board or (ii) sale or other disposition of all or substantially all of the assets of the Company (including without limitation by way of a merger or consolidation or through the sale of all or substantially all of the stock of its subsidiaries or sale of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole) to another Person (the "Change of Control Transferee") if, immediately after giving effect thereto, any Person (or group of Persons acting in concert) other than the Shareholders of the Company on October __, 1997 and their respective Affiliates will have the power to elect a majority of the members of the board of directors (or other similar governing body) of the Change of Control Transferee. "Code": The U.S. Internal Revenue Code of 1986 as from time to time amended and in effect, or any successor statute as from time to time in effect. "Committee": A committee of the Board comprised solely of two or more outside directors within the meaning of Section 162(m) of the Code. The Committee may delegate ministerial tasks to such persons (including Employees) as it deems appropriate. "Company": Details, Inc., a California corporation. "Employee": Any person who is employed by the Company or an Affiliate. "ISO": A Stock Option intended to be an "incentive stock option" within the meaning of Section 422 of the Code. "Participant": An Employee, director or other person providing services to the Company or its Affiliates who is granted an Award under the Plan. "Plan": The Details, Inc. 1997 Equity Incentive Plan as from time to time amended and in effect. "Stock": Class A-5 Common Stock of the Company, no par value per share. EX-10.6 11 1996 EMPLOYEE STOCK OPTION PLAN DETAILS, INC. 1996 Employee Stock Option Plan ------------------------------- 1. PURPOSE OF THE PLAN; DEFINITIONS (a) Purpose. ------- The purpose of the DETAILS, INC., 1996 EMPLOYEE STOCK OPTION PLAN (the "Plan") is (i) to further the growth and success of DETAILS, INC., a California corporation (the "Company"), and its Subsidiaries (as hereinafter defined) by enabling employees of the Company and its Subsidiaries to acquire shares of Common Stock, no par value (the "Common Stock"), of the Company, thereby increasing their personal interest in such growth and success, and (ii) to provide a means of rewarding outstanding performance by such persons to the Company and/or its Subsidiaries. Options granted under the Plan may be either "incentive stock options" ("ISOs"), intended to qualify as such under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), or non-qualified stock options ("NSOs"). In this Plan, the terms "Parent" and "Subsidiary" mean "Parent Corporation" and "Subsidiary Corporation," respectively, as such terms are defined in Sections 424(e) and (f) of the Internal Revenue Code. Unless the context otherwise requires, any ISO or NSO is referred to in this Plan as an "Option." (b) Definitions. ---------- As used in the Plan, the following capitalized terms have the meanings set forth below: "Affiliate" means, with respect to any Person, (i) a director or executive officer of such Person, (ii) a spouse, parent, sibling or descendant of such Person (or a spouse, parent, sibling or descendant of any director or executive officer of such Person), and (iii) any other Person that, directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with such Person. For the purpose of the above definition, the term "control" (including, with correlative meaning, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Asset Sale" means a sale or other disposition of all or substantially all of the assets of the Company and its Subsidiaries on a consolidated basis and shall include the sale of all or substantially all of the capital stock of Details. "Board" has the meaning given to it in Section 2(a). "Internal Revenue Code" has the meaning given to it in Section 1(a). "Committee" has the meaning given to it in Section 2(a). "Common Stock" has the meaning given to it in Section 1(a) "Company" has the meaning given to it in Section 1(a). "Disqualifying Disposition" has the meaning given to it in Section 20. "Effective Date" has the meaning given to it in Section 15 "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exercise Notice" has the meaning given to it in Section 12(b) "Involuntary Termination" has the meaning given to it in Section 10(a)(ii). "ISOs" has the meaning given to it in Section 1(a). "Joinder Agreement" has the meaning given to it in the Stockholders Agreement. "NSOs" has the meaning given to it in Section 1(a). "Option" has the meaning given to it in Section 1(a). "Option Agreement" has the meaning given to it in Section 5(b). "Option Price" has the meaning given to it in Section 6(a). "Option Shares" means, with respect to any Option, the shares of capital stock of the Company subject to purchase pursuant to the exercise of such Option but which have not been purchased at the time in question whether or not such shares constitute Vested Shares. "Optioned Shares" has the meaning given to it in Section 10(b). "Optionee" has the meaning given to it in Section 5(a). "Parent" has the meaning given to it in Section 1(a). "Person" shall be construed broadly and shall include an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Plan" has the meaning given to it in Section 1(a). "Rule 16b-3" has the meaning given to it in Section 2(a). 2 "SEC" has the meaning given to it in Section 2(a). "Securities Act" means the Securities Act of 1933, as amended. "Shareholders Agreement" means the Shareholders Agreement dated as of January 31, 1996, and as hereafter amended from time to time, among the Company and the shareholders of the Company named therein. "Stock Sale" means a sale or other disposition of all or substantially all of the outstanding capital stock of the Company, whether by way of merger or otherwise. "Subsidiary" has the meaning given to it in Section 1(a). "Termination Date" means the tenth anniversary of the Effective Date or such other date on which the Plan shall expire or terminate pursuant to Section 16. "Termination of Relationship" means, if the Optionee is an employee of or consultant to the Company or any Subsidiary, the termination of the Optionee's employment (in the case of an Optionee who is an employee) or consulting relationship (in the case of an Optionee who is a consultant) with the Company or its Subsidiaries for any reason. "Vested Shares" means, with respect any Option, those Option Shares which may at the time in question be purchased upon the exercise of such Option. 2. ADMINISTRATION OF THE PLAN (a) Stock Option Committee ---------------------- The Plan shall be administered by the Board of Directors of the Company (the "Board") or a committee (the "Committee") appointed from time to time by the Board, which Committee shall have the power and authority to grant Options under the Plan; provided, however, that, so long as it shall be required -------- ------- to comply with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and Exchange Commission (the "SEC") under the Exchange Act in order to permit officers and directors of the Company to be exempt from the provisions of Section 15(b) of the Exchange Act with respect to transactions effected pursuant to the Plan, such Committee shall consist of at least two directors and, at the effective date of his or her appointment to the Committee, each such director shall be a "Non-Employee Director" within the meaning of Rule 16b-3. The members of the Committee may be removed by the Board at any time either with or without cause. Any vacancy on the Committee, whether due to action of the Board or any other cause. Any vacancy on the Committee, whether due to action of the Board or any other cause, shall be filled by the Board. The term "Committee" shall, for all purposes of the Plan other than this Section, be deemed to refer to the Board if the Board is administering the Plan. (b) Procedures ---------- If the Plan is administered by a Committee, the Board shall from time to time select a Chairman from among the members of the Committee. The Committee shall adopt such 3 rules and regulations as it shall deem appropriate concerning the holding of meetings and the administration of the Plan. A majority of the entire Committee shall constitute a quorum and the actions of a majority of the members of the Committee present at a meeting at which a quorum is present, or actions approved in writing by all of the members of the Committee, shall be the actions of the Committee. (c) Interpretation -------------- Except as otherwise expressly provided in the Plan, the Committee shall have all powers with respect to the administration of the Plan, including without limitation, full power and authority to interpret the provisions of the Plan and any Option Agreement and to resolve all questions arising under the Plan. All decisions of the Board or Committee, as the Case may be, shall be conclusive and binding on all participants in the Plan. 3. SHARES OF STOCK SUBJECT TO THE PLAN (a) Number of Shares ---------------- Subject to the provisions of Section 13 (relating to adjustments upon changes in capital structure and other corporate transactions), the number of shares of Common Stock subject at any one time to Options granted under the Plan, plus the number of shares of Common Stock therefore issued and delivered pursuant to the exercise of Options granted under the Plan, shall not exceed 260 shares. Anything contained in the Plan to the contrary notwithstanding in no event shall the aggregate number of shares issuable upon the exercise of all outstanding Options granted under the Plan at any time exceed the 30% limitation of Title 10, California Administration Code, Section 260.140.45. If and to the extent that Options granted under the Plan terminate, expire or are canceled without having been fully exercised, new Options may be granted under the Plan with respect to the shares of Common Stock covered by the unexercised portion of such terminated, expired or canceled Options. The number of shares of Common Stock reserved for issuance under the Plan shall at no time be less than the maximum number of shares which may be purchased at any time pursuant to outstanding Options. (b) Character of Shares ------------------- The shares of Common Stock issuable upon exercise of an Option granted under the Plan shall be authorized but unissued shares of Common Stock. 4. ELIGIBILITY (a) General ------- Options may be granted under the Plan only to persons who are employees or directors of, or consultants to, the Company or any of its Subsidiaries. Options granted to employees of the Company or any of its Subsidiaries shall be, in the discretion of the Committee, either ISOs or NSOs, and Options granted to independent consultants to or directors of the Company or any of its Subsidiaries who are not employees of the Company or any of its 4 Subsidiaries shall be NSOs. Notwithstanding the foregoing, Options may be conditionally granted to persons who are prospective employees or directors of, or independent consultants to, the Company or any of its Subsidiaries; provided, -------- however, that any such conditional grant of an ISO to a prospective employee - ------- shall, by its terms, become effective no earlier than the date on which such person actually becomes an employee of the Company or any of its Subsidiaries. (b) Exceptions ---------- Notwithstanding anything contained in Section 4(a) to the contrary: (i) no ISO may be granted under the Plan to an employee who owns, directly or indirectly (within the meaning of Section 422(b)(6) and 425(d) of the Internal Revenue Code), stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its Parent, if any, or any of its Subsidiaries, unless (A) the Option Price of the shares of Common Stock subject to such ISO is fixed at not less than 110% of the Fair Market Value on the date of grant (as determined in accordance with Section 6(b)) of such shares and (B) such ISO by its terms is not exercisable after the expiration of five years from the date it is granted; and (ii) no Options may be granted to any Person in any one taxable year of the Company in excess of 33% of the total Options issued or issuable under the Plan. 5. GRANT OF OPTIONS (a) General ------- Options may be granted under the Plan at any time and from time to time on or prior to the Termination Date. Subject to the provisions of the Plan, the Committee shall have plenary authority, in its sole discretion, to determine: (i) the persons (from among the class of persons eligible to receive Options under the Plan) to whom Options shall be granted (each, an "Optionee"); (ii) the time or times at which Options shall be granted; (iii) the number of shares subject to each Option; (iv) the Option Price of the shares subject to each Option, which price, in the case of ISOs, shall be not less than the minimum specified in Section 4(b)(i) or Section 6(a)(as applicable); and (v) the time or times when each Option shall become exercisable and the duration of the exercise period. (b) Option Agreements ----------------- 5 Each Option granted under the Plan shall be designated as an ISO or an NSO and shall be subject to the terms and conditions applicable to ISOs and/or NSOs (as the case may be) set forth in the Plan. Each Option shall specify the number of shares for which such Option shall be exercisable and the exercise price for each such share. In addition, each Option shall be evidenced by a written agreement (an "Option Agreement"), containing such terms and conditions and in such form, not inconsistent with the Plan, as the Committee shall, in its discretion provide. Each Option Agreement shall be executed by the Company and the Optionee. (c) No Evidence of Employment or Service ------------------------------------ Nothing contained in the Plan or in any Option Agreement shall confer upon any Optionee any right with respect to the continuation of his or her employment by or service with the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any such Subsidiary (subject to the terms of any separate agreement to the contrary) at any time to terminate such employment or service or to increase or decrease the compensation of the Optionee from the rate in existence at the time of the grant of an Option. (d) Date of Grant ------------- The date of grant of an Option under this Plan shall be the date as of which the Committee approves the grant; provided however, that in the case of an -------- ------- ISO, the date of grant shall in no event be earlier than the date as of which the Optionee becomes an employee of the Company or one of its Subsidiaries. 6. OPTION PRICE (a) General ------- The price (the "Option Price") at which each share subject to an Option granted hereunder may be purchased shall be determined by the Committee at the time the Option is granted; provided, however, that (i) in the case of an ISO, -------- ------- such Option Price shall in no event be less than 100% (or 110% if Section 4(b)(i) hereof is applicable) of the Fair Market Value on the date of grant (as determined in accordance with Section 6(b)) of such share of Common Stock, and (ii) in the case of an NSO, such Option Price shall in no event be less than 85% (or 110% if the Optionee is a person owning Stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its Parent or Subsidiary). (b) Determination of Fair Market Value ---------------------------------- Subject to the requirements of Section 422 of the Internal Revenue Code, for purposes of the Plan, the "Fair Market Value" of a share of Common Stock shall be equal to: (i) if the Common Stock is publicly traded, (x) the closing price, if any trades were made on the business day immediately preceding the date of grant and such information is available, otherwise the average of the last bid and asked prices on the business day immediately preceding the date of grant, in the over-the-counter market as 6 reported by the National Association of Securities Dealers Quotations System ("NASDAQ") or (y) if the Common Stock is then traded on a national securities exchange, the closing price, if any trades were made and such information is available, otherwise the average of the high and low prices on the business day immediately preceding the date of grant, on the principal national securities exchange on which it is so traded; or (ii) if there is no public trading market for such shares, the fair value of such share on the date of grant as determined by the Committee after taking into consideration all factors that it deems appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arms' length. Anything contained in the Plan to the contrary notwithstanding, all determinations pursuant to Section 6(b)(ii) shall be made without regard to any restriction other than a restriction that, by its terms, will never lapse. (c) Repricing of NSOs ----------------- Subsequent to the date of grant of any NSO, the Committee may, at its discretion and with the consent of the Optionee, establish a new Option Price for such NSO so as to increase or decrease the Option Price of such NSO. 7. EXERCISABILITY OF OPTIONS Each Option granted under the Plan shall be exercisable at such time or times, or upon the occurrence of such event or events, and for such number of shares subject to the Option, as shall be determined by the Committee and set forth in the Option Agreement evidencing such Option; provided, however, that if -------- ------- the Company files a registration statement under the Securities Act for the initial public offering of its securities, no Option granted under the Plan shall be exercisable, and no shares of Common Stock acquired upon the exercise of any Option may be sold during the 180-day period immediately following the effective date of such registration statement. Subject to the proviso of the immediately preceding sentence, if an Option is not at the time of grant immediately exercisable, the Committee y (i) in the Option Agreement evidencing such Option, provide for the acceleration of the exercise date or dates of the subject Option upon the occurrence of specified events and/or (ii) at any time prior to the complete termination of an Option, accelerate the exercise date or dates of such Option. 8. REPRESENTATIONS OF OPTIONEE. --------------------------- In the event of the exercise of the Option at a time when there is not in effect a registration statement under the Securities Act relating to the Option Shares, the Optionee, by its acceptance and exercise of such Option, shall be deemed to represent and warrant, to the Company that the Option Shares being purchased are being acquired for investment only and not with a view to the distribution thereof, and the Optionee shall provide the Company with such further representations and warranties as the Company may require in order to ensure compliance 7 with applicable federal and state securities and other laws. No Option Shares shall be purchased upon the exercise of an Option unless and until the Company and the Optionee shall have complied with all applicable federal and state registration, listing and qualification requirements and all other requirements of law or of any regulatory agencies having jurisdiction. 9. REPURCHASE OF SHARES. By his or her acceptance of, and if applicable exercise of, an Option granted under the Plan, each Optionee represents, warrants and agrees to and with the Company as follows: (i) Such Optionee acknowledges that all Optioned Shares acquired by such Optionee are subject to repurchase upon the occurrence of certain events as provided in Article VIII of the Shareholders Agreement, provided, however, that the last sentence of Section 8.3(d) of the -------- ------- Shareholders Agreement shall not be applicable to such Optionee or to any Optioned Shares acquired by such Optionee, but that in lieu of the provisions of such sentence, the provisions of Section 9(b) below shall apply. (ii) For purposes of Section 8.3 of the Shareholders Agreement as it relates to Optioned Shares acquired by such Optionee, if the termination of the employment of the Optionee is for any reason other than an Involuntary Termination, then the purchase price payable under such Section 8.3 for the shares being repurchased from such Optionee and the other Terminated Management Holders (as defined in the Shareholders Agreement) shall be an amount equal to the original cost of such shares paid by such Optionee upon exercise of the Option. (iii) Except as modified by this Section 9 (which modifications shall apply only to such Optionee), the provisions of Section 8.3 of the Shareholders Agreement shall apply, in accordance with their respective terms, to all shares acquired by such Optionee upon exercise of the Option. 10. TERMINATION OF OPTIONS (a) Termination. ----------- Each Option granted under the Plan shall automatically terminate and shall become null and void and be of no further force or effect upon the first to occur of the following: (i) in the case of (A) an ISO, the tenth anniversary of the date on which such Option is granted or, in the case of any ISO granted to a person described in Section 5(b)(i), the fifth anniversary of the date on which such ISO is granted, and (B) a NSO, the tenth anniversary of the date on which such Option is granted; (ii) the expiration of 12 months after the effective date of a Termination of Relationship, if such termination is due to such Optionee's death or permanent and total disability, within the meaning of Section 22(e)(3) of the Internal Revenue Code (an "Involuntary Termination"); 8 (iii) the expiration of 30 days after the effective date of a Termination of Relationship other than an Involuntary Termination; (iv) the expiration of such period of time or the occurrence of such event as the Committee, in its discretion, may provide in the Option Agreement governing such Option; and (v) simultaneously with the consummation of an Asset Sale or Stock Sale if at such time a payment is made to each Optionee in an amount, if any, equal to the consideration that would have been received by such Optionee in such transaction if such Optionee had exercised his Option for all Vested Shares with respect to which the Option is then exercisable (including any shares which would become Vested Shares upon consummation of such transaction) immediately prior thereto, less the aggregate exercise price of such Shares. 11. LIMITATIONS ON ISOs; NOTICE TO OPTIONEES GRANTED ISOs In accordance with Section 422(d) of the Internal Revenue Code, the aggregate Fair Market Value determined on the applicable date of grant of all stock with respect to which incentive stock options are exercisable for the first time by such Optionee during any calendar year (under all plans of the Company and its subsidiaries) cannot exceed $100,000, and thus any options granted to acquire such stock with an aggregate Fair Market Value determined on the applicable date of grant in excess of $100,000 shall be treated as NSOs. Under certain circumstances, the exercise of an ISO may disqualify the holder from recovering the favorable tax benefits ISOs offer. For example, ISO tax treatment is currently not available if (i) an ISO is exercised within one year of its date of grant or (ii) if the shares issuable upon exercise of an ISO are sold within two years of the grant date of such ISO. Therefore, the Company recommends that each Optionee holding an ISO consult with a competent tax advisor before taking any action with respect to his ISOs. 12. PROCEDURE FOR EXERCISE (a) Payment ------- Payment for shares shall accompany each notice of exercise, and shall be made in full at the time of delivery to the Company of the Exercise Notice therefor in cash or by personal or certified check payable to the Company in an amount equal to the aggregate Option Price of the shares with respect to which the Option is being exercised. (b) Exercise Notice --------------- An Optionee (or other person, as provided in Section 14(b)) may exercise an Option (for Vested Shares represented thereby) granted under the Plan in whole or in part (but for the purchase of whole shares only), as provided in the Option Agreement evidencing his Option, by delivering a written notice (the "Exercise Notice") to the Secretary of the Company. The Exercise Notice shall state: 9 (i) that the Optionee elects to exercise the Option; (ii) the number of Vested Shares with respect to which the Option is being exercised (the "Optioned Shares"); (iii) any representations of the Optionee required by the Plan or Option Agreement; (iv) the date upon which the Optionee desires to consummate the purchase (which date must be prior to the termination of such Option); (v) a copy of any election filed by the Optionee pursuant to Section 83(b) of the Internal Revenue Code; and (vi) such further provisions consistent with the Plan as the Committee may from time to time require. The exercise date of an Option shall be the date on which the Company receives the Exercise Notice from the Optionee. (c) Issuance of Certificates ------------------------ Unless waived by the Committee, if, at the time any Option is exercised hereunder, outstanding stock of the Company is then pledged to secure outstanding indebtedness of the Company, all shares issued upon such exercise shall also be subject to such pledge, with certificates therefor being delivered to the pledgee upon issuance by Company, and each Optionee exercising an Option shall further execute a joinder agreement in form specified by the Committee adopting and agreeing to become a party to such pledge agreement as a condition to such exercise of the Option. If at the time of exercise of an Option the Optionee is not a party to the Shareholder Agreement, then, unless otherwise waived by the Committee, as a condition to the exercise of such Option such Optionee shall execute and deliver to the Company a joinder agreement in the form specified by the Committee adopting and agreeing to become a party to the Shareholders Agreement as a "Management Shareholder" thereunder. The Company shall issue a stock certificate in the name of the Optionee (or such other person exercising the Option in accordance with the provisions of Section 14(b)) for the Optioned Shares as soon as practicable after receipt of the Exercise Notice and payment of the aggregate Option Price for such shares. Neither the Optionee nor any person exercising an Option in accordance with the provisions of Section 14(b) shall have any privileges as a stockholder of the Company with respect to any shares of stock subject to an Option granted under the Plan until the date of issuance of a stock certificate pursuant to this Section 12(c). 10 (d) Optionee's Employment. --------------------- Nothing in this Plan or in any Option Agreement or Option shall confer upon the Optionee any right to continue in the employ of the Company or any of its Affiliates or interfere in any way with the right of the Company or its Affiliates or stockholders, as the case may be, to terminate the Optionee's employment or to increase or decrease the Optionee's compensation at any time. 13. ADJUSTMENTS (a) Changes in Capital Structure ---------------------------- If the Common Stock is changed by reason of a stock split, reverse stock split, stock dividend or recapitalization, or converted into or exchanged for other securities as a result of a merger, consolidation or reorganization, the Committee shall make such adjustments in the number and class of shares of stock available under the Plan as shall be equitable and appropriate. A corresponding adjustment changing the number and class of shares allocated to, and the Option Price of, each Option or portion thereof outstanding at the time of such change shall likewise be made. Anything contained in the Plan to the contrary notwithstanding, in the case of ISOs, no adjustment under this Section 13(a) shall be appropriate if such adjustment (i) would constitute a modification, extension or renewal of such ISOs within the meaning of Sections 422 and 425 of the Internal Revenue Code, and the regulations promulgated by the Treasury Department thereunder, or (ii) would, under Section 422 of the Internal Revenue Code and the regulations promulgated by the Treasury Department thereunder, be considered as the adoption of a new plan requiring stockholder approval. (b) Special Rules ------------- The following rules shall apply in connection with Section 13(a) above: (i) no fractional shares shall be issued as a result of any such adjustment, and any fractional shares resulting from the computations pursuant to Section 14(a) shall be eliminated without consideration from the respective Options; (ii) no adjustment shall be made for cash dividends or the issuance to stockholders of rights to subscribe for additional shares of Common Stock or other securities; and (iii) any adjustments referred to in Section 13(a) shall be made by the Board in its sole discretion and shall be conclusive and binding on all persons holding any Options granted under the Plan. 14. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES (a) Compliance With Securities Laws ------------------------------- 11 No Options shall be granted under the Plan, and no shares of Common Stock shall be issued and delivered upon the exercise of Options granted under the Plan, unless and until the Company and/or the Optionee shall have complied with all applicable federal or state registration, listing and/or qualification requirements and all other requirements of law or of any regulatory agencies having jurisdiction. The Company in its discretion may, as a condition to the exercise of any Option granted under the Plan, require an Optionee (i) to represent in writing that the shares of Common Stock received upon exercise of an Option are being acquired for investment and not with a view to distribution and (ii) to make such other representations and warranties as are deemed appropriate by the Company. Stock certificates representing shares of Common Stock acquired upon the exercise of Options that have not been registered under the Securities Act shall, if required by the Board, bear the following legend and such additional legends as may be required by the Option Agreement evidencing a particular Option: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL TO THE ISSUER HEREOF THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT." (b) Nonassignability of Option Rights --------------------------------- No Option granted under this Plan shall be assignable or otherwise transferable by the Optionee except by will or by the laws of descent and distribution. An Option may be exercised during the lifetime of the Optionee only by the Optionee. If an Optionee dies, his or her Option shall thereafter be exercisable, during the period specified in Section 10(a)(i) or (ii) (as the case may be ), by his or her executors or administrators to the full extent to which such Option was exercisable by the Optionee at the time of his or her death. The Option shall not be subject to execution, attachment or similar process. Any attempted transfer of the Option contrary to the provisions hereof, and the levy of any execution, attachment or similar process upon the Option, shall be null and void and without effect. 15. EFFECTIVE DATE OF PLAN This Plan shall become effective on the date (the "Effective Date") of its adoption by the Board; provided, however, that no Option shall be exercisable by an Optionee unless and until the Plan shall have been approved by the stockholders of the Company in accordance with the provisions of its Articles of Incorporation and By-laws, which approval shall be obtained by a simple majority of the votes that may be cast by the stockholders, voting either in person or by proxy, at a duly held stockholders' meeting, or by written consent in lieu of meeting, within 12 months before or after the adoption of the Plan by the Board. 12 16. TERMINATION OF THE PLAN No Options may be granted after (i) the tenth anniversary of the date on which the Plan is approved by the stockholders of the Company and (ii) the date as of which the Committee, in its sole discretion, determines that the Plan shall terminate. Any Option outstanding as of the Termination Date shall remain in effect until they have been exercised or terminated or have expired by their respective terms. 17. AMENDMENT OF PLAN The Committee may, at any time prior to the Termination Date and with the consent of the Board, modify and amend the Plan in any respect: provided, -------- however; that the approval of the holders of a majority of the votes that may be - ------- cast by all of the holders of shares of capital stock of the Company, entitled to vote (voting as a single class) shall be obtained prior to any such amendment becoming effective if such approval is required by law or is necessary to comply with regulations promulgated by the SEC under Section 16(b) of the Exchange Act or with Section 422 of the Internal Revenue Code or the regulations promulgated by the Treasury Department thereunder. 18. FINANCIAL STATEMENTS To the extent required pursuant to Title 10, California Administrative Code, Section 260.140.46, annual financial statements shall be provided to current Optionees. 19. CAPTIONS The use of captions in this Plan is for convenience. The captions are not intended to provide substantive rights. 20. DISQUALIFYING DISPOSITIONS If Optioned Shares acquired by exercise of an ISO granted under this Plan are disposed of within two years following the date of grant of the ISO or one year following the issuance of the Optioned Shares to the Optionee (a "Disqualifying Disposition"), the holder of the Optioned Shares shall, immediately prior to such Disqualifying Disposition, notify the Company in writing of the date and terms of such Disqualifying Disposition and provide such other information regarding the Disqualifying Disposition as the Company may reasonably require. 21. WITHHOLDING TAXES Whenever under the Plan shares of Common Stock are to be delivered by an Optionee upon exercise of an NSO, the Company shall be entitled to require as a condition of delivery that the Optionee remit or, in appropriate cases, agree to remit when due, an amount sufficient to satisfy all current or estimated future federal, state and local withholding tax, and employment tax requirements relating thereto in the event that such remittance is required to allow the Company to receive a deduction in connection with the delivery of such Common 13 Stock or to the extent the Company is unable to satisfy its withholding obligations out of other amounts due from the Company to the Optionee. At the time of a Disqualifying Disposition, the Optionee shall remit to the Company in cash the amount of any applicable federal, state and local withholding taxes and employment taxes. 22. OTHER PROVISIONS Each Option granted under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Committee, in its sole discretion. Notwithstanding the foregoing, each ISO granted under the Plan shall include those terms and conditions that are necessary to qualify the ISO as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code and the regulations thereunder and shall not include any terms or conditions that are inconsistent therewith. 23. OPTIONEE'S UNDERTAKING. The Optionee hereby agrees to take whatever additional actions and execute whatever additional documents the Company may in its reasonable judgment deem necessary or advisable in order to carry out or effect one or more of the obligations or restrictions imposed on the Optionee pursuant to the express provisions of this Plan. 24. MODIFICATION; WAIVER. The rights of the Optionee are subject to modification and termination in certain events as provided in this Plan. Any waiver by the Company of a breach of any provision of this Agreement must be in writing and shall not operate or be construed as a waiver of any other or subsequent breach. 25. NUMBER AND GENDER With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, and vice-versa, as the context requires. 26. GOVERNING LAW All questions concerning the construction, interpretation and validity of this Plan and the instruments evidencing the Options granted hereunder shall be governed by and construed and enforced in accordance with the domestic laws of the State of California, without giving effect to any choice or conflict of law provision or rule (whether in the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California. In furtherance of the foregoing, the internal law of the State of California will control the interpretation and construction of this Agreement, ever if under such jurisdiction's choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. 14 27. NOTICES All notices, claims, certificates, requests, demands and other communications to be given in connection with this Plan or any Option Agreement shall be in writing and shall be deemed to have been duly given and delivered if personally delivered or if sent by nationally-recognized overnight courier, by telecopy, or by registered or certified mail, return receipt requested and postage prepaid, addressed as follows: (i) if to the Company, to it: Details, Inc. 1231 Simon Circle Anaheim, California 92806 Attention: Chairman of the Board Telecopier: (714) 630-6933 Telephone: (714) 630-4077 with a copy to: O'Sullivan Graev & Karabell, LLP 30 Rockefeller Plaza New York, New York 10112 Attention: John J. Suydam, Esq. Telecopier: (212) 408-2420 Telephone: (212) 408-2400; (ii) if to an Optionee, to him at his address last appearing in the records of the Company; or to such other address as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith. Any such notice or communication shall be deemed to have been received (i) in the case of personal delivery, on the date of such delivery (or if such date is not a business day, on the next business after the date sent), (ii) in the case of nationally-recognized overnight courier, on the next business day after the date sent, (iii) in the case of telecopy transmission, when received (or if not sent on a business day, on the next business day after the date sent), and (iv) in the case of mailing, on the third business day following that on which the piece of mail containing such communication is posted. As adopted by the Board of Directors of Details, Inc., on December 31, 1996. 15 EX-10.7 12 1996 PERFORMANCE STOCK OPTION PLAN DETAILS, INC. 1996 Performance Stock Option Plan ---------------------------------- 1. PURPOSE OF THE PLAN The purpose of the DETAILS, INC., 1996 PERFORMANCE STOCK OPTION PLAN (the "Plan") is (i) to further the growth and success of DETAILS, INC., a California corporation (the "Company"), and its Subsidiaries (as hereinafter defined) by enabling employees of the Company and its Subsidiaries to acquire shares of Common Stock, no par value (the "Common Stock"), of the Company, thereby increasing their personal interest in such growth and success, and (ii) to provide a means of rewarding outstanding performance by such persons to the Company and/or its Subsidiaries. Options granted under the Plan may be either "incentive stock options" ("ISOs"), intended to qualify as such under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), or non-qualified stock options ("NSOs"). In this Plan, the terms "Parent" and "Subsidiary" mean "Parent Corporation" and "Subsidiary Corporation," respectively, as such terms are defined in Sections 424(e) and (f) of the Code. Unless the context otherwise requires, any ISO or NSO is referred to in this Plan as an "Option." 2. DEFINITIONS As used in the Plan, the following capitalized terms have the meanings set forth below: "Acquisition" shall mean the purchase by the Company or any Subsidiary of all or a substantial portion of the assets or stock of another Person, whether by means of an asset acquisition, stock purchase, merger or otherwise. "Affiliate" means, with respect to any Person, (i) a director or executive officer of such Person, (ii) a spouse, parent, sibling or descendant of such Person (or a spouse, parent, sibling or descendant of any director or executive officer of such Person), and (iii) any other Person that, directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with such Person. For the purpose of the above definition, the term "control" (including, with correlative meaning, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Asset Sale" means a sale or other disposition of all or substantially all of the assets of the Company and its Subsidiaries on a consolidated basis and shall include the sale of all or substantially all of the capital stock of Details. ""Board" has the meaning given to it in Section 3(a). "Closing Price" means, as of the date preceding the date of calculation, the average closing sales price of shares of Common Stock of the Company on the twenty (20) business days immediately preceding the time of such determination, as reported by NASDAQ or the national securities exchange on which such shares are traded. "Code" has the meaning given to it in Section 1. "Committee" has the meaning given to it in Section 3(a). "Company" has the meaning given to it Section 1. "Tranche II Cumulative EBITDA Target," with respect to any Scheduled Vesting Date, means the amount set forth on Annex I under the heading "Tranche II Cumulative EBITDA Target." "EBITDA" means the earnings of the Company and its consolidated subsidiaries before interest expense, provision for income taxes, depreciation and amortization. EBITDA shall be computed based upon the Company's audited consolidated financial statements for the relevant fiscal period. "Effective Date" has the meaning given to it in Section 13 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Implied Value" of the Investor Shares means the value of the Investor Shares calculated as the product of (i) the total number of Investor Shares at the time of such determination times (ii) the Closing Price. "Initial Public Offering" means the initial public offering of Common Stock of the Company pursuant to a registration statement declared effective under the Securities Act, other than an offering made in connection with a business acquisition or an employee benefit plan. -2- "Investor Shares" means, collectively, the 5,357.3 shares of Series A Preferred issued by the Company to the Original Investor on the Original Issuance Date. "Investors" shall mean, at any time, the holders of the Investor Shares. "IRR" means, with respect to the Investor Shares at the time of a Liquidity Event, the pre-tax, compounded annual internal rate of return realized thereon, calculated on a pro forma basis after giving effect to the vesting, if --- ----- any, of the Reserved Shares that vest (and become Vested Shares) pursuant to Sections 7 and 7A and the exercise of Options to purchase such Vested Shares (including any Reserved Shares vesting in connection with an event for which the IRR is being calculated), assuming all Investor Shares were purchased by one Person on the Original Issuance Date at a price equal to the Original Purchase Price and all such Investor Shares were held continuously by such Person from the Original Issuance Date through the date of such Liquidity Event. In calculating such IRR, there shall be included as a return on the Investor Shares any cash dividends or distributions made by the Company on or with respect to the Investor Shares during such period. "ISOs" has the meaning given to it in Section 1. "Joinder Agreement" has the meaning given to it in the Stockholders Agreement. "Liquidity Event" means the consummation of an Asset Sale or a Stock Sale or the occurrence of a Public Float Event. "Net Proceeds" means the proceeds received, or to be received, by the holders of the Investor Shares on or in consideration for such shares in connection with an Asset Sale or Stock Sale, net of all expenses incurred by the Investors in connection therewith that are allocable to such shares other than taxes payable by the Investors in respect of any income or gain recognized on receipt of such net proceeds. "NSOs" has the meaning given to it in Section 1. "Option" has the meaning given to it in Section 1. "Option Agreement" has the meaning given to it in Section 5(b). "Optionee" has the meaning given to it in Section 5(a). -3- "Original Investors" means, collectively, Chase Manhattan Capital Corporation and its Affiliates (including Baseball Partners, a New York general partnership). "Original Issuance Date" means January 31, 1996. "Original Purchase Price" means, with respect to each share of Series A Preferred, $2,178.65. "Parent" has the meaning given to it in Section 1. "Person" shall be construed broadly and shall include an individual, a partnership, a corporation, an association, a joint stock company, a limited liability company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof. "Plan" has the meaning given to it in Section 1. "Preferred Stock" has the meaning given to it in Section 1. "Public Float Event" means that time, occurring after the first anniversary of the consummation of an Initial Public Offering, when the Value of the Unrestricted Shares equals or exceeds $75 million. "Reserved Shares" means, collectively, the Tranche I Reserved Shares and the Tranche II Reserved Shares. "Rule 16b-3" has the meaning given to it in Section 3(a). "Scheduled Vesting Date" means May 1 of each of 1997, 1998, 1999, 2000 and 2001. "SEC" has the meaning given to it in Section 3(a). "Securities Act" means the Securities Act of 1933, as amended. "Series A Preferred" means the Series A Preferred Sock, no par value, of the Company. "Stockholders Agreement" means the Stockholders Agreement as of January 31, 1996, and as hereafter amended from time to time, among the Company and the stockholders of the Company named therein. "Stock Sale" means a sale or other disposition of all or substantially all of the outstanding capital stock of the Company, whether by way of merger or otherwise. -4- "Subsidiary" has the meaning given to it in Section 1. "Target IRR," with respect to any Liquidity Event, means an IRR of 30%. "Termination Date" means the earlier to occur of a Liquidity Event or the tenth anniversary of the Effective Date. "Termination of Relationship" means if the Optionee is an employee of or consultant to the Company or any Subsidiary, the termination of the Optionee's employment (in the case of an Optionee who is an employee) or consulting relationship (in the case of an Optionee who is a consultant) with the Company or its Subsidiaries for any reason. "Tranche II Cumulative EBITDA" means, with respect to any fiscal year of the Company set forth on Annex I, the EBITDA of the Company and its consolidated subsidiaries for the period commencing on January 1, 1996, and ending on the last day of such fiscal year (with such period being treated as one accounting period for such purposes). "Tranche I EBITDA Target" means, with respect to any Scheduled Vesting Date or fiscal year of the Company set forth on Annex I, the amount set forth on Annex I opposite such Scheduled Vesting Date or fiscal year under the heading "Tranche I EBITDA Target." "Tranche II EBITDA Target" means, with respect to any Scheduled Vesting Date or fiscal year of the Company set forth on Annex I, the amount set forth on Annex I opposite such Scheduled Vesting Date or fiscal year under the heading "Tranche II EBITDA Target." "Tranche I Option" means an Option to purchase Tranche I Vested Shares. "Tranche II Option" means an Option to purchase Tranche II Vested Shares. "Tranche I Reserved Shares" means, at any time, an aggregate of 880 shares of Common Stock. "Tranche II Reserved Shares" means, at any time, an aggregate of 929 shares of Common Stock. "Tranche I Vested Shares" means the Tranche I Reserved Shares, if any, that vest in accordance with Section 7 of this Plan. -5- "Tranche II Vested Shares" means the Tranche II Reserved Shares, if any, that vest in accordance with Section 7A of this Plan. "Transfer" means, with respect to any Shares, to sell, or in any other way transfer, assign, pledge, distribute, encumber or otherwise dispose of (including, without limitation, the foreclosure or other acquisition by any lender with respect to any shares pledged to such lender by an Optionee), such shares, either voluntarily or involuntarily and with or without consideration. "Value of Unrestricted Shares," at any time after the first anniversary of the consummation of an Initial Public Offering, means the product of (i) the total number of shares of Common Stock of the Company outstanding at such time that are not restricted securities within the meaning of Rule 144 under the Securities Act, times (ii) the Closing Price. "Vested Shares" means, collectively, the Tranche I Vested Shares and the Tranche II Vested Shares, if any. 3. ADMINISTRATION OF THE PLAN (a) Stock Option Committee ---------------------- The Plan shall be administered by the Board of Directors of the Company (the "Board") or a three-person stock option committee (the "Committee") appointed from time to time by the Board, which Committee shall have the power and authority to grant Options under the Plan; provided, however, that, so long -------- ------- as it shall be required to comply with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and Exchange Commission (the "SEC")under the Exchange Act in order to permit officers and directors of the Company to be exempt from the provisions of Section 16(b) of the Exchange Act with respect to transactions effected pursuant to the Plan, each of such persons, at the effective date of his or her appointment to the Committee, shall be a "disinterested person" within the meaning of Rule 16b-3. The members of the Committee may be removed by the Board at any time either with or without cause. Any vacancy on the Committee, whether due to action of the Board or any other cause, shall be filled by the Board. The term "Committee" shall, for all purposes of the Plan other than this Section, be deemed to refer to the Board if the Board is administering the Plan. (b) Procedures ---------- If the Plan is administered by a Committee, the Board shall from time to time select a Chairman from among the members of the Committee. The Committee shall adopt such rules and regulations as it shall deem appropriate concerning the holding of meetings and the administration of the Plan. A majority of -6- the entire Committee shall constitute a quorum and the actions of a majority of the members of the Committee present at a meeting at which a quorum is present, or actions approved in writing by all of the members of the Committee, shall be the actions of the Committee. (c) Interpretation -------------- Except as otherwise expressly provided in the Plan, the Committee shall have all powers with respect to the administration of the Plan, including without limitation, full power and authority to interpret the provisions of the Plan and any Option Agreement (as defined in Section 5 (b)) and to resolve all questions arising under the Plan. All decisions of the Board or the Committee, as the case may be, shall be conclusive and binding on all participants in the Plan. 4. ELIGIBILITY (a) General ------- Options may be granted under the Plan only to persons who are employees of, or consultants to, the Company or any of its Subsidiaries. Options granted to employees of, or consultants to, the Company or any of its Subsidiaries shall be, in the discretion of the Committee, either ISOs or NSOs. (b) Exceptions ---------- Notwithstanding anything contained in Section 4(a) to the contrary: (i) no ISO may be granted under the Plan to an employee who owns, directly or indirectly (within the meaning of Sections 422(b) (6) and 425(d) of the Code), stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or of its Parent, if any, or any of its Subsidiaries, unless (A) the Option Price (as defined in Section 6(a) of the shares of Common Stock subject to such ISO is fixed at not less than 110% of the Fair Market Value on the date of grant (as determined in accordance with Section 6(b)) of such shares and (B) such ISO by its terms is not exercisable after the expiration of five years from the date it is granted; (ii) no Option may be granted to (A) a person who has been appointed pursuant to Section 3(a) to serve on the Committee effective as of a future date at any time during the period from the date such appointment is made to the date such appointment is to become effective or (B) to a person who is serving as a member of the Committee; and -7- (iii) no Options may be granted to any Person in any one taxable year of the Company in excess of 33% of the total Options issued or issuable under the Plan. 5. GRANT OF OPTIONS (a) General ------- Options may be granted under the Plan at any time and from time to time on or prior to the Termination Date. Subject to the provisions of the Plan, the Committee shall have plenary authority, in its sole discretion, to determine: (i) the persons (from among the class of persons eligible to receive Options under the Plan) to whom Options shall be granted (the "Optionees"); (ii) the time or times at which Options shall be granted; (iii) the percentage of the Vested Shares subject to each Option; and (iv) the Option Price of the shares subject to each Option, which price, in the case of ISOs, shall be not less than the minimum specified in Section 4(b) (i) or Section 6(a) (as applicable). (b) Option Agreements ----------------- Each Option granted under the Plan shall be designated as an ISO or an NSO and shall be subject to the terms and conditions applicable to ISOs and/or NSOs (as the case may be) set forth in the Plan. Each Option shall specify the percentage of the Tranche I Vested Shares and/or Tranche II Vested Shares for which such Option shall be exercisable and the exercise price for each such Vested Share. In addition, each Option shall be evidenced by a written agreement (an "Option Agreement"), in substantially the form of Exhibit A for an --------- ISO and Exhibit B for an NSO, with such changes thereto as are consistent with --------- the Plan as the Committee shall deem appropriate. Each Option Agreement shall be executed by the Company and the Optionee. (c) No Evidence of Employment or Service ------------------------------------ Nothing contained in the Plan or in any Option Agreement shall confer upon any Optionee any right with respect to the continuation of his or her employment by or service with the Company or any of its Subsidiaries or interfere in any way with the right of the Company or any such Subsidiary (subject to the terms of any separate agreement to the contrary) at any time to terminate such employment or service or to increase or decrease the compensation of the Optionee from the rate in existence at the time of the grant of an Option. -8- (d) Date of Grant ------------- The date of grant of an Option under this Plan shall be the date as of which the Committee approves the grant; provided, however, that in the case of -------- ------- an ISO, the date of grant shall in no event be earlier than the date as of which the Optionee becomes an employee of the Company or one of its Subsidiaries. (e) Shares ------ Options shall be granted to purchase a specified percentage of the Tranche I Reserved Shares and/or Tranche II Reserved Shares that become Tranche I Reserved Shares and/or Tranche II Vested Shares, respectively. All Options shall be exercisable for Common Stock. 6. OPTION PRICE (a) General ------- The price (the "Option Price") at which each Vested Share may be purchased shall be determined by the Committee at the time the Option is granted; provided, however, that in the case of an ISO, such Option Price shall -------- ------- in no event be less than 100% (or 110% if Section 4(b) (i) hereof is applicable) of the Fair Market Value on the date of grant (as determined in accordance with Section 6(b)) of such share of Common Stock. (b) Determination of Fair Market Value ---------------------------------- Subject to the requirements of Section 422 of the Code, for purposes of the Plan, the "Fair Market Value" of shares of the Common Stock shall be equal to: (i) if the Common Stock is publicly traded, (x) the closing price, if any trades were made on the business day immediately preceding the date of grant and such information is available, otherwise the average of the last bid and asked prices on the business day immediately preceding the date of grant, in the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotations System ("NASDAQ") or (y) if the Common Stock is then traded on a national securities exchange, the closing price, if any trades were made and such information is available, otherwise the average of the high and low prices on the business day immediately preceding the date of grant, on the principal national securities exchange on which it is so traded; or (ii) if there is no public trading market for such shares, the fair value of such shares on the date of grant as determined by the Committee after taking into consideration all factors that it deems -9- appropriate, including, without limitation, recent sale and offer prices of the Common Stock in private transactions negotiated at arms' length. Anything contained in the Plan to the contrary notwithstanding, all determinations pursuant to Section 6(b)(ii) shall be made without regard to any restriction other than a restriction that, by its terms, will never lapse. (c) Repricing of NSOs ----------------- Subsequent to the date of grant of any NSO, the Committee may, at its discretion and with the consent of the Optionee, establish a new Option Price for such NSO so as to increase or decrease the Option Price of such NSO. 7. VESTING OF TRANCHE I RESERVED SHARES (a) General. Unless accelerated in the sole discretion of the ------- Committee, each Tranche I Option granted pursuant to the Plan shall be exercisable for a specified percentage of the Tranche I Reserved Shares that vest in accordance with this Section 7. (b) Annual Performance. If the Company's EBITDA for any fiscal year ------------------ set forth on Annex I with respect to Tranche I Options equals or exceeds the Tranche I EBITDA Target for such fiscal year set forth on Annex I, then on the next Scheduled Vesting Date following such fiscal year that number of Tranche I Reserved Shares set forth opposite such Scheduled Vesting Date under the heading "Vested Shares" shall vest. Subject to Section 7(c), if the Company fails to meet the Tranche I EBITDA Target for any fiscal year set forth on Annex I, then the Tranche I Reserved Shares that would have otherwise vested on the next Scheduled Vesting Date following such fiscal year shall cease to be Reserved Shares under the Plan and shall no longer be subject to Options granted under the Plan. If the Company makes any capital expenditures not contemplated by the --------------------------------------------------------------------- projections upon which the Tranche I EBITDA Targets are based, or consummates - ---------------- -------------- any Acquisition or other extraordinary transaction, the Board of Directors will - ------------------------------------------------------------------------------- determine in good faith appropriate adjustments to the Tranche I EBITDA Targets - ----------------------------------------------- and will give the Optionee notice of such adjustments, along with a brief summary of the calculations upon which such adjustments were based. (c) Liquidity Event. If a Liquidity Event occurs at anytime on or --------------- prior to December 31, 2000, then upon the occurrence of such Liquidity Event or as promptly thereafter as practical, the Committee shall determine in good faith the IRR on the Investor Shares in accordance with generally accepted financial practices and in accordance with the following; (i) if the Liquidity Event is a Public Float Event, then the IRR on the Investor Shares shall be determined on -10- the basis of the Implied Value of the Investor Shares at the time of such Public Float Event; (ii) if the Liquidity Event is an Asset Sale, then the IRR on the Investor Shares shall be determined on the basis of the pro forma Net --- ----- Proceeds that would be distributed to the holders of the Investor Shares, after payment or provision of all liabilities of the Company and its Subsidiaries has been made, if the Company was liquidated immediately following the occurrence of such Asset Sale; and (iii) if the Liquidity Event is a Stock Sale, then the IRR on the Investor Shares shall be determined on the basis of the Net Proceeds actually received by the holders of the Investor Shares in such Stock Sale. If the IRR on the Investor Shares with respect to a Liquidity Event occurring on or prior to December 31, 2000, equals or exceeds the Target IRR, all of the remaining Tranche I Reserved Shares that were eligible to vest after such Liquidity Event shall vest upon the occurrence or consummation of such Liquidity Event. If the IRR on the Investor Shares with respect to a Liquidity Event occurring on or prior to December 31, 2000, is less than the Target IRR, the remaining Tranche I Reserved Shares that have not theretofore vested shall cease to be Reserved Shares under the Plan and shall no longer be subject to Options granted under the Plan. All decisions by the Committee with respect to any determination of the IRR shall be final and binding on all Optionees. 7A. VESTING OF TRANCHE II RESERVED SHARES (a) General. Unless accelerated in the sole discretion of the ------- Committee, each Tranche II Option granted pursuant to the Plan shall be exercisable for a specified percentage of the Tranche II Reserved Shares that vest in accordance with this Section 7A. (b) Annual Performance. (i) If the Company's EBITDA for any ------------------ fiscal year set forth on Annex I with respect to Tranche II Options equals or exceeds the Tranche II EBITDA Target for such fiscal year set forth on Annex I, then on the next Scheduled Vesting Date following such fiscal year that number of Tranche II Reserved Shares set forth opposite such Scheduled Vesting Date under the heading "Vested Shares" shall vest. Subject to Section 7A(b) (ii), if the Company fails to meet the Tranche II EBITDA Target for any fiscal year set forth on Annex I, then the Tranche II Reserved Shares that would have otherwise vested on the next Scheduled Vesting Date following such fiscal year (the "Terminated Portion") shall cease to be Reserved Shares under the Plan and shall no longer be subject to Options granted under the Plan. -11- (ii) Anything contained in Section 7A(b)(i) to the contrary notwithstanding, if, with respect to any fiscal year set forth on Annex I (other than the fiscal year ending December 31, 1996), the Company's EBITDA for such fiscal year is equal to or greater than the Tranche II EBITDA Target for such fiscal year set forth on Annex I or the Company's Cumulative EBITDA for such fiscal year is equal to or greater than the Tranche II Cumulative EBITDA Target for such fiscal year set forth on Annex I, then the Terminated Portion or Portions of the Tranche II Reserved Shares shall vest on the Scheduled Vesting Date following such fiscal year together with the portion of the Tranche II Reserved Shares scheduled to vest on such Scheduled Vesting Date. (iii) If the Company makes any capital expenditures not contemplated by the projections upon which the Tranche II EBITDA Targets and Tranche II Cumulative EBITDA Targets are based, or consummates any Acquisition or other extraordinary transaction, the Board of Directors will determine in good faith appropriate adjustments to the Tranche II EBITDA Targets and Tranche II Cumulative EBITDA Targets and will give the Optionees notice of such adjustments, along with a brief summary of the calculations upon which such adjustments were based. (c) Liquidity Event. If an Asset Sale or a Stock Sale occurs at any --------------- time on or prior to December 31, 2000, then upon such event or as promptly as practicable thereafter, the Committee shall determine in good faith the IRR on the Investor Shares in accordance with Section 7(c) of this Plan. If the IRR on the Investor Shares with respect to such Asset Sale or Stock Sale occurring on ------------------------------------------ or prior to December 31, 2000 equals or exceeds the Target IRR, all of the - -------------------------------------------------------------------------- remaining Tranche II Reserves Shares that were eligible to vest after such Asset - -------------------------------------------------------------------------------- Sale or Stock Sale shall vest upon the occurrence or consummation of such event. - ------------------------------------------------------------------------------- If the IRR on the Investor Shares with respect to such Asset Sale or Stock Sale occurring on or prior to December 31, 2000 is less than the Target IRR, the remaining Tranche II Reserved Shares that have not theretofore vested shall cease to be Reserved Shares under the Plan and shall no longer be subject to Options granted under the Plan. All decisions by the Committee with respect to any determination of the IRR shall be final and binding on all Optionees. 8. TERMINATION OF OPTION (a) Each Option granted under the Plan shall automatically terminate and shall become null and void and be of no further force or effect upon the first to occur of the following: (i) (A) in the case of an ISO, the tenth anniversary of the date on which such Option is granted or, in the case of any ISO granted to a person described in Section 5(b)(i), the fifth anniversary of the date on which such ISO is granted, and (B) in the -12- case of a NSO, the tenth anniversary of the date on which such Option is granted; (ii) the expiration of 90 days from the effective date of a Termination of Relationship (other than as a result of an Involuntary Termination (as defined in clause (iii) below)) or a Termination For Cause (as defined in clause (iv) below); provided, however, that if the Optionee -------- ------- shall die during such 90-day period, the time of termination of the unexercised portion of such Option shall be the expiration of 12 months from such effective date; (iii) the expiration of 12 months after the effective date of a Termination of Relationship, if such termination is due to such Optionee's death or permanent and total disability, within the meaning of Section 22(e)(3) of the Code (as "Involuntary Termination"); (iv) immediately upon a Termination of Relationship, if such termination is for cause, as determined in accordance with the provisions of an employment agreement between the Optionee and the Company (provided that cause shall not be deemed to include the death or disability of Optionee), or if no such agreement exists, as determined by the Committee in good faith, or is otherwise attributable to a breach by the Optionee of an employment or other agreement with the Company or any of its Subsidiaries (a "Termination For Cause"); (v) the expiration of such period of time or the occurrence of such event as the Committee, in its discretion, may provide in the Option Agreement governing such Option; and (vi) simultaneously with the consummation of an Asset Sale or Stock Sale if at such time a payment is made to each Optionee in an amount, if any, equal to the consideration that would have been received by such Optionee in such transaction if such Optionee had exercised his Option for all Vested shares (including any shares which would become Vested Shares upon consummation of such transaction) immediately prior thereto, less the aggregate exercise price of such Vested Shares. (b) The Committee shall have the power to determine what constitutes a Termination For Cause for Purposes of the Plan, and the date upon which such Termination For Cause shall occur. All such determinations shall be final and conclusive and binding upon the Optionee. -13- 9. LIMITATIONS ON ISOs; NOTICE TO OPTIONEES GRANTED ISOs In accordance with Section 422(d) of the Code, the aggregate Fair Market Value determined on the applicable date of grant of all stock with respect to which incentive stock options are exercisable for the first time by such Optionee during any calendar year (under all plans of the Company and its subsidiaries) cannot exceed $100,000, and thus any options granted to acquire such stock with an aggregate Fair Market Value determined on the applicable date of grant in excess of $100,000 shall be treated as NSOs. Under certain circumstances, the exercise of an ISO may disqualify the holder from recovering the favorable tax benefits ISOs offer. For example, ISO tax treatment is currently not available if (i) an ISO is exercised within one year of its date of grant or (ii) if the shares issuable upon exercise of an ISO are sold within two years of the grant date of such ISO. Therefore, the Company recommends that each Optionee holding an ISO consult with a competent tax advisor before taking any action with respect to his ISOs. 10. PROCEDURE FOR EXERCISE (a) Payment ------- At the time an Option is granted under the Plan, the Committee shall, in its discretion, specify one or more of the following forms of payment that may be used by an Optionee upon exercise of his Option: (i) cash or personal or certified check payable to the Company in an amount equal to the aggregate Option Price of the shares with respect to which the Option is being exercised; (ii) stock certificates (in negotiable form) representing shares of Common Stock having a Fair Market Value on the date of exercise (as determined in accordance with Section 6(b), with all references therein to the "date of exercise" equal to the aggregate Option Price of the shares with respect to which the Option is being exercised; (iii) Options to purchase Vested Shares, valued for such purposes at the Fair Market Value per share of Common Stock on the date of exercise (as determined in accordance with Section 6(b), with all references therein to the "date of grant" meaning the "date of exercise", net of the exercise price for each such share; or -14- (iv) a combination of the methods set forth in clauses (i), (ii) and (iii). (b) Notice ------ An Optionee (or other person, as provided in Section 12(b)) may exercise an Option (for Vested Shares represented thereby) granted under the Plan in whole or in part (but for the purchase of whole shares only), as provided in the Option Agreement evidencing his Option, by delivering a written notice (the "Notice") to the Secretary of the Company. The Notice shall state: (i) that the Optionee elects to exercise the Option; (ii) the number of Vested Shares with respect to which the Option is being exercised (the "Optioned Shares"); (iii) any representations of the Optionee required by the Plan or Option Agreement; (iv) the method of payment for the Optioned Shares (which method must be available to the Optionee under the terms of his Option Agreement); (v) the date upon which the Optionee desires to consummate the purchase (which date must be prior to the termination of such Option); (vi) a copy of any election filed by the Optionee pursuant to Section 83(b) of the Code; and (vii) such further provisions consistent with the Plan as the Committee may from time to time require. The exercise date of an Option shall be the date on which the Company receives the Notice from the Optionee. Such Notice shall also contain, to the extent such Optionee is not then a party to the Stockholders Agreement, a Joinder Agreement. (c) Issuance of Certificates ------------------------ The Company shall issue a stock certificate in the name of the Optionee (or such other person exercising the Option in accordance with the provisions of Section 12(b)) for the Optioned Shares as soon as practicable after receipt of the Notice and payment of the aggregate Option Price for such shares. Neither the Optionee nor any person exercising an Option in accordance with the provisions of Section 12(b) shall have any privileges as a stockholder of the Company with respect to any shares of stock subject to an Option granted under the Plan until the date of issuance of a stock certificate pursuant to this Section 10(c). -15- 11. ADJUSTMENTS (a) Changes in Capital Structure ---------------------------- If the Common Stock is changed by reason of a stock split, reverse stock split, stock dividend or recapitalization, or converted into or exchanged for other securities as a result of a merger, consolidation or reorganization, the Committee shall make such adjustments in the number and class of shares of stock available under the Plan as shall be equitable and appropriate. A corresponding adjustment changing the number and class of shares allocated to, and the Option Price of, each Option or portion thereof outstanding at the time of such change shall likewise be made. Anything contained in the Plan to the contrary likewise be made. Anything contained in the Plan to the contrary notwithstanding, in the case of ISOs, no adjustment under this Section II(a) shall be appropriate if such adjustment (i) would constitute a modification, extension or renewal of such ISOs within the meaning of Sections 422 and 425 of the Code, and the regulations promulgated by the Treasury Department thereunder, or (ii) would, under Section 422 of the Code and the regulations promulgated by the Treasury Department thereunder, be considered as the adoption of a new plan requiring stockholder approval. (b) Special Rules ------------- The following rules shall apply in connection with Section 11(a) above: (i) no fractional shares shall be issued as a result of any such adjustment, and any fractional shares resulting from the computations pursuant to Section 12(a) shall be eliminated without consideration from the respective Options; (ii) no adjustment shall be made for cash dividends or the issuance to stockholders of rights to subscribe for additional shares of Common Stock or other securities; and (iii) any adjustments referred to in Section 11(a) shall be made by the Board in its sole discretion and shall be conclusive and binding on all persons holding any Options granted under the Plan. 12. RESTRICTIONS ON OPTIONS AND OPTIONED SHARES (a) Compliance With Securities Laws ------------------------------- No Options shall be granted under the Plan, and no shares of Common Stock shall be issued and delivered upon the exercise of Options granted under the Plan, unless and until the Company and/or the Optionee shall have complied with all applicable federal or state registration, listing and/or -16- qualification requirements and all other requirements of law or of any regulatory agencies having jurisdiction. The Company in its discretion may, as a condition to the exercise of any Option granted under the Plan, require an Optionee (i) to represent in writing that the shares of Common Stock received upon exercise of an Option are being acquired for investment and not with a view to distribution and (ii) to make such other representations and warranties as are deemed appropriate by the Company. Stock certificates representing shares of Common Stock acquired upon the exercise of Options that have not been registered under the Securities Act shall, if required by the Board, bear the following legend and such additional legends as may be required by the Option Agreement evidencing a particular Option: "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL TO THE ISSUER HEREOF THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT." (b) Nonassignability of Option Rights --------------------------------- No Option granted under this Plan shall be assignable or otherwise transferable by the Optionee except by will or by the laws of descent and distribution. An Option may be exercised during the lifetime of the Optionee only by the Optionee. If an Optionee dies, his or her Option shall thereafter be exercisable, during the period specified in Section 8(a)(i) or (ii) (as the case may be), by his or her executors or administrators to the full extent to which such Option was exercisable by the Optionee at the time of his or her death. Before issuing any Options to any Person who is not already a party to the Stockholders Agreement, the Company shall obtain a duly executed Joinder Agreement (as defined in the Stockholders Agreement) from such person. 13. EFFECTIVE DATE OF PLAN This Plan shall become effective on the date (the "Effective Date") of its adoption by the Board; provided, however, that no Option shall be exercisable by an Optionee unless and until the Plan shall have been approved by the stockholders of the Company in accordance with the provisions of its Articles of Incorporation and By-laws, which approval shall be obtained by a simple majority of the votes that may be cast by the stockholders, voting either in person or by proxy, at a duly held stockholders' meeting, or by written consent in lieu of -17- meeting, within 12 months before or after the adoption of the Plan by the Board. 14. TERMINATION OF THE PLAN No Options may be granted after (i) the tenth anniversary of the date on which the Plan is approved by the stockholders of the Company and (ii) the date as of which the Committee, in its sole discretion, determines that the Plan shall terminate (the "Expiration Date"). Any Option outstanding as of the Expiration Date shall remain in effect until they have been exercised or terminated or have expired by their respective terms. 15. AMENDMENT OF PLAN The Committee may, at any time prior to the Expiration Date and with the consent of the Board, modify and amend the Plan in any respect; provided, -------- however, that the approval of the holders of a majority of the votes that may be - ------- cast by all of the of shares of capital stock of the Company, entitled to vote (voting as a single class) shall be obtained prior to any such amendment becoming effective if such approval is required by law or is necessary to comply with regulations promulgated by the SEC under Section 16(b) of the Exchange Act or with Section 422 of the Code or the regulations promulgated by the Treasury Department thereunder. 16. CAPTIONS The use of captions in this Plan is for convenience. The captions are not intended to provide substantive rights. 17. DISQUALIFYING DISPOSITIONS If Optioned Shares acquired by exercise of an ISO granted under this Plan are disposed of within two years following the date of grant of the ISO or one year following the issuance of the Optioned Shares to the Optionee (a "Disqualifying Disposition"), the holder of the Optioned Shares shall, immediately prior to such Disqualifying Disposition, notify the Company in writing of the date and terms of such Disqualifying Disposition and provide such other information regarding the Disqualifying Disposition as the Company may reasonably require. 18. WITHHOLDING TAXES Whenever under the Plan shares of Common Stock are to be delivered by an Optionee upon exercise of an NSO, the Company shall be entitled to require as a condition of delivery that the -18- Optionee remit or, in appropriate cases, agree to remit when due, an amount sufficient to satisfy all current or estimated future federal, state and local withholding tax and employment tax requirements relating thereto in the event that such remittance is required to allow the Company to receive a deduction in connection with the delivery of such Common Stock or to the extent the Company is unable to satisfy its withholding obligations out of other amounts due from the Company to the Optionee. At the time of a Disqualifying Disposition, the Optionee shall remit to the Company in cash the amount of any applicable federal, state and local withholding taxes and employment taxes. 19. OTHER PROVISIONS Each Option granted under the Plan may contain such other terms and conditions not inconsistent with the Plan as may be determined by the Committee, in its sole discretion. Notwithstanding the foregoing, each ISO granted under the Plan shall include those terms and conditions that are necessary to qualify the ISO as an "incentive stock option" within the meaning of Section 422 of the Code and the regulations thereunder and shall not include any terms or conditions that are inconsistent therewith. 20. NUMBER AND GENDER With respect to words used in this Plan, the singular form shall include the plural form, the masculine gender shall include the feminine gender, and vice-versa, as the context requires. 21. GOVERNING LAW All questions concerning the construction, interpretation and validity of this Plan and the instruments evidencing the Options granted hereunder shall be governed by and construed and enforced in accordance with the domestic laws of the State of California, without giving effect to any choice or conflict of law provisions or rule (whether in the State of California or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of California. In furtherance of the foregoing, the internal law of the State of California will control the interpretation and construction of this Agreement, even if under such jurisdiction's choice of law or conflict of law analysis, the substantive law of some other jurisdiction would ordinarily apply. As adopted by the Board of Directors of DETAILS, INC., on January 31, 1996. -19- ANNEX I Performance Targets ------------------- Tranche I Options ----------------- ================================================================================
Tranche I Scheduled Vesting EBITDA FYE Date Target Vested Shares - -------------------------------------------------------------------------------- 12/31/96 5/1/97 $29,900,000 176 - -------------------------------------------------------------------------------- 12/31/97 5/1/98 $31,900,000 176 - -------------------------------------------------------------------------------- 12/31/98 5/1/99 $36,545,000 176 - -------------------------------------------------------------------------------- 12/31/99 5/1/00 $41,845,000 176 - -------------------------------------------------------------------------------- 12/31/00 5/1/01 $45,991,688 176 ================================================================================
Tranche II Options ------------------ ================================================================================
Tranche II Tranche II Scheduled EBITDA Vested Cumulative FYE Vesting Date Target Shares EBITDA Target - -------------------------------------------------------------------------------- 12/31/96 5/1/97 $33,200,000 185 -- - -------------------------------------------------------------------------------- 12/31/97 5/1/98 $34,900,000 186 -- - -------------------------------------------------------------------------------- 12/31/98 5/1/99 $39,745,000 186 -- - -------------------------------------------------------------------------------- 12/31/99 5/1/00 $45,245,000 186 -- - -------------------------------------------------------------------------------- 12/31/00 5/1/01 $50,291,688 186 -- ================================================================================
-20- EX-10.8 13 REAL PROPERTY MASTER LEASE AGREEMENT REAL PROPERTY MASTER LEASE AGREEMENT This Master Lease Agreement is made as of the 1st day of January, 1996 between JAMES I. SWENSON and SUSAN G. SWENSON, AS TRUSTEES OF THE SWENSON FAMILY TRUST ("LESSOR") and DETAILS, INC. ("LESSEE") with respect to the following recitals of fact: R E C I T A L S A. LESSOR is the owner of the following improved parcels of property in the city of Anaheim, with industrial buildings thereon with the square footages listed below which have been leased to LESSEE:
PARCEL ADDRESS RENTABLE LEASE DESIGNATION SQUARE FOOTAGE DATE 1 1205 Lance Lane 5,500 8/1/94 2 1290 Lance Lane 6,740 8/1/94 3 1270 Lance Lane 3,530 1/12/92 4 1260 Lance Lane 6,260 12/15/93 5 1240 Lance Lane 5,000 8/1/92 6 1220 Lance Lane 5,000 8/1/94 7 1200 Lance Lane 4,500 * 8 3021 East Coronado 4,512 2/1/95 9 1211 Simon Circle 5,264 2/5/93 10 1221 Simon Circle 5,264 10/1/92 11 1231 Simon Circle 4,960 6/1/92 12 1241/51 Simon Circle 10,000 None
* Acquisition by LESSOR is contemplated. B. The aggregate square footage of the buildings set forth in the foregoing recital to be immediately lease to LESSEE hereunder is 62,030 (Parcels 1-6, 8-12). The average monthly lease rate as of October 1, 1995 on leases in effect with respect to Parcels 1-6 and 8-11 was $1.04 per square foot. The parties desire that such rate be applicable at the commencement of the term hereof. Thus, the initial monthly base rent will aggregate $64,511.20. C. The parties desire by this Master Lease Agreement to consolidate the various leases, to provide for a single rental rate, to provide for common lease terms and to provide for the leasing of Parcel 7, when and if acquired by LESSOR. NOW THEREFORE, in consideration of the mutual covenants and conditions hereof, the parties agree as follows: 1. ADOPTION OF LEASE TERMS. Except as modified herein, all provisions of the American Industrial Real Estate Association Standard Industrial/ Commercial Single-Tenant Lease -- NET, form 204N-R-12/91, used in connection with most of the leases described above, a copy of which is attached hereto as Exhibit A, are incorporated herein and made a part of this Master Lease Agreement. All leases described above (collectively "Terminated Leases") are hereby superseded by this Master Lease Agreement. In the event of a conflict between the provisions of Exhibit A and this agreement, the terms of this agreement shall control. 2. ADDITIONAL LEASED AREA. LESSEE desires that LESSOR acquire Parcel 7 and lease same to LESSEE on the terms applicable to other Parcels under this Master Lease Agreement including the rental payable by LESSEE at the time of acquisition. In the event that a lease or lease(s) encumber the parcel at the time of acquisition, LESSOR shall assign such lease(s) to LESSEE, and LESSEE shall assume the obligations of lessor under such leases, and shall be entitled to the rents thereunder. The parcel shall be acquired subject to such lease(s), which LESSEE acknowledges having reviewed, and LESSEE shall thereafter deal with each lessee thereunder with respect to any desired termination of the lease(s), moving of the lessee(s), allowing extensions of the leases, except that no extension shall exceed the term of this Master Lease Agreement. Parcel 7, upon acquisition (recordation of the deed in the name of LESSOR), shall automatically become subject to all terms and conditions of this Master Lease Agreement upon acquisition, including without limitation base rent at the rate then in effect. LESSEE has inspected Parcel 7 and agrees to accept same upon acquisition by LESSOR in its current AS IS condition, WITH ALL FAULTS. 3. BASE RENT. The base rent during the initial twenty four months of this Master Lease Agreement shall be at the rate of $1.04 per square foot per month for all space hereunder, commencing on January 1, 1996. Rent shall be payable on the first day of each month. Biannually, effective on January 1, 1998, 2000, 2002 and - 2 - 2004 (and 2006, 2008, 2010, 2012 and 2014, if the Extension Option is exercised) (each such year being an "Adjustment year"), the base rent shall be increased for the next succeeding twenty four months. The base rent commencing on January 1 of such year shall be the amount of monthly rent in effect on December 1 of the preceding year increased by an amount equal to the percentage increase in Ending Index over the Beginning Index, as set forth in the following paragraph. 4. RENT ADJUSTMENTS. The amount of each biannual base rent increase described in the foregoing paragraph shall be determined as follows. The Consumer Price Index shall mean the Consumer Price Index -- U.S. City Average -- All Items -- All Urban Consumers [1982-84 = 100] (herein "Index") as published by the Bureau of Labor Statistics of the United States Department of Labor. (If at any time and from time to time, publication of the Index is ceased or interrupted, or other changes in calculation or components of the Index render it a less appropriate measure of inflation than is available from another index regularly published by a government or commercial service, as determined by Landlord in its sole discretion, then Landlord may elect to utilize such other publication's index, which for all purposes hereunder shall become the "Index"). The base rent payable monthly commencing on January 1 of each Adjustment Year shall increase over the monthly minimum rent in effect for the previous month (December) based upon the percentage increase, if any, of the Ending Index over the Beginning Index. If there has been no increase, or there has been a decrease, the monthly minimum rent in effect for the previous month (December) shall remain in effect during the twenty four months commencing on January 1 of such Adjustment Year. If the Ending Index is greater than the Beginning Index for the Adjustment Year, the rent increase shall be determined as follows: The Beginning Index (which for any Adjustment Year shall be the Index for the month of August two years preceding the Adjustment Year), shall be divided into the difference between the Beginning Index and the Ending Index (which shall be the Index for the month of August of the Adjustment Year). The dividend thereof shall be multiplied by the monthly minimum rent in effect for November of the Adjustment Year, and the product thereof shall be added to such December rent, and the monthly minimum rent in effect commencing on January 1 of such Adjustment Year shall be sum determined thereby. - 3 - For example, assume the Index for August 1995 is 151.9 and for August 1997 is 159.1. The per square foot monthly minimum rent commencing January 1, 1998 and in effect through December 31, 1999 would be $1.090336 (being $1.04 [monthly minimum rent in effect for December, 1997], increased by $.050336 [the amount determined by multiplying $1.04 [the monthly minimum rent for December, 1997] by the dividend determined by dividing the Beginning Index by the difference between the Beginning Index and the Ending Index, being 7.2 divided by 151.9, equaling 0.0474]. Therefore, when the next Adjustment Year calculation is made for monthly minimum rents starting January 1, 2000, the monthly minimum rent in effect for the previous month (December, 1999) would be $1.090366. 5. TENANTS IN PARCELS 2 AND 12. Parcel 2 is currently leased as to approximately 4,000 square feet to Sierra Concrete Products, Inc., which lease expires on January 31, 1996. The balance of Parcel 2 is occupied by Lessee. Parcel 12 is currently leased to ATS Tool, Inc., as to 5,000 square feet, and to National Specialty Alloys, Inc., as to 5,000 square feet. The space occupied by ATS Tool, Inc. will be vacated on or before February 29, 1996 pursuant to a Lease Termination Agreement, to which Lessor, Lessee and ATS Tool, Inc. are parties. The lease with National Specialty Alloys, Inc. expires on February 14, 1997. Lessor hereby assigns to Lessee all rights, including rents payable with respect to periods after the date hereof, and Lessee hereby assumes the obligations of lessor, under the leases with respect to Sierra Concrete Products, Inc. and National Specialty Alloys, Inc., copies of which leases are attached hereto as Exhibits B and C, respectively. 6. TERM. The term of this Master Lease Agreement shall be from January 1, 1996 to December 31, 2005. The term may be extended at LESSEE's option for an additional ten years commencing on January 1, 2006 to December 31, 2015, provided that (i) this Master Lease Agreement has not theretofor been terminated, (ii) LESSEE is not then in default under the terms of this Master Lease Agreement, and (iii) LESSEE has exercised this Extension Option. LESSEE may only exercise this Extension Option by delivering to LESSOR written notice that LESSEE by such notice elects to exercise its Extension Option not later than August 1, 2005, and shall be thereupon bound to perform the obligations of LESSEE during the ten years - 4 - commencing on January 1, 2006. As 2006 is an Adjustment Year, the rent commencing on January 1, 2006 shall be determined as provided above. 7. PURCHASE OPTION. LESSEE shall have a purchase option to purchase all parcels leased under this Master Lease Agreement at the Purchase Option Exercise Date. LESSEE may purchase all such parcels provided that (i) this Master Lease Agreement has not theretofor been terminated, (ii) LESSEE is not then in default under the terms of this Master Lease Agreement, and (iii) LESSEE has exercised this Purchase Option. LESSEE may only exercise this Purchase Option by delivering to LESSOR written notice that LESSEE by such notice elects to exercise its Purchase Option on the Purchase Option Exercise Date, which shall be (i) not later than July 1, 2005, or (ii) if LESSEE has exercised its Extension Option, not later than July 1, 2015, and shall be thereupon obligated to purchase all parcels on December 31, 2005 (or if LESSEE has exercised its Extension Option, on December 31, 2015) and if such December 31 is a legal holiday, then the purchase shall be consummated on the first business day preceding such December 31 on which the Orange County Recorder is open for recordation of the deed of the parcels to LESSEE. To be valid such notice from LESSEE shall be accompanied by escrow instructions executed by LESSEE with a responsible escrow company in Orange County, reflecting LESSEE's deposit with such escrow holder of $100,000, forfeitable to LESSOR should LESSEE fail to close on the purchase of the parcels for any reason other than LESSOR's inability to deliver title as provided herein. LESSOR shall within seven days of receipt execute and deliver such escrow instructions to LESSEE and the escrow holder. The escrow shall obligate LESSOR solely to take such action as is reasonably necessary to deliver a grant deed or deeds to all Parcels then subject to this Master Lease Agreement subject to the exceptions hereafter provided. LESSOR shall cause the condition of title not later than the close of escrow to be free and clear of all liens and encumbrances, except solely (i) covenants, conditions and other matters of record at the date hereof, (ii) the lien for current taxes, (iii) any liens or assessments for municipal improvements hereafter arising, and (iv) any lien or encumbrance caused by any act or omission of LESSEE. Escrow holder shall deduct and pay from the purchase price, the amount of any liens or encumbrances other than items (i) - (iv). The purchase price shall be paid in cash on close of escrow to LESSOR, and LESSOR shall be without cost in the escrow, all fees, charges and - 5 - costs shall be paid for by LESSEE. The purchase price shall be the fair market value of the Parcels as determined: (i) by negotiation between the parties, or (ii) if they are unable to agree within thirty days following exercise of the option, by an appraiser selected by the parties to determine the fair market value in such appraiser's discretion within thirty days following such selection. If the parties cannot agree on an appraiser, they shall each appoint an appraiser ("party appraiser") within 45 days following exercise of the option, who in turn within five days following such appointment shall together appoint a third appraiser. Within thirty days thereafter, each appraiser shall independently submit his or her appraisal in writing. The purchase price shall be the fair market value of the Parcels so determined by the third appraiser, except that if both of the party appraisers submit a higher value, the purchase price shall be the lowest of the amounts submitted by the party appraisers. In the event that during the five years preceding the exercise of the option, LESSEE shall have expended on structural repairs to the floor, roof or exterior walls of the building on any one or more Parcels, an amount exceeding $50,000 in the aggregate, then Lessee shall be entitled to a credit against such purchase price for the Parcels of an amount equal to one half of such excess. Notwithstanding Section 39.2 of Exhibit A, the option contained herein may be exercised by any successor to Lessor's interest hereunder. 9. RIGHT OF FIRST REFUSAL. In the event LESSEE is not in default hereunder, and LESSOR shall receive a bona fide offer from an unaffiliated third party (excluding for this purpose, any transfers between LESSOR and its trustees, beneficiaries, and other family members, or any trust, corporation or other person controlling or controlled by any of the foregoing), for the purchase of any parcel or parcels leased under this Master Lease Agreement, during the term hereof, and LESSOR shall desire to accept same, LESSOR shall make its acceptance subject to the provisions of this Paragraph 9. LESSOR shall give written notice to LESSEE of such offer and the terms thereof within 10 business days following acceptance of such third party offer, which notice shall constitute an offer to sell the parcel or parcels involved to LESSEE on the same terms and conditions as are set forth in the offer. LESSEE shall have 10 days thereafter to give LESSOR written notice of acceptance of LESSOR's offer, which shall constitute LESSEE's unconditional commitment to purchase the parcels on the same terms and conditions -6- as are set forth in the notice from LESSOR, except that (i) LESSEE may specify the vestee for title and select the title insurer and escrow company it desires, and (ii) in the event the third party offer provides for a closing less than 30 days from date of delivery of LESSOR's written notice to LESSEE of such offer, LESSEE shall be entitled to set a later closing date within such 30 day period. If LESSEE shall fail to consummate the purchase of the parcel or parcels involved for any reason other than LESSOR's failure to deliver title as provided in such offer, such failure shall constitute a default under this Master Lease Agreement and, in addition to other remedies of LESSOR, LESSEE's rights under this Paragraph 9 shall thereupon automatically and forever terminate. In the event LESSEE shall not give timely written notice to LESSOR required hereunder regarding acceptance of the offer, LESSEE's rights under this Paragraph 9 shall thereupon automatically terminate and LESSOR may consumate the transaction on the terms set forth in the offer (subject to nonmaterial adjustments) within six months of the date notice was given to LESSEE. If not so consummated within six months, or if the purchase price is adjusted to effect a price reduction to the purchaser of more than 5%, any agreement to a closing after such six month period or to effect such a price reduction shall be deemed a new offer and LESSEE's rights hereunder shall be reinstated. Notwithstanding Section 39.2 of Exhibit A, LESSEE's rights contained herein may be exercised by any authorized successor to LESSEE's interest hereunder. 10. NONWARRANTY AND NONMAINTENANCE. Notwithstanding anything contained in the incorporated provisions of this Master Lease Agreement, LESSOR makes no warranty with respect to the condition of the Parcels and improvements thereon. LESSEE acknowledges that it has had exclusive possession and use of Parcels 1-6 and 8-12 prior to entering this Master Lease Agreement, and has inspected and accepts Parcel 7 when and as acquired, all AS IS and WITH ALL FAULTS. LESSEE shall be exclusively responsible for the continuing maintenance of all interior and exterior improvements under this Master Lease Agreement, including without limitation, all roofs, exterior walls, floors, driveways, pavement, parking areas, all structural components thereon, and all provision of utilities and other services. 11. SECURITY DEPOSITS. LESSOR acknowledges that it holds security deposits aggregating $64,511.20 with respect to Parcels 1-6 and 8-12, which shall continue -7- under this Master Lease Agreement. LESSEE shall increase the security deposit from time to time, based on rental increases provided hereunder and base rental for areas added pursuant to Paragraph 2 hereunder, such that at all times the security deposit will be equal to the current monthly base rental under this Master Lease Agreement. 12. TERMINATED LEASES. The Terminated Leases, to the extent expiring prior to December 31, 1995 are hereby retroactively extended through December 31, 1995 on the same terms and conditions in effect immediately prior to such expiration. Upon execution hereof, all of the Terminated Leases shall, as of December 31, 1995, be without further force or effect, and each party hereto, as lessee and lessor thereunder, hereby acknowledges that the other has performed all obligations required under the Terminated Leases, and that neither party any further claim or right against the other arising from the Terminated Leases, except that lessee thereunder shall be responsible for any third party charges for property taxes, insurance and maintenance charges otherwise payable by lessee, but not yet billed. 13. FAIR DEALING, CONSENTS, ASSIGNMENT. In connection with the performance of their respective obligations under this Master Lease Agreement, LESSOR and LESSEE shall act in good faith and in a commercially reasonable manner. Should any consent of LESSOR be required in connection with the provisions hereof, (i) such consent shall not unreasonably be withheld, and (ii) such consent shall be deemed granted if any trustee of LESSOR, or trustee or other person (in the event LESSOR is not a trust) with the power to bind LESSOR, while acting in the capacity of an officer or director of LESSEE shall take any action, or while exercising rights as a shareholder of LESSEE, shall vote or consent in writing to authorize a specific act or omission, requiring consent of LESSOR under this Master Lease Agreement. LESSOR hereby consents to one or more collateral assignments of LESSEE's interest hereunder pursuant to one or more loan agreements, which each involve an extension of credit of not less than $7 million to LESSEE. LESSOR agrees to evidence its consent to such assignments by executing documents reasonably satisfactory to LESSOR. -8- IN WITNESS WHEREOF, this Master Lease Agreement has been executed as of the day and year first above written. LESSOR: LESSEE: THE SWENSON FAMILY TRUST DETAILS, INC. by /s/ James I. Swenson by /s/ James I. Swenson ----------------------- ------------------------ James I. Swenson James I. Swenson Trustee Chief Executive Officer by /s/ Susan G. Swenson by /s/ Susan G. Swenson ----------------------- ------------------------ Susan G. Swenson Susan G. Swenson Trustee Secretary -9- [AIR LOGO APPEARS HERE] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE--NET (Do not use this form for Multi-Tenant Property) 1. Basic Provisions ("Basic Provisions") 1.1 Parties: This Lease ("Lease"), dated for reference purposes only. _______________ 19__ is made by and between _____________________________ _____________________________________________________________________("Lessor") and ____________________________________________________________________________ _____________________________________________________________________("Lessee"). (collectively the "Parties," or individuality a "Party"). 1.2 Premises: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known by the street address of ________________________________ located in the County of _________________________________________ State of _____________________________ and generally described as (describe briefly the nature of the property)________ ________________________________________________________________________________ ________________________________________________________________________________ _________________________("Premises"). (See Paragraph 2 for further provisions.) 1.3 Term: _____________years and ________ months ("Original Term") commencing _________________________________________ ("Commencement Date") and ending _____ ____________________________________("Expiration Date"). (See Paragraph 3 for further provisions.) 1.4 Early Possession: ____________________________("Early Possession Date"). (See Paragraphs 3.2 and 3.3 for further provisions.) 1.5 Base Rent: $____________ per month ("Base Rent"), payable on the _______ day of each month commencing____________________________________________________ ________________________________________________________________________________ _______________________________________(See Paragraph 4 for further provisions.) [ ] if this box is checked, there are provisions in this Lease for the Base Rent to be adjusted. 1.6 Base Rent Paid Upon Execution: $_________________________________________ as Base Rent for the period ____________________________________________________ _______________________________________________________________________________. 1.7 Security Deposit: $______________________("Security Deposit"). (See Paragraph 5 for further provision.) 1.8 Permitted Use:__________________________________________________________ _______________________________________(See Paragraph 6 for further provisions.) 1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated herein. (See Paragraph 8 for further provisions.) 1.10 Real Estate Brokers: The following real estate brokers (collectively, the "Brokers") and brokerage relationships exist in this transaction and are consented to by the Parties. (check applicable boxes): _____________________________________________________________________ represents [ ] Lessor exclusively ("Lessor's Broker"): [ ] both Lessor and Lessee and ____________________________________________________________________ represents [ ] Lessor exclusively ("Lessee's Broker"): [ ] both Lessee and Lessor (See Paragraph 15 for further provisions.) 1.11 Guarantor. The obligations of the Lessee under this Lease are to be guaranteed by __________________________________________________________________ ______________________("Guarantor"). (See Paragraph 37 for further provisions.) 1.12 Addends. Attached hereto is an Addendum or Addenda consisting of Paragraphs _______ through ________ and Exhibits _______________________________ ___________________________ all of which constitute a part of this Lease. 2. Premises. 2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of square footage set forth in this Lease, or that may have been used in calculating rental, is an approximation which Lessor and Lessee agree is reasonable and the rental based thereon is to subject to revision whether or not the actual square footage as more or less. 2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free of debts on the Commencement Data and warrants to Lessee that the existing plumbing, fire sprinkler system, lighting, air conditioning, heating, and loading doors, if any in the Premises, other than those constructed by Lessee, shall be in good operating condition on the Commencement Date. If a non- compliance with said warranty exists as of the Commencement Date, Lessor shall, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warrant within thirty (30) days alter the Commencement Date, correction of that non-compliance shall be the obligation of Lessee's sole cost and expenses. 2.3 Compliance with Covenants Restrictions and Building Code. Losses warrants to Lossno that the improvements on the Premises comply with all ##...## or to be made by Lessee. If the Promises do not comply with said warranty, Lessor shall, except as other wise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, readily the same at Lessor's expense. If Lessee does not give lessor written notice of a non-compliance with this warranty within six (6) months following the Commencement Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. 2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has been advised by the Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical and fine sprinkler systems, security, environmental aspects compliance with Applicable Law, as defined in Paragraph 6.3) and the present and future suitability of the Premises for Lessee's intended use. (b) that Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to Lessee's occupancy of the Premises and/or the term of this Lease, and (c) that neither Lessor, nor any of Lessor's agents, has made any oral or written representations or warrants with respect to the said matters other than as set forth in this area. 2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this Paragraph 2 shall be of no force or effect if immediately prior to the date set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such event Lessee shall, at Lessee's sole cost and expense, correct any non- compliance of the Premises with said warranties. 3. Term. 3.1 Term. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3. 3.2 Early Possession. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease, however, (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises, shall be in effect during such period. Any such early possession shall not affect nor advance the Expiration Date of the Original Term. Initials ------------------ ------------------ 3.3 Delay in Possession. If for any reason Lessor cannot deliver possession of the Premises to Lessee as agreed herein by the Early Possession Date if one is specified in Paragraph 1.4, or if, no Early Possession Date is specified, by the Commencement Date, Lessor shall not be subject to any xxx therefor, nor shall such failure affect the validity of this Lease, or the obligations of Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not, except as otherwise provided herein, be obligated to pay rent or perform any other obligation of Lessee under the terms of this Lease until Lessee delivers possession of the Premises to Lessee. If possession of the Premises is not delivered to Lessee within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing to Lessor within ten (10) days thereafter, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder; provided, however, that if such written notice by Lessee is not received by Lessor within said ten (10) day period, Lessee's right to cancel this Lease shall terminate and be of no further force or effect. Except as may be otherwise provided, and regardless of when the term actually commences, if possession is not tendered to Lessee when required by this Lease and Lessee does not terminate this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts, changes or omissions of Lessee. 4. Rent. 4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or charges, as the same may be adjusted from time to time, to be received by Lessor in lawful money of the United States, without offset or deduction, on or before the day on which it is due under the terms of this Lease. Base Rent and all other rent and charges for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of the calendar month involved. Payment of Base Rent and other charges shall be made to Lessor at its address stated hereof or to such other persons or at such other addresses as Lessor may from time to time designate in writing to Lessee. 5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee; faithful performance of Lessee's obligations under this Lease. If Lessee fails to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, cost, expense, loss or damage (including attorneys' fees) which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit moneys with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. Any time the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor sufficient to maintain the same ratio between the Security Deposit and the Base Rent as those amounts are specified in the Base Provisions. Lessor shall not be required to keep all or any part of the Security Deposit separate from its general accounts. Lessor shall, at the expiration or earlier termination of the term hereof and after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's interest herein), that portion of the Security Deposit not used or applied by Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the Security Deposit shall be considered to be held in trust, to bear interest or other increment for its use, or to be prepayment for any moneys to be paid by Lessee under this Lease. 6. Use. 6.1 Use. Lessee shall use and occupy the Premises only for the purposes set form in Paragraph 1.8, or any other use which is comparable thereto, and for another purpose Lessee shall not use or permit the use of the Premises in a manner that creates waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to neighboring premises or properties. Lessor hereby agrees to not unreasonably withhold or delay its consent to any written request by Lessee, Lessees, assignees or subtenants, and by prospective assignees and subtenants of the Lessee, its assignees and subtenants, for a modification of said permitted purpose for which the premises may be used or occupied, so long as the same will not impair the structural integrity of the improvements on the Premises, the mechanical or electrical systems therein, is not significantly more burdensome to the Premises and the improvements thereon, and is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to withhold each consent, Lessor shall within five (5) business days give a written notification of same, which notice shall include an explanation of Lessor's reasonable objections to the change in use. 6.2 Hazardous Substances. (a) Reportable Uses Require Content. The term "Hazardous Substance" as used in this Lease shall mean any product, substance, chemical, material or waste whose presence, nature, quantity and/or intensity of existence, use, manufacture, disposal, transportation, spill, release or effect, either by itself or in combination with other materials expected to be on the Premises, is either, (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substance shall include, but not be limited to, hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in, on or about the Premises which constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Lessor and compliance in a timely manner (at Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any above or below ground storage tank, (iii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority. Reportable Use shall also include Lessee's being responsible for the presence in, on or about the Premises of a Hazardous Substance with respect to which any Applicable Law requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but in compliance with all Applicable Law, use any ordinary and customary materials reasonably required to be used by Lessee in the normal course of Lessee's business permitted on the Premises, so long as such use is not a Reportable Use and does not expose the Premises or neighboring properties to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may (but without any obligation to do so) condition its consent to the use of presence of any Hazardous Substance, activity or storage tank by Lessee upon Lessee's giving Lessor such additional assurances as Lessor, in its reasonable discretion, deems necessary to protect itself, the public, the Premises and the environment against damage, contamination or injury and/or liability therefrom or therefor, including, but not limited to, the installation (and removal on or before Lease expiration or earlier termination) of reasonably necessary protective modifications to the Premises (such as concrete encasements) and/or the deposit of an additional Security Deposit under Paragraph 5 hereof. (b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance, or a condition involving or resulting from xxx, has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action or proceeding given to or received from, any governmental authority or private party, or persons entering or occupying the Premises, concerning the presence, spill, release, discharge of, or exposure to, any Hazardous Substance or contamination in, on, or about the Premises, including but not limited to all such documents as may be involved in any Reportable Uses involving the Premises. (c) Indemnification. Lessee shall indemnify, protect, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, and the Premises, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, costs, claims, liens, expenses, penalties, permits and attorney's and consultant's fees arising out of or involving any Hazardous Substance or storage tank brought onto the Premises by or for Lessee or under Lessees control. Lessee's obligations under this Paragraph 6 shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessor, and the cost of investigation (including consultant's and attorney's fees and testing), removal, remediation, restoration and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances or storage tanks, unless specifically so agreed by Lessor in writing at the time of such agreement. 6.3 Lessee's Compliance with Law. Except as otherwise provided in this Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and in a timely manner, comply with all "Applicable Law," which term is used in this Lease to include all laws, rules, regulations, ordinances, directives, covenants, easements and restrictions of record, permits, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants, relating in any manner to the Premises (including but not limited to matters pertaining to (i) industrial hygiene, (ii) environmental conditions on, in, under or about the Premises, including soil and groundwater conditions, and (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, storage, spill or release of any Hazardous Substance or storage tank), now in effect or which may hereafter come into effect, and whether or not reflecting a change in policy from any previously existing policy. Lessee shall, within five (5) days after receipt of Lessor's written request, provide Lessor with copies of all documents and information, including, but not limited to, permits, registrations, manifests, applications, reports and certificates, evidencing Lessee's compliance with any Applicable Law specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Lessee or the Premises to comply with any Applicable Law. 6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease and all Applicable Laws (as defined in Paragraph 6.3) and to employ experts and/or consultants in connection therewith and/or to advise Lessor with respect to Lessee's activities, including but not limited to the installation, operation, use, monitoring, maintenance, or removal of any Hazardous Substance or storage tank on or from the Premises. The costs and expenses of any such inspections shall be paid by the party requesting same, unless a Default or Breach of this Lease, violation of Applicable Law, or a contamination caused or materially contributed to by Lessee is found to exist or be imminent, or unless the inspection is requested or ordered by a governmental authority as the result of any such existing or imminent violation or contamination. In any such case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may be, for the costs and expenses of such inspections. 7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations. 7.1 Lessee's Obligations. (a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.). Initials ------- 7.2 (Lessors obligations to repair), 9 (damage and destruction), and 14 (condemnation). Lessee shall, at Lessee's sole cost and expense and at all times, keep the Premises and every part thereof in good order, condition and repair, structural and non-structural (whether or not such portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, without limiting the generality of the foregoing, all equipment or facilities serving the Premises, such as plumbing, heating, air conditioning, ventilating, electrical, lighting facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and hose or other automatic fire extinguishing system, including fire alarm and/or smoke detector systems and equipment, fire hydrants, fixtures, walls (interior and exterior); foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, about, or adjacent to the Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises, the elements surrounding same, or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance and/or storage tank brought onto the Premises by or for Lessee or under its control. Lessee in keeping the Premises in good order, condition and repair shall exercise and perform good maintenance practices. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. If Lessee occupies the Premises for seven (7) years or more, Lessor may require Lessee to repaint the exterior of the buildings on the Premises as reasonably required, but not more frequently than once every seven (7) years. (b) Lessee shall, at Lessee's sole cost and expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in, the inspection, maintenance and service of the following equipment and improvements, if any located on the Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and hose or other automatic fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drain maintenance and (vi) asphalt and parking lot maintenance. 7.2 Lessor's Obligations. Except for the warranties and agreements of Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3 (relating to compliance with covenants, restrictions and building code), 9 relating to destruction of the Premises) and 14 (relating to condemnation of the Premises), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, the improvements located thereon, or the equipment thereon, whether structural or non structural, all of which obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises. Lessee and Lessor expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease with respect to, or which affords Lessee the right to make repairs at the expense of Lessor or to terminate this Lease by reason of any needed repairs. 7.3 Utility Installations; Trade Fixtures; Alterations. (a) Definitions; Consent Required. The term "Utility Installations" is used in this Lease to refer to all carpeting, window coverings, air lines, power panels, electrical distribution, security, fire protection systems, communications systems, lighting fixtures, heating, ventilating, and air conditioning equipment, plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "Alterations" shall mean any modification of the improvements on the Premises from that which are provided by Lessor under the terms of this Lease, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "Lessor Owned Alteration and/or Utility Installations" are defined as Alterations and/or Utility Installations made by lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations in, on, under or about the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof), as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative costs thereof during the term of this Lease as extended does not exceed $25,000. (b) Consent. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with proposed detailed plans. All consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall be deemed conditioned upon; (i) Lessee's acquiring all applicable permits required by governmental authorities, (ii) the furnishings of copies of such permits together with a copy of the plans and specifications for the Alterations or Utility Installation to Lessor prior to commencement of the work thereon, and (iii) the compliance by Lessee with all conditions of said permits in a prompt and expeditious manner. Any Alterations or Utility Installations by Lessee during the terms of this Lease shall be done in a good and workmanlike manner, with good and sufficient materials, and in compliance with all Applicable Law. Lessee shall promptly upon completion thereof furnished Lessor with as-built plans and specifications therefor. Lessor may (but without obligation to do so) condition its consent to any requested Alteration or Utility Installation that costs $10,000 or more upon Lessee's providing Lessor with a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor under Paragraph 36 hereof. (c) Indemnification. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanics' or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility in or on the Premises as provided by law. If Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgement that may be rendered thereon before the enforcement thereof against the Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one and one-half times the amount of such contested lien claim or demand, indemnifying Lessor against liability for the same, as required by law for the holding of the Premises free from the effect of such lien or claim. In addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in participating in such action if Lessor shall decide it is to its best interest to do so. 7.4 Ownership; Removal; Surrender; and Restoration. (a) Ownership. Subject to Lessor's right to require their removal or become the owner thereof as hereinafter provided in this Paragraph 7.4. all Alterations and Utility Additions made to the Premises by Lessee shall be the property of and owned by Lessee, but considered a part of the Premises. Lessor may, at any time and at its option, elect in writing to Lessee to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or earlier termination of this Lease, become the property of Lessor and remain upon and be surrendered by Lessee with the Premises. (b) Removal. Unless otherwise agreed in writing, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or earlier termination of this Lease, notwithstanding their installation may have been consented to the Lessor. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent of Lessor. (c) Surrender/Restoration. Lessee shall surrender the Premises by the end of the last day of the Lease term or any earlier termination date, with all of the improvements, parts and surfaces thereof clean and free of debris and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice or by Lessee performing all of its obligations under this Lease. Except as otherwise agreed or specified in writing by Lessor, the Premises, as surrendered, shall include the Utility Installations. The obligation of Lessee shall include the repair of any damage occasioned by the installation, maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility Installations, as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or ground water contaminated by Lessee, all as may then be required by Applicable Law and/or good service practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee subject to its obligation to repair and restore the Premises per this Lease. 8. Insurance; Indemnity. 8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is the Insuring Party. Lessee shall pay for all insurance required under this Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice for any amount due. 8.2 Liability Insurance. (a) Carried by Lessee. Lessee shall obtain and keep in force during the term of this Lease a Commercial General Liability policy of insurance protecting Lessee and Lessor (as an additional insured) against claims for bodily injury, personal injury and property damage based upon, involving or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of Premises" Endorsement and contain the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said Insurance required by this Lease or as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. (b) Carried By Lessor. In the event Lessor is the Insuring Party, Lessor shall also maintain liability insurance described in Paragraph 8.2(a) above. In addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein. Initials __________ __________ 8.3 Property insurance--Building, Improvements and Rental Value. (a) Building and Improvements. The Insuring Party shall obtain and keep in force during the term of this Lease a policy or policies in the name of Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time or the amount required by Lenders, but in no event more than the commercially reasonable and available insurable value thereof if, by reason of the unique nature or age of the improvements involved, such later amount is less than full replacement cost. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Untility Installations shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for any additional costs resulting from debris removal and reasonable amounts of coverage for the enforcement of any ordinance or law regulating the reconstruction or replacement of any undamaged sections of the Premises required to be demolished or removed by reason of the enforcement of any building, zoning, safety or land use laws as the result of a covered cause of loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss, as defined in Paragraph 9.1(c). (b) Rental Value. The Issuing Party shall, in addition, obtain and keep in force during the term of this Lease a policy or policies in the name Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full rental and other charges payable by Lessee to Lessor under this Lease for one (1) year (including all real estate taxes, insurance costs, and any scheduled rental increases). Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of rental revenues from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected rental income, property taxes, insurance premium costs and other expenses, if any, otherwise payable by Lessee, for the next twelve (12) month period. Lesser shall be liable for any deductible amount in the event of such loss. (c) Adjacent Premises. If the Premises are part of a larger building, of if the Premises are part of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if an increase is caused by Lessee's acts, omissions use or occupancy of the premises. (d) Tenant's Improvements . If the Lessor is the Insuring Party, the Lessor shall not be required to insure Lessee Owned Alterations and Utility Installations unless the item in question has become the property of Lessor under the terms of this Lease. If Lessee is the Insuring Party, the policy carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations and Utility Installations. 8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph 8.5. Lessee at its cost shall either by separate policy or, at Lessor's option by endorsement to a policy already carried, maintain insurance coverage on all of Lessee's personal property. Lessee Owned Alterations and Utility Installations in, on, or about the Premises similar in coverage to that carried by the Insuring Party under Paragraph 8.3. Such insurance shall be for replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee to the replacement of personal property or the restoration of Lessee Owned Alterations and Utility installations. Lessee shall be the Insuring Party with respect to the insurance required by this Paragraph 8.4 and shall provide Lessor with written evidence that such insurance is in force. 8.5 Insurance Policies. Insurance required hereunder shall be in companies duly licensed to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, or such other rating as may be required by a Lender having a loan on the Premises, as set forth in the most current issue of "Best's Insurance Guide." Lessee shall not do or permit to be done anything which shall invalidate that insurance policies referred to in this Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of such insurance with the insureds and loss payable clauses as required by this Lease. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and maintain the insurance required to be carried by the Insuring Party under this Paragraph 8, the other Party may, but shall not be required to, procure and maintain the same, but at Lessee's expense. 8.6 Waiver of Subrogation. Without affecting any other rights or remedies, Lessee and Lessor ("Waving Party") each hereby release and relieve the other and waive their entire right to recover damages (whether in contract or in tort) against the other, for loss of or damage to the Waving Party's property arising out of or incident to the perils required to be insured against under Paragraph 8. The effect of such releases and waivers of the right to recover damages shall not be limited by the amount of insurance carried or required, or by any deductibles applicable thereto. 8.7 Indemnity. Except for Lessor's negligence and/or breach of express warranties. Lessee shall indemnity, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, costs, liens judgments, penalties, permits, attorney's and consultant's fees, expenses and/or liabilities arising out of involving or in dealing with the occupancy of the Premises by Lessee, the conduct of Lessee's business, any act, omission or neglect of Lessee, its agents, contractors, employees or invitees, and out of any Default or Breach by Lessee in the performance in a timely manner of any obligation on Lessee's part to be performed under this Lease. The foregoing shall include, but not be limited to, the defense or pursuit of any claim or any action or proceeding involved therein, and whether or not (in the case of claims made against Lessor) litigated and/or reduced to judgment, and whether well founded or not. In case any action or proceeding be brought against Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor shall defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be so indemnified. 8.8 Exemption of Lessor from Liability. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee. Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places, and regardless of whether the cause of such damage or injury or the means of repairing the same is accessible or not. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom. 9. Damage or Destruction. 9.1 Definitions. (a) "Premises Partial Damage" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, the repair cost of which damage or destruction is less than 50% of the then Replacement Cost of the Premises immediately prior to such damage or destruction excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (b) "Premises Total Destruction" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations the repair cost of which damage or destruction is 50% or more of the then Replacement Cost of the Premises immediately prior to such damage or destruction, excluding from such calculation the value of the land and Lessee Owned Alterations and Utility Installations. (c) "Insured Loss" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved. (d) "Replacement Cost" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of applicable building codes, ordinances or laws, and without deduction for depreciation. (e) "Hazardous Substance Condition" shall mean the occurrence of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises. 9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense repair such damage (but not Leasee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make the insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, the shortage in proceeds was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor, if Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If Lessor does not receive such funds or assurance within said period, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect. If in such case Lessor does not so elect, then this Lease shall terminate sixty (60) days following the occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall in no event have any right to reimbursement from Lessor for Initials ----- ----- NET any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2, nonwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party. 9.3 Partial Damage -- Uninsured Loss. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage totally at Lessee's expense and without reimbursement from Lessor. Lessee shall provide Lessor with the required funds or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. 9.4 Total Destruction. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs (including any destruction required by any authorized public authority), this Lease shall terminate sixty (60) days following the date of such Premises Total Destruction, whether or not the damage or destruction is an Insured Loss or was caused by a negligent or willful act of Lessee. In the event, however, that the damage or destruction was caused by Lessee, Lessor shall have the right to recover Lessor's damages from Lessee except as released and waived in Paragraph 8.6. 9.5 Damage Near End of Term. If at any time during the last six (6) months of the term of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within thirty (30) days after the date of occurrence of such damage. Provided, however, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, within twenty (20) days following the occurrence of the damage, or before the expiration of the time provided in such option for its exercise, whichever is earlier ("Exercise Period"), (i) exercising such option and (ii) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs. If Lessee duly exercises such option during said Exercise Period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's expense repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during said Exercise Period, then Lessor may at Lessor's option terminate this Lease as of the expiration of said sixty (60) day period following the occurrence of such damage by giving written notice to Lessee of Lessor's election to do so within ten (10) days after the expiration of the Exercise Period, notwithstanding any term or provision in the grant of option to the contrary. 9.6 Abatement of Rent; Lessee's Remedies. (a) In the event of damage described in Paragraph 9.2 (Partial Damage -- Insured), whether or not Lessor or Lessee repairs or restores the Premises, the Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, payable by Lessee hereunder for the period during which such damage, its repair or the restoration continues (not to exceed the period for which rental value insurance is required under Paragraph 8.3(b)), shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired. Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and other charges, if any, as aforesaid, all other obligations of Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim against Lessor for any damage suffered by reason of any such repair or restoration. (b) If Lessor shall be obligated to repair or restore the Premises under the provisions of this Paragraph 9 and shall not commence, in a substantial and meaningful way, the repair or restoration of the Premises within ninety (90) days after such obligation shall accrue. Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice to Lessor and such Lenders and such repair or restoration is not commenced within thirty (30) days after receipt of such notice, this Lease shall terminate as of the date specified in said notice. If Lessor or a Lender commences the repair or restoration of the Premises within thirty (30) days after receipt of such notice, this Lease shall continue in full force and effect. "Commence" as used in this Paragraph shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs. 9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition occurs, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by Applicable Law and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 13). Lessor may at Lessor's option either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to investigate and remediate such condition exceeds twelve (12) times the then monthly Base Rent of $100,000, whichever is greater, give written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition of Lessor's desire to terminate this Lease as of the date sixty (60) days following the giving of such notice. In the event Lessor elects to give such notice of Lessor's intention to terminate this Lease, Lessee shall have the right within ten (10) days after the receipt of such notice to give written notice to Lessor of Lessee's commitment to pay for the investigation and remediation of such Hazardous Substance Condition totally at Lessee's expense without reimbursement from Lessor except to the extent of an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with the funds required of Lessee or satisfactory assurance thereof within thirty (30) days following Lessee's said commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such investigation and remediation as soon as reasonably possible and the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the times specified above, this Lease shall terminate as of the date specified in Lessor's notice of termination. If a Hazardous Substance Condition occurs for which Lessee is not legally responsible, there shall be abatement of Lessee's obligations under this Lease to the same extent as provided in Paragraph 9.6(a) for a period of not to exceed twelve (12) months. 9.6 Termination -- Advance Payments. Upon termination of this Lease pursuant to this Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor under the terms of this Lease. 9.9 Waive Statutes. Lessor and Lessee agree that the terms of this lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith. 10. Real Property Taxes. 10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as defined in Paragraph 10.2, applicable to the Premises during the term of this Lease. Subject to Paragraph 10.1(b), all payments shall be made at least ten (10) days prior to the delinquency date of the applicable installment. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes to be paid by Lessee shall cover any period of time prior to or after the expiration or earlier termination of the term hereof, Lessee's share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment after such proration. If Lessee shall fail to pay any Real Property Taxes required by this Lease to be paid by Lessee, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand. (b) Advance Payment. In order to insure payment when due and before delinquency of any or all Real Property Taxes, Lessor reserves the right, at Lessor's option, to estimate the current Real Property Taxes applicable to the Premises, and to require such current year's Real Property Taxes to be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty (20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be that equal monthly amount which, over the number of months remaining before the month in which the applicable tax installment would become delinquent (and without interest thereon), would provide a fund large enough to fully discharge before delinquency the estimated installment of taxes to be paid. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payment shall be adjusted as taxes to be paid. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payment shall be adjusted as taxes to be paid. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payment shall be adjusted as required to provide the fund needed to pay the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee under the provisions of this Paragraph are insufficient to discharge the obligations of Lessee to pay such Real Property Taxes as the same become due, Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are necessary to pay such obligations. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of the obligations of Lessee under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, subject to proration as provided in Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security Deposit under Paragraph 5. 10.2 Definition of "Real Property Taxes." As used herein, the term "Real Property Taxes" shall include any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license fee, commercial rental tax, improvement bond or bonds, levy or tax (other than inheritance, personal income or estate taxes) imposed upon the Premises by any authority having the direct or indirect power to tax, including any city, state or federal government, or any school, agricultural, sanitary, fire, street, drainage or other improvement district thereof, levied against any legal or equitable interest of Lessor in the Premises or in the real property of which the Premises are a part, Lessor's right to rent or to other income therefrom, and/or Lessor's business of leasing the Premises. The term "Real Property Taxes" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring, or changes in applicable law taking effect, during the term of this Lease, including but not limited to a change, in the ownership of the Premises or in the improvements thereon, the execution of this lease, or any modification, amendment or transfer thereof, and whether or not contemplated by the Parties. 10.3 Joint Assessment. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be determined by Lessor from the respective valuations Initials _________ assigned in the assessor's work sheets or such other information as may be reasonably available. Lessor's reasonable determination thereof, in good faith, shall be conclusive. 10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all taxes assessed against and levied upon Lessee Owned Alterations. Unity Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause its Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee's property or, at Lessor's option, as provided in Paragraph 10.1(b). 11. Utilities. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable portion, to be determined by Lessor, of all charges jointly metered with other premises. 12. Assignment and Subletting. 12.1 Lessor's Consent Required. (a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or otherwise transfer or encumber (collectively, "assignment") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent given under and subject to the terms of Paragraph 36. (b) A change in control of Lessee shall constitute an assignment requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose. (c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an amount equal to or greater than twenty-five percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the time of the execution by Lessor of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, at whichever time said Net Worth of Lessee was or is greater, shall be considered an assignment of this Lease by Lessee to which Lessor may reasonably withhold its consent. "Net Worth of Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles consistently applied. (d) An assignment or subletting of Lessee's interest in this Lease without Lessor's specific prior written consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unconsented to assignment or subletting as a noncurable Breach, Lessor shall have the right to either, (i) terminate this Lease, or (ii) upon thirty (30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to tax market rental value or one hundred ten percent (110%) of the Base Rent then in effect, whichever is greater. Pending determination of the new tax market rental value, if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment credited against the next installment(s) of Base Rent coming due, and any underpayment for the period retroactively to the effective date of the adjustment being due and payable immediately upon the determination thereof. Further, in the event of such Breach and market value adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to the then tax market value (without the Lease being considered an encumbrance or any deduction for depreciation or obsolescence, and considering the Premises at its highest and best use and in good condition), or one hundred ten percent (110%) of the price previously in effect, whichever is greater, (ii) any index-oriented rental or price adjustment formulas contained in this Lease shall be adjusted to require that the base index be determined with reference to the index applicable to the time of such adjustment, and (iii) any fixed rental adjustments scheduled during the remainder of the Lease term shall be increased in the same ratio as the new market rental bears to the Base Rent in effect immediately prior to the market value adjustment. (e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall be limited to compensatory damages and injunctive relief. 12.2 Terms and Conditions Applicable to Assignment and Subletting. (a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) after the primary liability of Lessee to the payment of Base Rent and other sums due Lessor hereunder or for the performance of any other obligations to be performed by Lessee under this Lease. (b) Lessor may accept any rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of any rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for the Default or Breach by Lessee of any of the terms, covenants or conditions of this Lease. (c) The consent of Lessor to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting by Lessee or to any subsequent or successive assignment or subletting by the sublessee. However, Lessor may consent to subsequent sublettings and assignments of the sublease or any amendments or modifications thereto without notifying Lessee or anyone else liable on the Lease or sublease and without obtaining their consent, and such action shall not relieve such persons from liability under this Lease or sublease. (d) In the event of any Default or Breach of Lessee's obligations under this Lease, Lessor may proceed directly against Lessee, any Guarantors or any one else responsible for the performance of the Lessee's obligations under this Lease, including the sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor or Lessee. (e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a non-refundable deposit of $1,000 or ten percent (10%) of the current monthly Base Rent, whichever is greater, as reasonable consideration for Lessor's considering and processing the request for consent. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested by Lessor. (f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed, for the benefit of Lessor, to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented in writing. (g) The occurrence of a transaction described in Paragraph 12.1(c) shall give Lessor the right (but not the obligation) to require that the Security Deposit be increased to an amount equal to six (6) times the then monthly Base Rent, and Lessor may make the actual receipt by Lessor of the amount required to establish such Security Deposit a condition to Lessor's consent to such transaction. (h) Lessor, as a condition to giving its consent to any assignment or subletting, may require that the amount and adjustment structure of the rent payable under this Lease be adjusted to what is then the market value and/or adjustment structure for property similar to the Premises as then constituted. 12.3 Additional Terms and Conditions Applicable to Subletting. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein: (a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all rentals and income arising from any sublease of all or a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may collect such rent and income and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach (as defined in Paragraph 13.1) shall occur in the performance of Lessee's obligations under this Lease, Lessee may, except as otherwise provided in this Lease, receive, collect and enjoy the rents accruing under such sublease. Lessor shall not, by reason of this or any other assignment of such sublease to Lessor, nor by reason of the collection of the rents from a sublessee, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee under such sublease. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor the rents and other charges due and to become due under the sublease. Sublessee shall rely upon any such statement and request from Lessor and shall pay such rents and other charges to Lessor without any obligation or right to inquire as to whether such Breach exists and notwithstanding any notice from or claim from Lessee to the contrary. Lessee shall have no right or claim against said sublessee, or, until the Breach has been cured, against Lessor, for any such rents and other charges so paid by said subleases to Lessor. (b) In the event of a Breach by Lessee in the performance of its obligations under this Lease, Lessor, at its option and without any obligation to do so, may require any sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such subleasee to such sublessor or for any other prior Defaults or Breaches of such sublessor under such sublease. (c) Any matter or thing requiring the consent of the sublessor under a sublease shall also require the consent of Lessor herein. (d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent. (e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee. 13.1 Default; Breach. Lessor and Lessee agree that if an attorney is consulted by Lessor in connection with a Lessee Default or Breach (as hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence for legal services and costs in the preparation and service of a notice of Default, and that Lessor may include the cost of such services and costs in said notice as rent due and payable to cure said Default. A "Default" is defined as a failure by the Lessee to observe, comply with or perform any of the terms, covenants, conditions or rules applicable to Lessee under this Lease. A "Breach" Initials __________ in defined as the occurrence of any one or more of the following Defaults, and, where a grace period for cure after notice is attached herein, the failure by Lessee to cure such Default prior to the expiration of the applicable grace period, shall enable Lessor in pursue the remedies set forth in Paragraphs 13.2 and/or 13.3: (a) The vacating of the Premises without the intention to reoccupy same, or the abandonment of the Premises. (b) Except as expressly otherwise provided in this Lease, the failure by Lessee to make any payment of Base Rent or any other monetary payment required to be made by Lessee hereunder, whether to Lessor or to a third party, as and when due, the failure by Lessee to provide Lessor with reasonable evidence of insurance or surety bond required under this Lease, or the failure of Lessee to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three (3) days following written notice thereof by or on behalf of Lessor to Lessee. (c) Except as expressly otherwise provided in this Lease, the failure by Lessee to provide Lessor with reasonable written evidence (in duly executed original form, if applicable) of (i) compliance with Applicable Law per Paragraph 6.3, (ii) the inspection, maintenance and service contracts required under Paragraph 7.1(b), (iii) the recession of an unauthorized assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations under the Lease if required under Paragraphs 1.11 and 37, (vii) the execution of any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice by or on behalf of Lessor to Lessee. (d) Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, that are to be observed, complied with or performed by Lessee, other than those described in subparagraphs (a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice thereof by or on behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (e) The occurrence of any of the following events: (i) The making by lessee of any general arrangement or assignment for the benefit of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions. (f) The discovery by Lessor that any financial statement given to Lessor by Lessee or any Guarantor of Lessee's obligation hereunder was materially false. (g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of guarantor, (ii) the termination of a guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a guarantor's breach of its guaranty obligation on an anticipatory breach basis and Lessee's failure within sixty (60) days following written notice by or on behalf of Lessor to Lessees of any such event, to provide Lessor with written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the guarantors that existed at the time of execution of this Lease. 13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation of Lessee under this Lease, within ten (10) days after written notice to Lessee (or in case of an emergency, without notice), Lessor may at its option (but without obligation to do so), perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee to Lessor upon invoice therefor, if any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made under this Lease by Lessee to be made only by cashier's check. In the event of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, with or without further notice or demand, and without xxxx Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach, Lessor may: (a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease and the term hereof shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the worth at the time of the award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the xxx proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorney's fees, and that portion of the leasing commission paid by Lessor applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the prior sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of this Lease shall not waive Lessor's right to recover damages under this Paragraph. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding the unpaid rent and damages as are recoverable therein, or Lessor may reserve therein the right to recover all or any part thereof in a separate suit for such rent and/or damages. If a notice and grace period required under subparagraphs 13.1(b),(c) or (d) was not previously given, a notice to pay rent or quit, or to perform or quit, as the case may be, given to Lessee under any statute authorizing the forfeiture of leases for unlawful detainer shall also constitute the applicable notice for grace period purposes required by subparagraphs 13.1(b),(c) or (d). In such case, the applicable grace period under subparagraphs 13.1(b),(c) or (d) and under the unlawful detainer statute shall run concurrently after the one such statutory notice, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute. (b) Continue the Lease and Lessee's right to possession in effect (in California under California Civil Code Section 1951.4) after Lessee's Breach and abandonment and recover the rent as it becomes due, provided Lessee has the right to sublet or assign, subject only to reasonable limitations. See Paragraphs 12 and 36 for the limitations on assignment and subletting which limitations Lessee and Lessor agree are reasonable. Acts of maintenance or preservation, efforts to relet the Premises, or the appointment of a receiver to protect the Lessor's interest under the Lease, shall not constitute a termination of the Lessee's right to possession. (c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state wherein the Premises are located. (d) The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises. 13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for free or abaled rent or other charges applicable to the Premises, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "Inducement Provisions," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease to be performed or observed by Lessee during the term hereof as the same may be extended. Upon the occurrence of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abaled, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, and recoverable by Lessor as additional rent due under this Lease, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this Paragraph shall not be deemed a waiver by Lessor of the provisions of this Paragraph unless specifically so stated in writing by Lessor at the time of such acceptance. 13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by the terms of any ground lease, mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor's designee within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance. 13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and by the holders of any ground lease, mortgage or deed of trust covering the Premises whose name and address shall have been furnished Lessee in writing for such purpose of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days after such notice are reasonably required for its performance, then Lessor shall not be in breach of this Lease if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion. 14. Condemnation. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (all of which are herein called "condemnation"), this Lease shall terminate as to the part so taken as of the date the condemning authority takes Initials ------------ title or possession, whichever first occurs. If more than ten percent (10%) of the floor area of the Premises, or more than twenty-five percent (25%) of the land area not occupied by any building, is taken by condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in the same proportion as the rentable floor area of the Premises taken bears to the total rentable floor area of the building located on the Premises. No reduction of Base Rent shall occur if the only portion of the Premises taken is land on which there is no building. Any award for the taking of all or any part of the Premises under the power of eminent domain or any payment made under threat of the exercise of such power shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold or for the taking of the fee, or as severance damages; provided, however, that Lessee shall be entitled to any compensation separately awarded to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated by reason of such condemnation, Lessor shall to the extent of its net severance damages received, over and above the legal and other expenses incurred by Lessor in the condemnation matter, repair any damage to the Premises caused by such condemnation, except to the extent that Lessee has been reimbursed therefor by the condemning authority. Lessee shall be responsible for the payment of any amount in excess of such net severance damage required to complete such repair. 15. Broker's Fee. 15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this Lease. 15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said Brokers jointly, or in such separate shares as they may mutually designate in writing, a fee as set forth in a separate written agreement between Lessor and said Brokers (or in the event there is no separate written agreement between Lessor and said Brokers, the sum of $__________________) for brokerage services rendered by said Brokers to Lessor in this transaction. 15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph 39.1) or any Option subsequently granted which is substantially similar to an Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to the Premises or other premises described in this Lease which are substantially similar to what Lessee would have acquired had an Option herein granted to Lessee been exercised, or (c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of the term of this Lease after having failed to exercise an Option, or (d) if said Brokers are the procuring cause of any other lease or sale entered into between the Parties pertaining to the Premises and/or adjacent property in which Lessor has an interest, or (e) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then as to any of said transactions, Lessor shall pay said Brokers a fee in accordance with the schedule of said Brokers in effect at the time of the execution of this Lease. 15.4 Any buyer or transferee of Lessor's interest in this Lease, whether such transfer is by agreement or by operation of law, shall be deemed to have assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a third party beneficiary of the provisions of this Paragraph 15 to the extent of its interest in any commission arising from this Lease and may enforce that right directly against Lessor and its successors. 15.5 Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any named in Paragraph 1.10) in connection with the negotiation of this Lease and/or the consummation of the transaction contemplated hereby, and that no broker or other person, firm or entity other than said named Brokers is entitled to any commission or finder's fee in connection with said transaction. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto. 15.6 Lessor and Lessee hereby consent to and approve all agency relationships, including any dual agencies, indicated in Paragraph 1.10. 16. Tenancy Statement. 16.1 Each Party (as "Responding Party") shall within ten (10) days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "Tenancy Statement" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party. 16.2 If Lessor desires to finance, refinance, or sell the Premises, any part thereof, or the building of which the Premises are a part, Lessee and all Guarantors of Lessee's performance hereunder shall deliver to any potential lender or purchaser designated by Lessor such financial statements of Lessee and such Guarantors as may be reasonably required to such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth. 17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or in this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor at the time of such transfer or assignment. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. 18. Severability. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof. 19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor within thirty (30) days following the date on which it was due, shall bear interest from the thirty-first (31st) day after it was due at the rate of 12% per annum, but not exceeding the maximum rate allowed by law, in addition to the late charge provided for in Paragraph 13.4. 20. Time of Essence. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease. 21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms of this Lease are deemed to be rent. 22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. 23. Notices. 23.1 All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by messenger or courier service) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature of this Lease shall be that Party's address for delivery or mailing of notice purpose. Either Party may by written notice to the other specify a different address for notice purposes, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for the purpose of mailing or delivering notices to Lessee. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by written notice to Lessee. 23.2 Any notice sent by registered or certified mail return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If send by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantees next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the United States Postal Service of courier. If any notice is transmitted by facsimile transmission or similar means, the same shall be deemed served or delivered upon telephone confirmation of receipt of the transmission thereof, provided a copy is also delivered via delivery or mail. If notice is received on a Sunday or legal holiday, it shall be deemed received on the next business day. 24. Waivers. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppal to enforce the provision or provisions of this Lease requiring such consent. Regardless of Lessor's knowledge of a Default or Breach at the time of accepting rent, the acceptance of rent by Lessor shall not be a waiver of any preceding Default or Breach by Lessee of any provision hereof, other than the failure of Lessee to pay the particular rent so accepted. Any payment given Lessor by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment. 25. Recording. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees or taxes applicable thereto. 26. No Right To Holdover. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration of earlier termination of this Lease. Initials ___________ 27. Cumulative Remedies. No remedy or election hereunder shall be deemed exclusive but shall, whenever possible, be cumulative with all other remedies at xxxx or in equity. 28. Covenants and Conditions. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. 29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the Laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located. 30. Subordination; Attornment; Non-Disturbance. 30.1 Subordination. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "Security Device") now or hereafter placed by Lessor upon the real property of which the Premises are a part, to any and all advances made on the security thereof, and to all renewals, modifications, consolidations, replacements and extensions thereof. Lessee agrees that the Lenders holding any such Security Device shall have no duty, liability or obligation to perform any of the obligations of Lessor under this Lease, but that in the event of Lessor's default with respect to any such obligation, Lessee will give any Lender whose name and address have been furnished Lessee in writing for such purpose notice of Lessor's default and allow such Lender thirty (30) days following receipt of such notice for the cure of said default before involving any remedies Lessee may have by reason thereof. If any Lender shall elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device and shall give written notice thereof to Lessee, this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof. 30.2 Attornment. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership, (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one (1) month's rent. 30.3 Non-Disturbance. With respect to Security Devices entered in to by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving assurance (a "non-disturbance agreement") from the Lender that Lessee's possession and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. 30.4 Self-Executing. The agreements contain in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any such subordination or non-subordination, attornment and/or non-disturbance agreement as is provided for herein. 31. Attorney's Fees. If any Party or Broker brings an action or proceeding to enforce the terms hereof or declare rights hereunder, the Prevailing Party (as hereafter defined) or Broker in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorney's fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgement. The term, "Prevailing Party" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgement, or the abandonment by the other Party or Broker of its claim or defense. The attorney's fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorney's fees reasonably incurred. Lessor shall be entitled to attorney's fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach. 32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises or to the building of which they are a part, as Lessor may reasonably deem necessary. Lessor may at any time place on or about the Premises or building any ordinary "For Sale" signs and Lessor may at any time during the last one hundred twenty (120) days of the term hereof place on or about the Premises any ordinary "For Sale" signs. All such activities of Lessor shall be without abatement of rent or liability to Lessee. 33. Auctions. Lessee shall not conduct, nor permit to be conducted, either voluntary or involuntary, any auction upon the Premises without first having obtained Lessor's prior written consent. Notwithstanding anything to the contrary in this Lease. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to grant such consent. 34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee may, with Lessor's prior written consent, install (but not on the roof) such signs as are reasonably required to advertise Lessee's own business. The installation of any sign on the Premises by or for Lessee shall be subject to the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations). Unless otherwise expressly agreed herein, Lessor reserves all rights to the use of the roof and the right to install, and all revenues from the installation of, such advertising signs on the Premises, including the roof, as do not unreasonably interfere with the conduct of Lessee's business. 35. Termination; Merger. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises: provided, however, Lessor shall, in the event of any such surrender, termination or cancellation, have the option to continue any one or all of any existing subtenancies. Lessor's failure within ten (10) days following any such event to make a written election to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest. 36. Consents. (a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided xxxxxxxx, xxxxxxx xxx this Lease the consent of a Party is required to an act by or for the other Party. Such consent shall not be unreasonably withheld or delayed Lessor's actual reasonable costs and expenses (including but not limited to xxxxxxxxxxx, attorney's, engineer's or other consultants fees) incurred as the consideration of, or response to, a request by Lessee for any Lessor consent pertaining to this Lease or the Premises, including but not limited to consents to an assignment, a subleting or the presence or use of a Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an invoice and supporting documentation therefor Subject to Paragraph 12.2(e) (applicable to assignment or subletting). Lessor may, as a condition to considering any such request by Lessee, require that Lessee deposit with Lessor an amount of money (in addition to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will incur in considering and responding to Lessee's request. Except as otherwise provided, any unused portion of said deposit shall be refunded to Lessee without interest. Lessor's consent to any act, assignment of this Lease or subletting of the Premises by Lessee shall not constitute an acknowledgement that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically slated in writing by Lessor at the time of such consent. (b) All conditions to Lessor's consent authorized by this Lease are acknowledged by Lessee as being reasonable. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. 37. Guarantor. 37.1 If there are to be any Guarantors of this Lease per Paragraph 1xx, the form of the guaranty to be executed by each Guarantor shall be in the form most recently published by the American Industrial Real Estate Association, and each said Guarantor shall have the same obligations as Lessee under this Lease, including but not limited to the obligation to provide the Tenancy Statement and information called for by Paragraph 16. 37.2 It shall constitute a Default of the Lessee under this Lease if any such Guarantor fails or refuses, upon reasonable request by Lessor to give (a) evidence of the due execution of the guaranty called for by this Lease, including the authority of the Guarantor (and of the party signing on Guarantor's behalf) to obligate such Guarantor on said guaranty, and including in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, together with a certificate of incumbency showing the signature of the persons authorized to sign on its behalf, (b) current financial statements of Guarantor as may from time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect. 38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and the observance and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession of the Premises for the entire term herein subject to all of the provisions of this Lease. 39. Options. 39.1 Definitions. As used in this Paragraph 39 the word "Option" has the following meaning: (a) the right to extend the term of this Lease or to renew the Lease or to extend or renew any lease that Lessee has on other property of Lessor: (b) the right of first refusal to lease the Premises or the right of first offer to lease the Premises or the right of first refusal to lease other property of Lessor or the right of first offer to lease other property of Lessor: (c) the right to purchase the Premises, or the right of first refusal to purchase the Premises, or the right of first offer to purchase the Premises, or the right to purchase other property of Lessor, or the right of first refusal to purchase other property of Lessor, or the right of first offer to purchase other property of Lessor. 39.2 Options Personal To Original Lessee. Each Option granted to Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and cannot be voluntary or involuntary assigned or exercised by any person or entity other than said original Lessee while the original Lessee is in full and actual possession of the Premises and without the intention of thereafter assigning or subletting. The Options, if any, herein granted to Lessee are not assignable, either as a part of an assignment of this Lease or separately or apart therefrom, and no Option may be separated from this Lease as any manner, by reservation or otherwise. Initials______ 39.3 Multiple Options. In the event that Lessee has any Multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options to extend or renew this Lease have been validly exercised. 39.4 Effect of Default on Options. (a) Lessee shall have no right to exercise an Option, notwithstanding any provision in the grant of Option to the contrary: (1) during the period commencing with the giving of any notice of Default under Paragraph 13.1 and continuing until the noticed Default is cured, or (ii) during the period of time any monetary obligation due Lessor from Lessee is unpaid (without regard to whether notice thereof is given Lessee) or (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three (3) or more notices of Default under Paragraph 13.1, whether or not the Defaults are cured during the twelve (12) month period immediately preceding the exercise of the Option. (b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise or Option because of the provisions of Paragraph 39.4(a). (c) All rights of Lessee under the provisions of an Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a period of thirty (30) days after such obligation becomes due (without any necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of Default under Paragraph 13.1 during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease. 40. Multiple Buildings. If the Premises are part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by, keep and observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, care, and cleanliness of the grounds, the parking and unloading of vehicles and the preservation of good order, as well as for the convenience of other occupants or tenants of such other buildings and their invitees, and that Lessee will pay its fair share of common expenses incurred in connection therewith. 41. Security Measures. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties. 42. Reservations. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedications, map or restrictions. 43. Performance Under Protest. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this Lease. 44. Authority. If either Party hereby is a corporation, trust, or general or limited partnership, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. If Lessee is a corporation, trust or partnership. Lessee shall, within thirty (30) days after request by Lessor, deliver to Lessor evidence satisfactory to Lessor of such authority. 45. Conflict. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions. 46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is not intended to be binding until executed by all Parties hereto. 47. Amendments. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. The parties shall amend this Lease from time to time to reflect any adjustments that are made to the Base Rent or other rent payable under this Lease. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably requested by an institutional, insurance company, or pension plan Lender in connection with the obtaining of normal financing or refinancing of the property of which the Premises are a part. 48. Multiple Parties. Except as otherwise expressly provided herein, if more than one person or entity is named herein as either Lessor or Lessee, the obligations of such Multiple Parties shall be the joint and several responsibility of all persons or entities named herein as such Lessor or Lessee. LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES. IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OF THE TRANSACTION TO WHICH IT RELATES: THE PARTIES SHALL RELY SOLELY UPON THE ADVISE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE, IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED. The parties hereto have executed this Lease at the place on the dates specified above to their respective signatures. Executed at __________________________ Executed at ____________________________ on ___________________________________ on _____________________________________ by LESSOR: by LESSEE: ______________________________________ ________________________________________ ______________________________________ ________________________________________ By ___________________________________ By _____________________________________ Name Printed: ________________________ Name Printed: __________________________ Title: _______________________________ Title: _________________________________ By ___________________________________ By _____________________________________ Name Printed: ________________________ Name Printed: __________________________ Title: _______________________________ Title: _________________________________ Address: _____________________________ Address: _______________________________ ______________________________________ ________________________________________ Tel. No. (___) _______________________ Tel. No. (___) _______________________ Fax No. (___) _______________________ Fax No. (___) _______________________ NET PAGE 10 NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax No. (213) 687-8516. Copyright 1990 - By American Industrial Real Estate Association. All rights reserved AMENDMENT NUMBER ONE TO REAL PROPERTY MASTER LEASE AGREEMENT This Amendment Number One to Real Property Master Lease Agreement is made as of the 1st day of January, 1997, with respect to the Real Master Lease Agreement dated January 1, 1997 ("Master Lease") between JAMES I. SWENSON and SUSAN G. SWENSON, AS TRUSTEES OF THE SWENSON FAMILY TRUST ("LESSOR") and DETAILS, INC. ("LESSEE") with respect to the following recitals of fact: R E C I T A L S A. Under the terms of the Master Lease, the parties contemplated that LESSEE would lease the building at 1200 Lance Lane when LESSOR's contemplated acquisition of that property had been consummated. B. LESSEE has not determined that additional square footage is desirable, and that LESSOR's buildings at 1295 Lance Lane containing 6,740 square feet (hereafter "Parcel 7") and 1275 Lance Lane containing 4,512 (hereafter "Parcel 13"), would be preferable to the building at 1200 Lance Lane. C. LESSEE and LESSOR, by this amendment to the Master Lease, desire to delete from the Master Lease the contemplated acquisition of 1200 Lance Lane and to include within the provisions of the Master Lease, Parcels 7 and 13, subject to the terms and conditions hereof. NOW THEREFORE, in consideration of the mutual covenants and conditions hereof, the parties agree to amend the Master Lease in the following respects only: 1. REVISION OF RECITAL B AND DELETION OF PARAGRAPH 2. Recital B of the Master Lease is amended to change Parcel 7 to recite the address as 1295 Lance Lane and the square footage as 6740, and to add Parcel 13 with he address of 1275 Lance Lane, and with square footage of 4,512. References in the Master Lease to Parcels 7 shall be deemed to be references to Parcels 7 and 13 herein. Paragraph 2 of the Master Lease is hereby deleted, and references in the Master Lease to Paragraph 2 shall be deemed to be references to Paragraph 2 below. 2. LEASE OF PARCELS 7 AND 13. LESSEE hereby leases from LESSOR, and LESSOR hereby leases to LESSEE the Parcels 7 and 13, effective on the date set forth in Paragraph 4 below. Each of the terms and conditions applicable to other Parcels under the Master Lease shall be applicable to Parcels 7 and 13, except only as expressly provided in the following paragraphs. LESSEE has inspected Parcels 7 and 13 and agrees to accept same, upon vacation of the premises by the current tenant, in their respective AS IS conditions, WITH ALL FAULTS. 3. RENT. The initial monthly base rent for Parcel 7 shall be $1.04 per square foot, and shall be subject to adjustments in the manner and on the dates provided in Paragraphs 3 and 4 of the Master Lease, except that the initial Beginning Index shall be the Index for August, 1996. The initial monthly base rent for Parcel 13 shall be $.60 per square foot, and shall be subject to adjustments in the same manner and on the dates provided in Paragraphs 3 and 4 of the Master Lease, except that the initial Beginning Index shall be the Index for August, 1996. 4. EFFECTIVE DATE. The leasing of Parcels 7 and 13 as set forth above shall commence as of January 1, 1997. Commencing on that date, the monthly base rent under the Master Lease will aggregate $74,228.00, subject to subsequent adjustments as provided therein and herein. 5. SOLE AMENDMENT. Except as expressly provided herein, (i) all provisions of the Master Lease shall be applicable to Parcels 7 and 13 leased herein, (ii) all provisions of the Master Lease shall remain in full force and effect, and (iii) terms used herein shall have the meanings ascribed thereto in the Master Lease. IN WITNESS WHEREOF, this Amendment Number One to Real Property Master Lease Agreement has been executed as of the day and year first above written. LESSOR: LESSEE: THE SWENSON FAMILY TRUST DETAILS, INC. by /s/ James I. Swenson, Trustee by /s/ Joseph P. Gisch --------------------------------- ----------------------------------- James I. Swenson, Trustee Joseph P. Gisch, Vice President Finance and Administration by /s/ Susan G. Swenson, Trustee --------------------------------- Susan G. Swenson, Trustee AMENDMENT NUMBER TWO TO REAL PROPERTY MASTER LEASE AGREEMENT This Amendment Number Two to Real Property Master Lease Agreement is made as of the 28 day of october, 1997, with respect to the Real Property Master Lease Agreement dated January 1, 1996, as amended (the "Master Lease") between JAMES I. SWENSON AND SUSAN G. SWENSON, AS TRUSTEES OF THE SWENSON FAMILY TRUST ("LESSOR"), AND DETAILS, INC. ("LESSEE"), which respect to the following recitals of fact: RECITALS WHEREAS, THE LESSOR AND LESSEE are party to a Recapitalization Agreement dated as of October 4, 1997, and in connection therewith LESSOR AND LESSEE have agreed to amend the Master Lease in certain respects. AGREEMENT NOW THEREFORE, in consideration of the mutual covenants and conditions hereof, the parties agree to amend the Master Lease in the following respects only, when and if the closing contemplated by said Recapitalization Agreement occurs: 1. SECTION 12. ---------- (A) PARAGRAPH 12.1(b). There is hereby added at the end of paragraph 12.1(b) the following: "No change of control shall be deemed to have occurred by reason of the dilution of any ownership position arising out of a public offering of securities of Lessee." (B) PARAGRAPHS 12.4 AND 12.5. There are hereby added to Section 12 of the Lease new paragraphs 12.4 and 12.5 to read as follows: 12.4 MANDATORY CONSENT BY LESSOR: Wherever Lessor's consent is required under 12.1 or 12.2 above, and Lessor shall not have otherwise granted such consent, if Lessee shall not then be in default hereunder, Lessor shall nevertheless grant its consent in connection with an assignment or subletting proposed to any entity with a lawful use for the premises provided that either subparagraphs (a)(i) or (a)(ii), and in each case (b) are satisfied: (a) Lessee shall: (i) provide to Lessor financial assurances in the form of security reasonably satisfactory to Lessor equal to the aggregate of the following: (i) 120% of the difference between the rent to be paid under this Lease from the date of assignment or subletting to the end of the term of this Lease, and the fair market rental value for the Premises (if less) from the date of assignment or subletting and the end of the term of this Lease (assuming the Premises are restored as required under this Lease), (ii) the reasonably estimated costs of placing the Premises in the condition required hereunder at the end of the term of this Lease, and (iii) the reasonably estimated costs of any repairs required to the Premises for which Lessee is obligated hereunder at the date of assignment or subletting. (ii) furnish to Lessor reasonable evidence that the proposed assignee's financial condition is sufficient to undertake the obligations under this Lease. For purposes hereof, such reasonable evidence shall consist of audited financial statements of assignee for the preceding fiscal year, together with financial statements for the interim period to the month preceding the request for consent to assignment, and cash flow projections for the remainder of the lease term all reflecting that the proposed assignee, during the periods covered by such financial statements would have cash flow sufficient to cover 200% of the rent ant other obligations payable under the Lease. (b) Lessee shall comply with and remain subject to the requirements of paragraph 12.2(a) of this Lease, but paragraphs 12.1(d), 12.2(g) and 12.2(h) shall not be applicable to such assignment or subletting. 12.5 CURE RIGHT OF LENDER. In the event of any default under this Lease, at least ten business days prior to effecting any remedy provided in this Lease or by law against Lessee which involves termination of the Lease or eviction from the premises, Lessor shall given written notice of the default and of the amount necessary to cure such default, if a monetary default, and/or, of the action necessary to cure the default if a non-monetary default is involved. Such notice shall be given to The Chase Manhattan Bank, 170 Park Avenue, New York, New york 10017-2070 (in its capacity as administrative agent under a Credit Agreement to which Lessee and others are parties or any successor administrative agent under such Credit Agreement which has notified Lessor in writing of such capacity and such sucessor's mailing address, telephone and telecopy numbers, contact person and loan or account reference number and such other relevant information (The Chase Manhattan Bank in its capacity as administrative agent or such successor being the "Administrative Agent"), by mail or facsimile transmission or personal service. If the Administrative Agent shall pay to Lessor any monetary default specified in such notice within said ten day period, the default shall be deemed to have been cured, and if the Administrative Agent shall cure the non-monetary default within such ten day period (or commence therein and diligently pursue to completion a cure of a non-monetary default), the default shall be deemed to have been cured. In the event that the Administrative Agent shall succeed to the control of Lessee pursuant to the Credit Agreement, fees and charges otherwise applicable in the event of a change of control of Lessee shall not be applicable to the Administrative Agent. This Paragraph 12.5 shall be applicable so long as monetary obligations of Lessee remain outstanding under the Credit Agreement or obligations to extend credit to Lessee under the Credit Agreement remain outstanding. The Administrative Agent may rely on the provisions of this paragraph 12.5." 2. SOLE AMENDMENT. Except as expressly provided herein, (i) all provisions of the Master Lease shall remain in full force and effect and (ii) terms used herein shall have the meaning ascribed thereto in the Master Lease. IN WITNESS WHEREOF, this Amendment Number Two to the Real Property Master Lease has been executed as of the date first above written. LESSOR: LESSEE: THE SWENSON FAMILY TRUST DETAILS, INC. by /s/ James I. Swenson by --------------------------- --------------------------- James I. Swenson, Trustee Joseph P. Gisch Vice President by /s/ Susan G. Swenson --------------------------- Susan G. Swenson, Trustee contact person and loan or account reference number and such other relevant information (The Chase Manhattan Bank in its capacity as administrative agent or such successor being the "Administrative Agent"), by mail or facsimile transmission or personal service. If the Administrative Agent shall pay to Lessor any monetary default specified in such notice within said ten day period, the default shall be deemed to have been cured, and if the Administrative Agent shall cure the non-monetary default within such ten day period (or commence therein and diligently pursue to completion a cure of a non-monetary default), the default shall be deemed to have been cured. In the event that the Administrative Agent shall succeed to the control of Lessee pursuant to the Credit Agreement, fees and charges otherwise applicable in the event of a change of control of Lessee shall not be applicable to the Administrative Agent. This Paragraph 12.5 shall be applicable so long as monetary obligations of Lessee remain outstanding under the Credit Agreement or obligations to extend credit to Lessee under the Credit Agreement remain outstanding. The Administrative Agent may rely on the provisions of this paragraph 12.5." 2. SOLE AMENDMENT. Except as expressly provided herein, (i) all provisions of the Master Lease shall remain in full force and effect and (ii) terms used herein shall have the meaning ascribed thereto in the Master Lease. IN WITNESS WHEREOF, this Amendment Number Two to the Real Property Master Lease has been executed as of the date first above written. LESSOR: LESSEE: THE SWENSON FAMILY TRUST DETAILS, INC. by by /s/ Joseph P. Gisch ------------------------- ------------------------- James I. Swenson, Trustee Joseph P. Gisch Vice President by ------------------------- Susan G. Swenson, Trustee EX-10.9 14 PERSONAL PROPERTY MASTER LEASE AGREEMENT PERSONAL PROPERTY MASTER LEASE AGREEMENT This Master Lease Agreement is made as of the 1st day of January, 1996, between JAMES I. SWENSON and SUSAN G. SWENSON, AS TRUSTEES OF THE SWENSON FAMILY TRUST ("LESSOR") AND DETAILS, INC. ("LESSEE") with respect to the following recitals of fact: RECITALS A. LESSOR is the owner of the equipment set forth on Schedule "A" hereto ("Equipment"), which is currently leased to LESSEE under Lease Agreements dated May 1, 1981 and June 25, 1982, respectively, which Lease Agreements have been amended from time to time and which have been extended through December 31, 1995 (collectively "Terminated Leases"). The Equipment is located in various of LESSEE's facilities on Lance Lane and Simon Circle in Anaheim, California. B. The aggregate current monthly rental for the Equipment as of December 1, 1995 is $30,400,00. C. The parties desire by this Master Lease Agreement to consolidate the Lease Agreements and the various amendments, to provide for a single rental rate, and to provide for common lease terms. NOW THEREFORE, in consideration of the mutual covenants and conditions hereof, the parties agree as follows: 1. EQUIPMENT LEASED. LESSOR hereby leases to LESSEE and LESSEE hereby leases from LESSOR the Equipment on and subject to the terms and conditions hereinafter set forth. 2. RENT. The rent during the term hereof shall be $30,400 per month, commencing on January 1, 1996. Rent shall be payable on the first day of each month. Rent not paid by the tenth of each month shall bear interest at the rate of 10% per annum from the first of such month, and shall be subject to a late charge not exceeding 10% of the amount due, in addition to other remedies at law or hereunder. 3. TERM. The term of this Master Lease Agreement shall be from January 1, 1996 to December 31, 2005. The term may be extended at LESSEE's option for an additional ten years commencing on January 1, 2006 to December 31, 2015, provided that (i) this Master Lease Agreement has not theretofor been terminated, (ii) LESSEE is not then in default under the terms of this Master Lease Agreement, and (iii) LESSEE has exercised this Extension Option. LESSEE may only exercise this Extension Option by delivering to LESSOR written notice that LESSEE by such notice elects to exercise its Extension Option not later than August 1, 2005, and shall be thereupon bound to perform the obligations of LESSEE during the ten years commencing on January 1, 2006. 4. PURCHASE OPTION. LESSEE shall have a purchase option to purchase all Equipment under this Master Lease Agreement at the Purchase Option Exercise Date. LESSEE may purchase all such Equipment provided that (i) this Master Lease Agreement has not theretofor been terminated, (ii) LESSEE is not then in default under the terms of this Master Lease Agreement, and (iii) LESSEE has exercised this Purchase Option. LESSEE may only exercise this Purchase Option by delivering to LESSOR written notice that LESSEE by such notice elects to exercise its Purchase Option on the Purchase Option Exercise Date, which shall be (i) not later than July 1, 2005, or (ii) if LESSEE has exercised its Extension Option, not later than July 1, 2015, and shall be thereupon obligated to purchase the Equipment on December 31, 2005 (or if LESSEE has exercised its Extension Option, on December 31, 2015) and if such December 31 is a legal holiday, then the purchase shall be consummated on the first business day preceding such December 31 that is not a legal holiday. To be valid such notice from LESSEE shall be accompanied by escrow instructions executed by LESSEE with a responsible escrow company in Orange County, reflecting LESSEE'S deposit with such escrow holder of $100,000, forfeitable to LESSOR should LESSEE fail to purchase such Equipment for any reason other than LESSOR's inability to deliver title. LESSOR shall within seven days of receipt execute and deliver such escrow instructions to LESSEE and the escrow holder. The escrow shall obligate LESSOR solely to deliver an assignment to all Equipment then subject to this Master Lease Agreement. LESSOR shall cause the condition of title not later than the close of escrow to be free and clear of all liens and encumbrances, except solely (i) the lien for current taxes, (ii) any liens or assessments for municipal - 2 - improvements hereafter arising, and (iii) any lien or encumbrance caused by any act or omission of LESSEE occurring on or after the date hereof. Escrow holder shall deduct and pay from the purchase price, the amount of any liens or encumbrances other than items (i) and (ii). The purchase price shall be paid in cash on close of escrow to LESSOR, and LESSOR shall be without cost in the escrow, all fees, charges and costs shall be paid for by LESSEE. The purchase price shall be fair market value of the Equipment as determined: (i) by negotiation between the parties, or (ii) if they are unable to agree within thirty days following exercise of the option, by an appraiser selected by the parties to determine the fair market value in such appraiser's discretion within thirty days following such appointment. If the parties cannot agree on an appraiser, they shall each appoint an appraiser ("party appraiser") within 45 days following exercise of the option, who in turn within five days following such appointment shall together appoint a third appraiser. Within thirty days thereafter, each appraiser shall independently submit his or her appraisal in writing. The purchase price shall be the fair market value of the Parcels so determined by the third appraiser, except that if both of the party appraisers submit a higher value, the purchase price shall be the lowest of the amounts submitted by the party appraisers. 5. NONWARRANTY AND NONMAINTENANCE. Notwithstanding anything contained in the incorporated provisions of this Master Lease Agreement, LESSOR makes no warranty with respect to the condition of the Equipment. LESSEE acknowledges that it has had exclusive possession and use of the Equipment, prior to entering this Master Lease Agreement, and has inspected and accepts same, all AS IS and WITH ALL FAULTS. LESSEE shall be exclusively responsible for the continuing maintenance of all Equipment. 6. INSURANCE, INDEMNITY AND RISK OF LOSS. LESSEE shall maintain at all times, at LESSEE's cost, insurance against all insurable risks of loss for the full replacement value thereof, together with insurance against all public liability, employer and other liability which may arise from possession and use of the Equipment by LESSEE. Each such policy shall name LESSOR as an additional insured, and shall contain an endorsement requirement not less than thirty days prior notice to LESSOR in the event of cancellation or non-renewal. LESSEE shall furnish LESSOR with a copy of each policy. -3- Notwithstanding any insurance requirement hereunder, LESSEE shall bear the entire risk of loss or damage from any cause, and no loss or damage shall impair any obligation of LESSEE hereunder, including without limitation, the obligation to pay rent during the term hereof, LESSEE shall further indemnify, save harmless and defend LESSOR, from and against all claims and demands, and any loss, liability and expense, including reasonable attorneys fees, arising out of the LESSEE's possession or use of the Equipment. 7. DEFAULT. Upon any default in the payment of rent, in addition to late charges and interest, or upon any failure to observe the covenants of this Master Lease Agreement, LESSOR may elect to declare a default. Upon such election, LESSOR shall give LESSEE written notice of such default, and the amount due if a rent default, or the nature of the default and the action required to correct the default if other than nonpayment of rent. LESSEE shall have twenty four hours thereafter to cure a rent default by full payment in cash of the full amount due including late charges and interest, and by compliance with the requirements for cure if other than payment of rent within twenty four hours, or if same cannot be cured within twenty four hours to commence such cure and pursue same diligently until completion. If such cure is not so effected, or the default is of a nature which is not capable of cure, then LESSOR may exercise any or all of the following remedies, the exercise of any one or more of which shall not constitute an election of remedies and shall not preclude recovery of any rent or damages due or to become due under this Master Lease Agreement: (a) Acceleration of Rent. To declare the entire amount of rent due during the term of this Master Lease Agreement to be immediately due and payable. (b) Legal Action. To sue and recover all rents and other amounts due, and recover the Equipment. (c) Seizure. To enter the premises and take possession and remove the Equipment, without demand or notice, wherever located, without court order or other process of law, and without liability for damages occasioned thereby, hereby waived by LESSEE. (d) Termination. To terminate this Master Lease Agreement. -4- (e) Other Remedies. To pursue any other remedy available to LESSOR at law. 8. EXPENSES. LESSEE shall pay all costs and expenses, including reasonable attorneys fees, incurred by LESSOR in enforcing any of the provisions of this Master Lease Agreement. 9. ASSIGNMENT. LESSEE may assign its rights hereunder or sublease the Equipment or portions thereof, provided that no such assignment or sublease shall relieve LESSEE of any obligation hereunder, and that LESSEE shall remain liable for the performance of all obligations of LESSEE hereunder. 10. OWNERSHIP. The Equipment is and shall remain owned solely by LESSOR, unless a purchase of the Equipment by LESSEE is completed hereunder. The Equipment shall at all times remain personal property, whether or not affixed in any manner to real property. 11. PERMITS AND TAXES. LESSEE shall at its sole cost and expense obtain all necessary permits, consents and authorizations connected with the movement, installation, use and operation of the Equipment. LESSEE shall pay, on a timely basis, all property taxes and assessments levied with respect to the Equipment. 12. NONWAIVER. No covenant of this Master Lease Agreement shall be deemed to have been waived or released, unless LESSOR shall have waived or released such covenant in writing. Any breach deemed waived by operation of law, shall be a waiver solely of such individual circumstance of breach, and shall not apply to any subsequent or continuing breach. 13. NOTICES. Any notice hereunder shall be in writing and shall be deemed delivered when personally served, whether by courier or other person, or three business day after deposit with the U.S. Postal Service, postage prepaid and certified, addressed as follows, or to such other address as either party by notice hereunder shall designate: IF TO LESSEE: Details, Inc. 1231 Simon Circle Anaheim, California 92806 -5- IF TO LESSOR: THE SWENSON FAMILY TRUST JAMES I. AND SUSAN G. SWENSON, TRUSTEES 34372 Street of the Cove Lanterns Dana Point, California 92529 with copy to: ALAN R. WOLEN, ESQ. POST OFFICE BOX 2711 BLUE JAY, CALIFORNIA 92317 14. TERMINATED LEASES. Upon execution hereof, the Terminated Leases shall be without further force or effect, and each party hereto, as lessee and lessor thereunder, hereby acknowledges that the other has performed all obligations required under the Terminated Leases, and that neither party any further claim or right against the other arising from the Terminated Leases, except that lessee thereunder shall be responsible for any third party charges for property taxes, insurance and maintenance charges otherwise payable by lessee, but not yet billed. 15. FAIR DEALING, CONSENTS, ASSIGNMENT. In connection with the performance of their respective obligations under this Master Lease Agreement, LESSOR and LESSEE shall act in good faith and in a commercially reasonable manner. Should any consent of LESSOR be required in connection with the provisions hereof, (i) such consent shall not unreasonably be withheld, and (ii) such consent shall be deemed granted if any trustee of LESSOR, or trustee or other person (in the event LESSOR is not a trust) with the power to bind LESSOR, while acting in the capacity of an officer or director of LESSEE shall take any action, or while exercising rights as a shareholder of LESSEE, shall vote or consent in writing to authorize s specific act or omission, requiring consent of LESSOR under this Master Lease Agreement. LESSOR hereby consents to one or more collateral assignments of LESSEE's interest hereunder pursuant to one or more loan agreements, which each involve an extension of credit of not less than $7 million to LESSEE. LESSOR agrees to evidence its consent to such assignments by executing documents reasonably satisfactory to LESSOR. -6- 16. MISCELLANEOUS. This Master Lease Agreement: (i) is an integration of all promises and agreements of the parties, (ii) shall be governed and interpreted under California law, (iii) shall inure to the benefit of and be binding upon the parties, their successors and assigns, (iv) may be amended or modified solely by an agreement in writing signed by the parties. IN WITNESS WHEREOF, the parties have executed this Master Lease Agreement as of the day and year first above written. LESSOR: THE SWENSON FAMILY TRUST by /s/ James I. Swenson ------------------------------ James I. Swenson, Trustee by /s/ Susan G. Swenson ------------------------------ Susan G. Swenson, Trustee LESSEE: DETAILS, INC. by /s/ James I. Swenson ------------------------------ James I. Swenson, Chairman and Chief Executive Officer by /s/ Susan G. Swenson ------------------------------ Susan G. Swenson, Secretary - 7 - SCHEDULE "A" SCHEDULE LEASED EQUIPMENT - --------------------------------------------------------------------------------
ITEM DESCRIPTION MODEL SERIAL NUMBER - ---- ----------- ------------- 1 Orbotech Computerized Optical 390 Inspection System 2 Kahn Area Calculator KC-141-043 3 Electro Mechanico Drill Unit 105W 4 Barnaby Router 104 5 Screening Set Up Unit 5000 6 Stereo Microscope with Zoom 570 7 Light Table LT 8 Pressure Washer OPS 12 9 Arbor Press 125 10 Smear Removal Line - 11 Unidrill Unit 1230 12 Laminating Press PC75-18-4-TM 13 Grieve Oven 333 14 Light Table - 15 Screening Chases - 16 Gold Saver Pump and Resin Column - 17 Screening Table 5000 18 Mark VI Drilling Machine -
- ------ * All Equipment is wholly owned by LESSOR, except that LESSEE has a one/third undivided interest in Item 1 only. - 8 - SCHEDULE "A" PAGE 2 SCHEDULE LEASED EQUIPMENT - --------------------------------------------------------------------------------
ITEM DESCRIPTION MODEL SERIAL NUMBER - ---- ----------- ------------- 19 Wabash Multilayer Laminator - 20 Kol-Press Multilayer Laminator - 21 OPIC III "B" with General - Automation Controller, CPC, CRT, Power Supply 01731, Reader, Punch, Accessory Kit X/Y Display, Plotter and MCC Software 22 XL5 "A" C/R with General - Automation Controller, CNC-5, Power Supply, Excellon Quiet Drills, Automatic Tool Changer Tooling Plates, Accessory Kit Heat Exchanger, Subplates, Automatic Feeds and Speeds, Step Up Transformer, MCC Software 23 HYD Shear Unit - 16 Gauge - 24 Rotary Air Compressor with 120 - Gallon Horizontal Air Receiver, Aftercooler, Moisture Separator, Fused Switch, Refrigerated Air Dryer, Coalescing In-Line Filter
- 9 - EX-10.10 15 MCMASTER EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN This Employment Agreement and Incentive Compensation Plan ("Agreement") is made as of the 1st day of September, 1995, between Details, Inc., a California corporation ("Details"), and Bruce D. McMaster ("Employee") with respect to the following recitals of facts: R E C I T A L S A. Details is an electronics component manufacturer engaged in the business of quick turn-around production of high quality multilayer printed circuit boards for production prototype applications and for urgently needed assembly operations in the electronics industry. B. Employee is presently an employee of Details who has been appointed to the position of President. C. Details and Employee entered into an Employee Incentive Compensation Plan on December 12, 1994, with respect to the calendar year 1995 providing for a Base Salary and Additional Compensation to be paid to Employee quarterly during such year, provided that employment has not theretofor been terminated ("1955 Plan"). Definitions in the 1995 Plan are incorporated herein, and capitalized terms used in the 1995 Plan which are utilized herein shall have the meanings set forth in the 1995 Plan, unless otherwise provided herein. D. Details and Employee desire by this Agreement to provide for the terms of employment, an exclusive employment obligation, and a plan of compensation for employee for the three year period following the expiration of the 1995 Plan, and to amend the 1995 Plan as hereafter set forth. NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions hereinafter set forth, the parties agree as follows: 1. EMPLOYMENT OF EMPLOYEE. On and subject to the terms and conditions hereinafter set forth, Details hereby offers to Employee and Employee hereby accepts employment with Details, Inc., as President. 2. TERM. This Agreement shall cover the term commencing on September 1, 1995 and ending on December 31, 1998. 3. COMPENSATION. The compensation payable to Employee while employed under this Agreement during the term hereof shall be as follows: A. Compensation for Period from September 1, 1995 through December 31, 1995. During the remainder of the term of the 1995 Plan, Employee shall continue to receive the Base Salary and Additional Compensation as therein provided. B. Compensation for the Period January 1, 1996 through December 31, 1998. (i) The Base Salary for each Year shall be as follows:
Year Base Salary ---- ----------- 1996 $325,000 1997 $375,000 1998 $425,000
(ii) The Additional Compensation for each Year shall be determined using the methodology employed in the 1995 Plan, except that: (i) the Gross Profit actually achieved in any month shall be subject to the adjustments in subsection D below in determining Additional Compensation, and (ii) the Minimum Gross Profit in each Month during the term hereof to be used in determining Additional Compensation shall be the amount set forth below:
Minimum Year Gross Profit ---- ------------ 1996 $1,000,000 1997 $1,250,000 1998 $1,500,000
-2- (iii) Under the 1995 Plan, the maximum Additional Compensation for the Year does not exceed $250,000. The maximum Additional Compensation in subsequent Years under this Agreement shall be as follows:
Maximum Additional Year Compensation ---- ------------------ 1996 $300,000 1997 $400,000 1998 $500,000
C. Employee shall be paid Additional Compensation on a quarterly basis, and subject to the usual deductions, in the same manner as is provided in the 1995 Plan. D. For purposes of determining the Additional Compensation in each month, the Gross Profit actually achieved in such month shall be adjusted as follows: (i) In each Month in which the Minimum Gross Profit is not achieved ("Deficient Month"), the deficiency shall be offset against the amounts by which the Gross Profit actually achieved in each subsequent month exceeds the applicable Minimum Gross Profit for such subsequent month, until the deficiency arising from the Deficient Month if fully offset. (ii) In each Month in which, in connection with enforcement of any fire or building and safety law, environmental or toxics control law, wage and hour law or other employee compensation or benefit law, occupational safety or health law, or other law regulating production or other operations, Details shall be assessed a fine, penalty or other charge by any governmental agency, or is ordered to pay additional compensation to any employee, or is ordered to pay any amount to a third party, or shall expend fees or costs for legal or other services to defend against any such action or proceeding by any governmental agency, the aggregate amount of such expenses shall reduce the Gross Profit actually achieved for such Month, and in the event that such adjustment creates or adds to a Deficient Month, the provisions of the preceding clause (ii) above relating to offsets in -3- subsequent Months shall also be applicable. In the event that the Board of Directors had been apprised by any officer of the need to appropriate funds in order to prevent the imposition of such fine, penalty or other charge, or additional compensation, or amount ordered to be paid to a third party, in a writing delivered to the Board members in sufficient time to hold a board meeting, appropriate funds and effect compliance with such law, and the Board shall fail to do so, then the adjustment to Gross Profit in this clause (ii) shall not apply in such circumstance. E. In addition to the foregoing, the Board of Directors, may, in its sole and exclusive discretion, grant an additional bonus to Employee. 4. GENERAL OBLIGATIONS OF EMPLOYEE. During the term hereof, employee shall: A. Devote his full employment energies, interest, abilities, time and attention to the performance of his obligations hereunder, and shall not, without the written consent of the Chairman and/or Chief Executive Officer of Details, render any service of any kind to a third party for compensation. B. Not engage in any activity which conflicts with or interferes with the performance of his duties hereunder, whether or not for compensation. C. Provide his exclusive loyalty to Details, with a view toward maintaining the highest quality standards, improving profitability through cost controls, increasing revenues consistent with holding margins, assuring compliance with applicable laws, sustaining employee morale, and assuring equipment is maintained in its best operating condition. 5. SPECIFIC DUTIES OF EMPLOYEE. Subject at all times to the direction of the Board of directors and the approval of the Chairman and/or Chief Executive officer, employee shall: A. Establish, implement and oversee corporate policies, objectives and planning for the administrative, marketing and operational functions of Details. -4- B. Assure prompt, accurate and complete reporting of all material information regarding administrative, marketing and operational functions of Details to the Chairman and Chief Executive Officer. C. Maintain full and adequate controls over corporate commitments and expenditures to assure continuous fiscal integrity and profitability. D. Establish and improve systems to monitor and investigate corporate activities to assure continuous compliance with applicable laws and regulations. E. Investigate and correct irregularities as required from time to time to assure full compliance with law, first quality effort and results by personnel, and proper internal reporting and communications. F. Represent and continuously promote the interests of Details with all major customers, potential customers, personnel, sales and marketing representatives, and major vendors. G. Establish and maintain controls to assure proper morale of personnel, adequacy of staffing, proper budgeting for current operations and anticipated capital and other expenditures, maintenance and improvement of product margins, full product quality assurance and proper operational systems (including ISO 9000 standards compliance). H. Coordinate with subordinate executives, managers and supervisors to assure smooth implementation of corporate plans and objectives. I. Perform such other reasonable tasks and functions as directed by the Chairman and Chief Executive Officer of Details. 6. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT. A. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Employee now possesses and will obtain "Confidential Information", which is all information disclosed or obtained in connection with employment with Details, (i) which has been created, discovered, developed or otherwise become known to Details, its customers, or -5- suppliers, and/or in which proprietary rights have been assigned or otherwise provided to Details, and (ii) which has commercial value in the businesses in which Details and its customers and suppliers are engaged. Employee agrees that all Confidential Information is a valuable property and asset of Details, and Details shall be the sole owner of all patents, trademarks, copyrights, trade secrets, and other proprietary rights arising therefrom. Employee shall at all times, during and after employment maintain the confidentiality of Confidential Information, and not use or disclose same other than (a) for a purpose connected with Employee's obligations to Details under this agreement, or (b) with the written consent of the Chairman and/or Chief Executive Officer of Details. (i) The following are examples of Confidential Information, but not an exclusive listing: information relating to trade secrets, processes, customer lists, structures, formulas, data, know-how, techniques, marketing plans, manufacturing methods, strategies, forecasts, products, equipment utilization, software and financial data. (ii) Notwithstanding the foregoing, Confidential Information does not include information (a) generally available to the public, (b) contained in an issued patent, or (c) generally known to persons in the printed circuit board business. B. INVENTION AND PROPRIETARY RIGHTS ASSIGNMENT. Employee hereby irrevocably grants and assigns to Details for its sole use and benefit all Proprietary Rights, being trade or service marks, designs, logos, inventions, trade secrets, improvements, technical information and suggestions regarding Details business and operations, which Employee may have heretofor developed or acquired during his employment at Details, or which may hereafter be developed or acquired during the term hereof, together with all applications, trademark, patents, copyrights (including future copyrights pursuant to Section 37 of the Copyright Act of 1986 and any amendment or successor provision thereto) related thereto and to any improvements thereon. To carry out these obligations, Employee shall during the term hereof and at any time thereafter: (i) Assure that Details has received prompt and full disclosures of all such Proprietary Rights. -6- (ii) Execute and deliver on demand such applications, assignments, descriptions and other instruments (prepared at Details' expense) relating to Proprietary Rights as Details shall reasonably request to enable proper documentation and registrations of its rights hereunder. (iii) Assist Details, at Details expense, in the connection with preparing and prosecuting applications relating to Proprietary Rights, and in connection with otherwise securing and/or defending its Proprietary Rights, including by way of litigation. 7. EXCLUSIVE EMPLOYMENT WITH DETAILS. During the term, Employee shall not be employed by, seek any employment with (except after September 30, 1998, if anticipating leaving Details on expiration of this agreement), any person (including, without limitation, any individual, corporation, business association, partnership or other entity) other than Details. A. EMPLOYEE ACKNOWLEDGEMENTS. Employee herby expressly acknowledges and agrees that he has received training and experience at Details which has enabled him to become a special uniquely talented manager in the printed circuit board business, possessing special capabilities to manage a high speed turn around, high margin, superior quality product and high volume output operation. Employee further acknowledges (i) the business of such quick turn-around printed circuit board production is a small fraction of the electronic component business, and even of the overall printed circuit board production portion thereof, (ii) that a material portion of the consideration being committed to by Details hereunder for the term hereof relates to the value of Employee's exclusive employment with Details and nonemployment with others, and (iii) the loss of such talents to another printed circuit board manufacturer will cause damages to Details in amounts which are difficult of ascertainment, and will cause irreparable injury to Details. B. NONCOMPETITION. Employee hereby covenants that in the event Employee shall refuse to work for Details or shall be discharged for cause as hereafter defined, Employee shall not directly or indirectly: (i) discuss, seek or obtain employment or consulting arrangements with any other electronic component manufacturer who is engaged or intends to engage in product manufacture of -7- the type engaged in by Details (collectively: "competitive business") at any time prior to December 31, 1998, (ii) indirectly engage in any competitive business as a partner, stockholder, officer or director thereof, (iii) interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between Details and any other person, including without limitation, any customer, supplier or employee of Details, or (iv) induce any employee of Details to terminate employment or to engage in any competitive business. For this purpose, the term employment, shall include any consultation with, or the provision of advice or other services, to another electronic component manufacturer, directly or indirectly, whether or not for compensation, which advice or services may be used for purposes competitive with the business of Details. C. REMEDIES - SPECIFIC PERFORMANCE. In addition to all remedies which may be available at law to Details arising from any breach of this section, Employee agrees that Employee's services to be rendered are of a special, unique, extraordinary and intellectual character, giving them a peculiar value, the loss of which cannot be adequately or reasonably compensated in damages in any action at law, and that a breach by Employee of any of the terms hereof will cause Details to suffer irreparable injury and damage. Employee hereby expressly agrees that Details shall be entitled to the remedies of injunction, specific performance and other equitable relief in connection with a breach or potential breach of this agreement by Employee. 8. DISCHARGE FOR CAUSE. Employee may be discharged only for any of the following causes, which shall be effective upon written notice thereof to employee. Upon any such discharge, (i) Employee's entitlement to benefits (subject only to legal requirements of general application for continuation of benefits, such as COBRA) and other compensation under this agreement shall cease, and (ii) Employee shall return all property of Details within 24 hours following such termination, including without limitation all Confidential Information and Proprietary Rights. A. BREACH. Any failure or refusal to comply in good faith with the obligations of employee under this agreement. In the event such breach is, in the sole determination of the Board of Directors, of a type which is not irreparable and which has not diminished the reputation of Details or the moral of its employees, -8- Employee shall be given written notice of the nature of such breach and the requirements for cure thereof, and Employee shall immediately cure same, or if it cannot immediately be cured, shall immediately commence and diligently pursue to completion such cure, which may require reimbursement of losses arising from such breach to Details. Should such cure not be so effected, or should such breach recur thereafter, Employee shall be discharged. B. INCAPACITY. The inability to perform the obligations of employee under this agreement due to death, injury, disease, mental illness or other disability, which shall continue for a period of 90 days, or which, in the aggregate shall involve 120 days in the preceding twelve month period. C. DISHONESTY. (i) As determined by the Board in good faith based upon substantial evidence, any of the following whether or not actual criminal prosecution or conviction arises therefrom: (a) perpetration of, or attempt to perpetrate, any fraud, embezzlement or theft with respect to Details, or any of its shareholders, directors, personnel, vendors or customers, or (b) perpetration of any conduct involving moral turpitude, or (ii) conviction of any misdemeanor where imprisonment results, or (iii) conviction of any felony, or of any misdemeanor originally charged as a felony, whether or not imprisonment results. D. DISCRIMINATORY/SEXUAL MISCONDUCT. As involves personnel, vendors, and customers of Details, any conduct involving (i) unlawful discrimination based on age, gender, race, national origin, or religion; and/or (ii) unlawful sexual harassment. 9. VACATIONS AND BENEFITS. Employee shall be entitled to benefits generally available to Details full time personnel, such as participation in health care plans and similar benefit plans, including vacation and sick pay entitlements for salaried employees, vehicle use or allowances, and reimbursement of reasonable expenses incurred in the discharge of Employee's obligations hereunder. -9- 10. INUREMENT. This agreement shall be binding upon and inure to the benefit of the parties, and their successors, assigns and personal representatives. 11. ASSIGNMENT. Employee may not assign this agreement or any interest therein. Details may assign this agreement to any entity which shall assume all of the obligations of Details hereunder, provided that either (i) Details shall own a majority of the voting securities of such entity, or (ii) such entity has purchased a majority of the assets of Details. Upon any such assignment, Details shall be released from all obligations hereunder. 12. NOTICES. Any notices required or permitted under this agreement shall be in writing and shall be deemed delivered to (i) Employee when (a) personally handed to Employee, whether at Details or elsewhere, or (b) two days following depositing same in the United States Mail, postage prepaid, certified mail return receipt requested, addressed to Employee at Employee's home address as from time to time contained in the personnel records of Details, or (ii) Details, when (a) personally handed to the Chairman and/or Chief Executive Officer, or (b) two days following depositing same in the United States Mail, postage prepaid, certified mail return receipt requested, addressed to the Chairman and/or Chief Executive Officer of Details, at the then applicable address for the administrative offices of Details. 13. INTEGRATION. This agreement, together with the 1995 Plan, contain the entire understanding of the parties relating to the subject matter hereof, and shall supersede all other written and oral prior and contemporaneous promises and agreements. 14. APPLICABLE LAW AND INTERPRETATION. This agreement is made in the State of California, and California law shall govern its interpretation. The provisions of this agreement were negotiated by the parties and/or their representatives and shall be construed in accordance with their fair meaning and intent, and not against either party generally. 15. ENFORCEMENT. Should legal action between the parties be necessary or appropriate to enforce any of the provisions hereof, the prevailing party shall be entitled to recover reasonable attorneys fees, whether or not such action proceeds to a final judgement. -10- 16. SEVERABILITY. If any of the provisions of this agreement, as applied to a particular party or circumstance, shall be found by a court with proper jurisdiction to be void or unenforceable, such finding shall not affect the provision in any other application, or the validity or enforceability of other provisions hereof. 17. AMENDMENTS. any amendment to this agreement must be in writing and signed by each of the parties to be valid, and any purported amendment not meeting the requirements of this section shall be without force or effect. IN WITNESS WHEREOF, this agreement is executed as of the day and year first above written. EMPLOYEE: DETAILS, INC. /s/ Bruce D. McMaster by /s/ James I. Swenson CEO - ------------------------ ------------------------ BRUCE D. McMASTER JAMES I. SWENSON CHAIRMAN AND CHIEF EXECUTIVE OFFICER -11- AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN This Amendment No. 1 to the Employment Agreement and Incentive Compensation Plan is made as of October 28, 1997, between Details, Inc., a California corporation ("Details"), and Bruce D. McMaster ("Employee") with respect to the following recitals of facts: RECITALS A. Employee is presently an employee of Details. B. Details and Employee entered into an Employment Agreement and Incentive Compensation Plan on September 1, 1997 (the "Agreement") which provided the terms of employment and a plan of compensation for Employee. Capitalized terms used herein shall have the meanings set forth in the Agreement, unless otherwise provided herein. C. On October 28, 1997, Details entered into an Amended and Restated Recapitalization Agreement (the "Recapitalization Agreement") pursuant to which it will exchange its capital stock for certain consideration on the closing date (the "Closing Date"). Employee is a stockholder and optionholder of Details and will derive substantial personal economic benefit from the consummation of the transaction contemplated by the Recapitalization Agreement. D. The Recapitalization Agreement contemplates that the parties hereto execute this Agreement. E. Details and Employee desire by this amendment to provide for the continued employment and to extend the term of the employment of the Employee on the terms contained in the agreement as amended hereby. NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions hereinafter set forth, the parties agree as follows: 1. CONTINUED EMPLOYMENT OF EMPLOYEE. On and subject to the terms and conditions set forth in the Agreement as amended hereby (the "Amended Agreement"), Details hereby offers to Employee and Employee hereby accepts continued employment with Details as President. In the event of a conflict between any provision of this Amended Agreement and the Agreement, the provisions of the Amended Agreement shall control. 2. TERM. This Amended Agreement shall cover the term commencing on the Closing Date and ending three calendar years from the Closing Date (the "Expiration Date"). 3. COMPENSATION. The Base Salary for fiscal years 1997, 1998 and 1999 shall be $375,000, $425,000 and $450,000, respectively. The Base Salary for each year on or after January 1, 2000 covered by the Amended Agreement will be established by Details at a level that is at least as high as the Base Salary for 1999. The Additional Compensation shall be calculated according to the table set forth on Schedule 1 hereto and shall be based on the following EBITDA targets ("Target EBITDA")(rather than Gross Profit or any other measuring device or indicator).
Target Fiscal Year EBITDA ----------- ------ (In Millions) 1997 $33,396 1998 $37,571 1999 $42,267
For purposes of this Agreement, EBITDA is defined in accordance with the definition of Consolidated EBITDA in the Senior Credit Agreement dated October 27, 1997. After the preparation and finalization of the financial statements reflecting the first six months of each fiscal year (the "Six Month Financials"), Details shall pay the Employee an advance on the Additional Compensation, if any, payable to the Employee for such fiscal year (the "Advance"). The Advance shall equal seventy-five percent (75%) of fifty percent (50%) of the Target Additional Compensation (i.e., the Additional Compensation that Details expects to pay Employee at fiscal year end based on Detail's good faith estimate of Details' EBITDA for such fiscal year). If the Additional Compensation for the fiscal year is less than the amount of the Advance paid to the Employee in such fiscal year, then the amount of Additional Compensation to which the Employee would otherwise be entitled in subsequent periods shall first be applied to eliminate such shortfall. 4. NONCOMPETITION. The parties hereby reaffirm the section of the Agreement entitled "Noncompetition" (the "Noncompetition Section"). The -2- Employee further agrees that the restrictions contained in the Noncompetition Section on his activities during and after his employment are necessary to protect the goodwill, confidential information and other legitimate interests of Details and its Affiliates. Section 7(b) of the Agreement is hereby amended by deleting the reference therein to "December 31, 1998" and substituting therefor a reference to "the Expiration Date." 5. DISCHARGE FOR CAUSE. The parties hereto hereby reaffirm the section of the Agreement entitled "Discharge for Cause." The parties hereto further agree that the following causes shall constitute the only causes for which the Employee may be discharged. a. BREACH. Any failure or refusal to comply in good faith with the obligations of the Employee under the Amended Agreement, which failure shall, in the sole determination of the Board of Directors, constitute gross neglect by the Employee or result from the willful misconduct of the Employee. b. DISHONESTY. As determined by the Board of Directors based upon substantial evidence, any of the following whether or not actual criminal prosecution or conviction arises therefrom: (a) perpetration of, or attempt to perpetrate, any fraud, embezzlement or theft with respect to Details, or any of its subsidiaries, shareholders, directors, personnel, vendors or customers, or (b) conviction of any felony, or of any misdemeanor originally charged as a felony, whether or not imprisonment results. 6. LIFE INSURANCE. Details agrees to use it reasonable efforts to procure a term life insurance policy in the amount of one million dollars ($1,000,000) on the life of the Employee, provided that the Employee presents typical underwriting risks for a non-smoker in good health who is Employee's age and that the Employee cooperates in Details' efforts to procure such policy. Details will pay the premiums for such policy for the period beginning on the date such policy is procured and ending on the earlier of (i) the Expiration Date or (ii) the date Employee ceases to be an employee of Details. 7. DISABILITY. Details may terminate the Employee's employment upon notice to the Employee in the event the Employee becomes disabled during his employment hereunder through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of his duties and responsibilities under the Amended Agreement for a period of ninety (90) consecutive calendar days or for an aggregate of one hundred eighty (180) days during any period of three hundred sixty-five (365) -13- consecutive calendar days. In the event of a termination pursuant to the preceding sentence, Details shall continue to pay to the Employee the Base Salary payable to the Employee pursuant to the Amended Agreement for a period of up to one calendar year from the date of such disability, such Base Salary to be payable in such installments as the Base Salary is paid him under the terms of the Amended Agreement, provided however if the Employee is eligible to receive disability payments under a long-term disability plan adopted by Details, such payments of the Employee's Base Salary shall cease. 8. STOCK AWARD. Details will award Employee 4,747.0099 shares of Class A-5 Common Stock on the Closing Date, which shares will be duly authorized, fully-paid and non-assessable. 9. BONUS. In addition to any other compensation to which Employee is entitled, in consideration of services rendered to date, on the third anniversary of the Closing Date, Details will pay to Employee, whether or not he continues to be an employee at such time, an amount equal to $1,088,558.35. The provisions of this Section 9 shall survive the Expiration Date. 10. ENFORCEMENT. In the event that any provision of this Amended Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law. [Remainder of this page intentionally left blank] -4- Employment Agreement October 28, 1997 IN WITNESS WHEREOF, this agreement is executed as of the day and year first above written. EMPLOYEE: DETAILS, INC. /s/ Bruce D. McMaster By /s/ Joseph P. Gisch - --------------------------------- ------------------------------- Bruce D. McMaster SCHEDULE 1 ---------- to Amendment No. 1 to Employment Agreement and Incentive Compensation Plan The Additional Compensation for each year shall be determined by the following methodology. EBITDA for each year shall be divided by the Target EBITDA for that year. The resulting fraction (expressed as a percentage) is the "EBITDA Percentage". The amount of the Additional Compensation for each year is a function of the EBITDA Percentage for that year as set forth on the table below:
- -------------------------------------------------------------------------------- If the EBITDA The Additional Compensation Percentage is: in each year shall equal: - -------------------------------------------------------------------------------- 1997 1998 1999 ----------------------------------------- Below 90% -0- -0- -0- - -------------------------------------------------------------------------------- Between 90% and Below 95% $20,100 $133,333 $141,667 - -------------------------------------------------------------------------------- 95% $40,200 $266,667 $283,333 - -------------------------------------------------------------------------------- 100% $60,300 $400,000 $425,000 - -------------------------------------------------------------------------------- 105% $72,360 $480,000 $510,000 - -------------------------------------------------------------------------------- 110% $84,420 $560,000 $595,000 - -------------------------------------------------------------------------------- 115% $96,480 $640,000 $680,000 - -------------------------------------------------------------------------------- 120% $108,540 $720,000 $765,000 - --------------------------------------------------------------------------------
For an EBITDA Percentage that exceeds 95%, Additional Compensation will be determined from the foregoing table by linear interpolation based upon the actual EBITDA Percentage. For an EBITDA Percentage that exceeds 120%, Additional Compensation will be determined form the foregoing table by linear extrapolation. [Bruce D. McMaster] EX-10.11 16 GISCH EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN This Employment Agreement and Incentive Compensation Plan ("Agreement") is made as of the 19th day of September, 1995, between Details, Inc., a California corporation ("Details"), and JOSEPH P. GISCH ("Employee") with respect to the following recitals of facts: R E C I T A L S A. Details is an electronics component manufacturer engaged in the business of quick turn-around production of high quality multilayer printed circuit boards for production prototype applications and for urgently needed assembly operations in the electronics industry. B. Employee is a Certified Public Accountant desiring to commence employment with Details in the position of Vice President, Finance. C. Details and Employee desire by this Agreement to provide for the terms of employment, and a plan of compensation for employee for 36 months of employment. NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions hereinafter set forth, the parties agree as follows: 1. EMPLOYMENT OF EMPLOYEE. On and subject to the terms and conditions hereinafter set forth, Details hereby offers to Employee and Employee hereby accepts employment with Details, Inc. 2. TERM. This Agreement shall cover the term commencing on November 13, 1995 and ending on October 31, 1998. 3. COMPENSATION. The compensation payable to Employee under this Agreement during the term hereof shall be as follows: A. BASE SALARY. The Base Salary for each year of the term shall be the applicable amount set forth below, payable in weekly installments:
YEAR BASE SALARY 11-1-95 - 10-31-96 $240,000 11-1-96 - 10-31-97 $252,000 11-1-97 - 10-31-98 $265,000
B. ADDITIONAL COMPENSATION. Employee shall be entitled to Additional Compensation in each month of employment, equal to 1% of the amount by which the actual Earnings Before Income Tax (being all income less all expenses except federal income tax, as reflected on Details normal statements of income) during such month exceeds the following minimum levels:
MINIMUM MONTHLY EARNINGS MONTHS BEFORE INCOME TAX ------ ------------------------ November, 1995 through December, 1995 $2,200,000 January, 1996 through October, 1996 $2,200,000 November 1996 through October, 1997 $2,500,000 November 1997 through October, 1998 $2,800,000
C. Employee shall be paid Additional Compensation on a quarterly basis, and subject to the usual deductions. D. For purposes of determining the Additional Compensation in each month, the Earnings Before Income Tax actually achieved in such month shall be adjusted as follows: (i) In each Month in which the Minimum Monthly Before Income Tax is not achieved ("Deficient Month"), the deficiency shall be offset against the amount by which the Earnings Before Income Tax actually achieved in each subsequent month exceeds the applicable Minimum Monthly Earnings Before Income Taxes for such subsequent month, until the deficiency arising from the Deficient Month is fully offset. (ii) In the event that long term indebtedness of Details increases in connection with a sale of a majority of the outstanding stock of Details, there shall be added back to Earnings Before Income Taxes actually achieved: (a) an amount equal to the interest paid in such month on the amount of such debt incurred in a contemplated transaction with Chase Manhattan Capital Corporation, if consumated, exceeding any amounts therein received by Details to: (1) payoff then existing long term -2- indebtedness, and (2) provide equipment financing or working capital, and (b) an amount equal to the goodwill amortized as expense during such month, to the extent such amortization is required by generally accepted accounting principles. E. In addition to the foregoing, the Board of Directors, may, in its sole and exclusive discretion, grant an additional bonus to Employee. 4. GENERAL OBLIGATIONS OF EMPLOYEE. During the term hereof, employee shall: A. Devote his full employment energies, interest, abilities, time and attention to the performance of his obligations hereunder, and shall not, without the written consent of the Chairman and Chief Executive Officer of Details, render any service of any kind to a third party for compensation. B. Not engage in any activity which conflicts with or interferes with the performance of his duties hereunder, whether or not for compensation. C. Provide his exclusive loyalty to Details, with a view toward maintaining the highest quality standards, improving profitability through cost controls, increasing revenues consistent with holding margins, assuring compliance with applicable laws, sustaining employee morale, and assuring equipment is maintained in its best operating condition. 5. SPECIFIC DUTIES OF EMPLOYEE. Subject at all times to the direction of the Board of Directors and the approval of the Chairman and Chief Executive Officer, employee shall: A. Establish, implement and oversee Details' accounting activities and accounting personnel, to assure prompt, accurate and complete reporting of all material information regarding fiscal activities and operations of Details to the Board of Directors of Details. B. Maintain full and adequate controls over corporate commitments and expenditures to assure continuous fiscal integrity and profitability. -3- C. Investigate and report irregularities as required from time to time to assure full compliance with law, first quality effort and results by personnel, and proper internal reporting and communications. D. Represent and continuously promote the interests of Details in fiscal matters with lenders, tax authorities, outside accountants, department personnel, and major customers and vendors. E. Establish and maintain budgets and variance reporting for all operations of Details, including proper budgeting for current operations and anticipated capital and other expenditures, maintenance and improvement of product margins, full product quality assurance and proper operational systems (including ISO 9000 standards compliance). F. Coordinate with other officers and subordinate executives, managers and supervisors to assure smooth implementation of accounting controls and reporting. G. Establish and implement computerized accounting and management information systems, tax accounting and reporting systems, risk management controls and insurance analysis, and personnel compensation accounting and payments including incentive compensation benefits. H. Perform such other tasks and functions as directed by the President and the Chairman and Chief Executive Officer of Details. 6. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Employee now possesses and will obtain "Confidential Information", which is all financial and other information disclosed or obtained in connection with employment with Details, which has been created, discovered, developed or otherwise become known to Details, its customers, or suppliers, and/or in which proprietary rights have been assigned or otherwise provided to Details, and (ii) which has commercial value in the businesses in which Details and its customers and suppliers are engaged. Employee agrees that all Confidential Information is a valuable property and asset of Details, and Details shall be the sole owner of all patents, trademarks, copyrights, trade secrets, and other proprietary rights arising therefrom. Employee shall at all times, during and after employment -4- maintain the confidentiality of Confidential Information, and not use or disclose same other than (a) for a purpose connected with Employee's obligations to Details under this agreement, or (b) with the written consent of the Chairman and Chief Executive Officer of Details. A. The following are examples of Confidential Information, but not an exclusive listing: information relating to trade secrets, processes, customer lists, structures, formulas, data, know-how, techniques, marketing plans, manufacturing methods, strategies, forecasts, products, equipment utilization, software and financial data. B. Notwithstanding the foregoing, Confidential Information does not include information (a) generally available to the public, (b) contained in an issued patent, or (c) generally known to persons in the printed circuit board business. 7. DISCHARGE FOR CAUSE. Employee may be discharged for any of the following causes, which shall be effective upon written notice thereof to employee. Upon any such discharge, (i) Employee's entitlement to benefits (subject only to legal requirements of general application for continuation of benefits, such as COBRA) and other compensation under this agreement shall cease, and (ii) Employee shall return all property of Details within 24 hours following such termination, including without limitation all Confidential Information and Proprietary Rights. A. BREACH. Any failure or refusal to comply in good faith with the obligations of employee under this agreement, with a view toward providing the maximum benefits available to Details hereunder, including without limitation, refusal to work or resignation. B. INCAPACITY. The inability to perform the obligations of employee under this agreement due to death, injury, disease, mental illness or other disability, which shall continue for a period of 30 days, or which, in the aggregate shall involve 60 days in the preceding twelve month period. C. DISHONESTY. The commission of a crime punishable by imprisonment in the state prison (whether or not actual criminal prosecution and imprisonment results), or perpetration of, or attempt to perpetrate, any fraud, -5- embezzlement or theft with respect to Details, or any or its shareholders, directors, personnel, vendors or customers. D. MISCONDUCT. As involves personnel, vendors, and customers of Details, (i) discrimination based on age, gender, race, national origin, or religion; and (ii) sexual harassment. 9. VACATIONS AND BENEFITS. Employee shall be entitled to benefits generally available to Details full time personnel, such as participation in health care plans and similar benefits plans, including vacation and sick pay entitlements for salaried employees. As an additional benefit, Details shall pay, while Employee is employed by Details, an amount not exceeding $500 monthly, for up to 36 months, with respect to Employee's existing vehicle lease obligation. 10. INUREMENT. This agreement shall be binding upon and inure to the benefit of the parties, and their successors, assigns and personal representatives. 11. ASSIGNMENT. Employee may not assign this agreement or any interest therein. Details may assign this agreement to any entity which shall assume all of the obligations of Details hereunder, provided that either (i) Details shall own a majority of the voting securities of such entity, or (ii) such entity has purchased a majority of the assets of Details. Upon any such assignment, Details shall be released from all obligations hereunder. 12. INTEGRATION. This agreement contains the entire understanding of the parties relating to the subject matter hereof, and shall supersede all other written and oral prior and contemporaneous promises and agreements. 13. APPLICABLE LAW. This agreement is made in the State of California, and California law shall govern its interpretation. 14. ENFORCEMENT. Should legal action between the parties be necessary or appropriate to enforce any of the provisions hereof, the prevailing party shall be entitled to recover reasonable attorneys fees, whether or not such action proceeds to a final judgment. 15. SEVERABILITY. If any of the provisions of this agreement, as applied to a particular party or -6- circumstance, shall be found by a court with proper jurisdiction to be void or unenforceable, such finding shall not affect the provision in any other application, or the validity or enforceability of other provisions hereof. 16. AMENDMENTS. Any amendment to this agreement must be in writing and signed by each of the parties to be valid, and any purported amendment not meeting the requirements of this section shall be without force or effect. IN WITNESS WHEREOF, this agreement is executed as of the day and year first above written. EMPLOYEE: DETAILS, INC. /s/ Joseph P. Gisch by /s/ James I. Swenson, CEO - ------------------- -------------------------- JOSEPH P. GISCH JAMES I. SWENSON, CHIEF EXECUTIVE OFFICER -7- FIRST AMENDMENT TO EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN This amendment is made as of December 12, 1996 to the Employment Agreement and Incentive Compensation Plan ("Agreement") dated as of September 19, 1995, between Details, Inc., a California corporation ("Details"), and Joseph P. Gisch. ("Employee"). NOW THEREFORE, in consideration of $1.00 paid to Employee, receipt of which is hereby acknowledged, the Agreement is hereby amended in the following particulars only, and except as so amended, shall continue in full force and effect. 1. Paragraph 3B. of the Agreement is hereby deleted and replaced with the following: ADDITIONAL COMPENSATION. Employee shall be entitled to Additional Compensation in each month of employment, equal to 1.5% of the amount by which the actual Earnings Before Income Tax (being all income less all expenses except federal and state income taxes, as reflected on Details normal statements of income) during such month exceeds the following minimum levels:
MINIMUM MONTHLY EARNINGS MONTHS BEFORE INCOME TAXES ------ ------------------- January, 1996 through December, 1996 $2,100,000 January, 1997 through December, 1997 $2,100,000 January, 1998 through October, 1998 $2,400,000
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day and year first above written. DETAILS, INC. EMPLOYEE by /s/ James I. Swenson /s/ Joseph P. Gisch ------------------------------ ------------------------------ James I. Swenson Joseph P. Gisch Chairman and Chief Executive Officer -8- AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN This Amendment No. 1 To The Employment Agreement And Incentive Compensation Plan is made as of October 28, 1997, between Details, Inc., a California corporation ("Details"), and Joseph P. Gisch ("Employee") with respect to the following recitals of facts: RECITALS A. Employee is presently an employee of Details. B. Details and Employee entered into an Employment Agreement and Incentive Compensation Plan on September 19, 1997 (the "Agreement") which provided the terms of employment and a plan of compensation for Employee. Capitalized terms used herein shall have the meanings set forth in the Agreement, unless otherwise provided herein. C. On October 28, 1997, Details entered into an Amended and Restated Recapitalization Agreement (the "Recapitalization Agreement") pursuant to which it will exchange its capital stock for certain consideration on the closing date (the "Closing Date"). Employee is a stockholder and optionholder of Details and will derive substantial personal economic benefit from the consummation of the transaction contemplated by the Recapitalization Agreement. D. The Recapitalization Agreement contemplates that the parties hereto execute this Agreement. E. Details and Employee desire by this amendment to provide for the continued employment and to extend the term of the employment of the Employee on the terms contained in the Agreement as amended hereby. NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions hereinafter set forth, the parties agree as follows: 1. CONTINUED EMPLOYMENT OF EMPLOYEE. On and subject to the terms and conditions set forth in the Agreement as amended hereby (the "Amended Agreement"), Details hereby offers to Employee and Employee hereby accepts continued employment with Details as Vice President, Finance. In the event of a conflict between any provision of this Amended Agreement and the Agreement, the provisions of the Amended Agreement shall control. 2. TERM. This Amended Agreement shall cover the term commencing on the Closing Date and ending three calendar years from the Closing Date (the "Expiration Date"). 3. COMPENSATION. The Base Salary for fiscal years 1997, 1998 and 1999 shall be $252,000, $265,000 and $275,000, respectively. The Base Salary for each year on or after January 1, 2000 covered by the Amended Agreement will be established by Details at a level that is at least as high as the Base Salary for 1999. The Additional Compensation shall be calculated according to the table set forth on Schedule 1 hereto and shall be based on the following EBITDA targets ("Target EBITDA")(rather than Gross Profit or any other measuring device or indicator).
Target Fiscal Year EBITDA ----------- ------ (In Millions) 1997 $33,396 1998 $37,571 1999 $42,267
For purposes of this Agreement, EBITDA is defined in accordance with the definition of Consolidated EBITDA in the Senior Credit Agreement dated October 27, 1997. After the preparation and finalization of the financial statements reflecting the first six months of each fiscal year (the "Six Month Financials"), Details shall pay the Employee an advance on the Additional Compensation, if any, payable to the Employee for such fiscal year (the "Advance"). The Advance shall equal seventy-five percent (75%) of fifty percent (50%) of the Target Additional Compensation (i.e., the Additional Compensation that Details expects to pay Employee at fiscal year end based on Detail's good faith estimate of Details' EBITDA for such fiscal year). If the Additional Compensation for the fiscal year is less than the amount of the Advance paid to the Employee in such fiscal year, then the amount of Additional Compensation to which the Employee would otherwise be entitled in subsequent periods shall first be applied to eliminate such shortfall. 4. DISCHARGE FOR CAUSE. The parties hereto hereby reaffirm the section of the Agreement entitled "Discharge for Cause." The parties hereto further agree -2- that the following causes shall constitute the only causes for which the Employee may be discharged. a. BREACH. Any failure or refusal to comply in good faith with the obligations of the Employee under the Amended Agreement, which failure shall, in the sole determination of the Board of Directors, constitute gross neglect by the Employee or result from the willful misconduct of the Employee. b. DISHONESTY. As determined by the Board of Directors based upon substantial evidence, any of the following whether or not actual criminal prosecution or conviction arises therefrom: (a) perpetration of, or attempt to perpetrate, any fraud, embezzlement or theft with respect to Details, or any of its subsidiaries, shareholders, directors, personnel, vendors or customers, or (b) conviction of any felony, or of any misdemeanor originally charged as a felony, whether or not imprisonment results. 5. LIFE INSURANCE. Details agrees to use its reasonable efforts to procure a term life insurance policy in the amount of one million dollars ($1,000,000) on the life of the Employee, provided that the Employee presents typical underwriting risks for a non-smoker in good health who is Employee's age and that the Employee cooperates in Details' efforts to procure such policy. Details will pay the premiums for such policy for the period beginning on the date such policy is procured and ending on the earlier of (i) the Expiration Date or (ii) the date Employee ceases to be an employee of Details. 6. DISABILITY. Details may terminate the Employee's employment upon notice to the Employee in the event the Employee becomes disabled during his employment hereunder through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of his duties and responsibilities under the Amended Agreement for a period of ninety (90) consecutive calendar days or for an aggregate of one hundred eighty (180) days during any period of three hundred sixty-five (365) consecutive calendar days. In the event of a termination pursuant to the preceding sentence, Details shall continue to pay to the Employee the Base Salary payable to the Employee pursuant to the Amended Agreement for a period of up to one calendar year from the date of such disability, such Base Salary to be payable in such installments as the Base Salary is paid him under the terms of the Amended Agreement, provided however if the Employee is eligible to receive disability payments under a long-term disability plan adopted by Details, such payments of the Employee's Base Salary shall cease. -3- 7. STOCK AWARD. Details will award Employee 676.7889 shares of Class A-5 Common Stock on the Closing Date, which shares will be duly authorized, fully-paid and non-assessable. 8. BONUS. In addition to any other compensation to which Employee is entitled, on the date on which Employee ceases to be the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of any shares of capital stock of Details, Details will pay to Employee, whether or not he continues to be an employee at such time, an amount equal to $155,197.52. The provisions of this Section 9 shall survive the Expiration Date. 9. ENFORCEMENT. In the event that any provision of this Amended Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law. [Remainder of this page intentionally left blank] -4- Employment Agreement October 28, 1997 IN WITNESS WHEREOF, this agreement is executed as of the day and year first above written. EMPLOYEE: DETAILS, INC. /s/ Joseph P. Gisch By /s/ Bruce McMaster - ---------------------------------- ------------------------------------ Joseph P. Gisch Bruce McMaster SCHEDULE 1 ---------- to Amendment No. 1 to Employment Agreement and Incentive Compensation Plan The Additional Compensation for each year shall be determined by the following methodology. EBITDA for each year shall be divided by the Target EBITDA for that year. The resulting fraction (expressed as a percentage) is the "EBITDA Percentage". The amount of the Additional Compensation for each year is a function of the EBITDA Percentage for that year as set forth on the table below:
- -------------------------------------------------------------------------------- If the EBITDA The Additional Compensation Percentage is: in each year shall equal: - -------------------------------------------------------------------------------- 1997 1998 1999 ---------------------------------------------- Below 90% -0- -0- -0- - -------------------------------------------------------------------------------- Between 90% and below 95% $3,350 $66,667 $66,667 - -------------------------------------------------------------------------------- 95% $6,700 $133,333 $133,333 - -------------------------------------------------------------------------------- 100% $10,050 $200,000 $200,000 - -------------------------------------------------------------------------------- 105% $11,558 $230,000 $230,000 - -------------------------------------------------------------------------------- 110% $13,065 $260,000 $260,000 - -------------------------------------------------------------------------------- 115% $14,573 $290,000 $290,000 - -------------------------------------------------------------------------------- 120% $16,080 $320,000 $320,000 - --------------------------------------------------------------------------------
For an EBITDA Percentage that exceeds 95%, Additional Compensation will be determined from the foregoing table by linear interpolation based upon the actual EBITDA Percentage. For an EBITDA Percentage that exceeds 120%, Additional Compensation will be determined from the foregoing table by linear extrapolation. [Joseph P. Gisch] EX-10.12 17 MUSE EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN This Employment Agreement and Incentive Compensation Plan ("Agreement") is made as of the 1st day of September, 1995, between Details, Inc., a California corporation ("Details"), and LEE W. MUSE, JR. ("Employee") with respect to the following recitals of facts: R E C I T A L S A. Details is an electronics component manufacturer engaged in the business of quick turn-around production of high quality multilayer printed circuit boards for production prototype applications and for urgently needed assembly operations in the electronics industry. B. Employee is presently an employee of Details who has been appointed to the position of Vice President - Marketing and Sales. C. Details and Employee entered into an Employee Incentive Compensation Plan on December 12, 1994, with respect to the calendar year 1995 providing for a Base Salary and Additional Compensation to be paid to Employee quarterly during such year, provided that employment has not therefor been terminated ("1995 Plan"). D. Details and Employee desire by this Agreement to provide for the terms of employment, an exclusive employment obligation, and a plan of compensation for employee for the three year period following the expiration of the 1995 Plan, and to amend the 1995 Plan as hereafter set forth. NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions hereinafter set forth, the parties agree as follows: 1. EMPLOYMENT OF EMPLOYEE. On and subject to the terms and conditions hereinafter set forth, Details hereby offers to Employee and Employee hereby accepts employment with Details, Inc., as Vice President - Marketing and Sales. -1- 2. TERM. This Agreement shall cover the term commencing on September 1, 1995 and ending on December 31, 1998. 3. COMPENSATION. The compensation payable to Employee under this Agreement during the term hereof shall be as follows: A. Compensation for Period from September 1, 1995 through December 31, 1995. During the remainder of the term of the 1995 Plan, Employee shall continue to receive the Base Salary and Additional Compensation as therein provided. B. Compensation for Period from January 1, 1996 through December 31, 1998. (i) The Base Salary for each Year shall be as follows:
Year Base Salary ---- ----------- 1996 $250,000 1997 $300,000 1998 $350,000
(ii) Additional Compensation for each calendar month while an employee of Details commencing with the month of January, 1996, if the Gross Profit of Details from such month shall exceed the applicable Minimum Gross Profit set forth below. "Gross Profit" in any month shall constitute the amount identified as such on Detail's regularly prepared Statement of Income for such month on a basis consistent with that in effect on the date hereof, except that the Gross Profit so reflected shall be subject to the adjustments in subsection D below in determining Additional Compensation.
Minimum Year Gross Profit ---- ------------ 1996 $1,000,000 1997 $1,250,000 1998 $1,500,000
- 2 - (iii) Subject to the maximums set forth in clause (iv) below, Additional Compensation shall be determined by applying the following percentages to the excess, in any month, of Gross Profit over Minimum Gross Profit:
AMOUNT OF EXCESS PERCENTAGE up to $100,000 1/2% Over $100,000 to $200,000 1 % Over $200,000 1 1/2%
For example, if the Gross Profit in the month of February, 1997 was $2,000,000, the Additional Compensation for such month would be $9,750 (determined by deducting from the Gross Profit of $2,000,000, the Minimum Gross Profit of $1,250,000 applicable to such month, and applying the above percentages to such $750,000 excess, i.e., 1/2% to the first $100,000, 1% to the second $100,000 and 1 1/2% to the remaining $550,000. (iv) The maximum Additional Compensation for years commencing in 1996 shall be as follows:
Maximum Additional Year Compensation ---- ------------------ 1996 $300,000 1997 $375,000 1998 $500,000
C. Employee shall be paid Additional Compensation on a quarterly basis, and subject to the usual deductions, within 30 days following the end of each calendar quarter. D. For purposes of determining the Additional Compensation in each month, the Gross Profit actually achieved in such month shall be adjusted as follows: (i) In each Month in which the Minimum Gross Profit is not achieved ("Deficient Month"), the deficiency shall be offset against the amount by which the Gross Profit actually achieved in each subsequent month exceeds the applicable Minimum Gross Profit for such subsequent month, until the deficiency arising from the Deficient Month is fully offset. -3- (ii) In each Month in which, in connection with enforcement of any fire or building and safety law, environmental or toxics control law, wage and hour law or other employee compensation or benefit law, occupational safety or health law, or other law regulating production or other operations, Detail shall be assessed a fine, penalty or other charge by any governmental agency, or is ordered to pay additional compensation to any employee, or is ordered to pay any amount to a third party, or shall expend fees or costs for legal or other services to defend against any such action or proceeding by any governmental agency, the aggregate amount of such expenses shall reduce the Gross Profit actually achieved for such Month, and in the event that such adjustment creates or adds to a Deficient Month, the provisions of the preceding clause (i) above relating to offsets in subsequent Months shall also be applicable. In the event that the Board of Directors had been apprised by any officer of the need to appropriate funds in order to prevent the imposition of such fine, penalty or other charge, or additional compensation, or amount ordered to be paid to a third party, in a writing delivered to the Board members in sufficient time to hold a board meeting, appropriate funds and effect compliance with such law, and the Board shall fail to do so, then the adjustment to Gross Profit in this clause (ii) shall not apply in such circumstance. E. In addition to the foregoing, the Board of Directors, may, in its sole and exclusive discretion, grant an additional bonus to Employee. 4. GENERAL OBLIGATIONS OF EMPLOYEE. During the term hereof, employee shall: A. Devote his full employment energies, interest, abilities, time and attention to the performance of his obligations hereunder, and shall not, without the written consent of the Chairman and/or Chief Executive Officer of Details, render any service of any kind to a third party for compensation. B. Not engage in any activity which materially conflicts with or interferes with the performance of his duties hereunder, whether or not for compensation. - 4 - C. Provide his exclusive employment and career loyalty to Details, with a view toward maintaining the highest quality standards, improving profitability through cost controls, increasing revenues consistent with holding margins, seeking to assure compliance with applicable laws, sustaining employee morale, and seeking to assure that equipment is maintained in its best operating condition. 5. SPECIFIC DUTIES OF EMPLOYEE. Subject at all times to the direction of the Board of Directors and the approval of the Chairman and/or Chief Executive Officer, employee shall: A. Implement and oversee marketing functions and sales activities, including, without limitation, establishment of new and maintenance of existing customer relationships, coordination of recruiting, training and continuing education of sales representatives and regional directors, coordination with operations managers to assure customer requirements are satisfied. B. In the absence or incapacity of the President, carry out necessary functions during such absence or incapacity, subject to established policies and procedures, and if available, direction of the President. C. Coordinate accurate and complete reporting of all information regarding marketing and sales functions of Details with the President, including without limitation, all information reasonably necessary for planning relating to projected requirements of customers, based on personal customer interface and reporting from marketing and sales subordinates. D. Maintain controls over sales quotations to strive for continuous fiscal integrity and profitability. E. Maintain continuous compliance with applicable laws and regulations relating to assigned requirements. F. Implement policies to continuously discover and correct deficiencies as required from time to time to strive for full compliance with law, first quality effort and results by subordinate personnel and representatives, and proper internal reporting and communications. - 5 - G. Represent and continuously promote the interests of Details with all major customers, potential customers, subordinate personnel, and sales and marketing representatives. H. Implement policies regarding proper morale of personnel, adequacy of staffing, proper budgeting for current marketing and sales activities. I. Coordinate with subordinate executives, managers and supervisors to assure smooth implementation of corporate plans and objectives. J. Perform such other reasonable tasks and functions as directed by the Chairman and/or Chief Executive Officers of Details. 6. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT. A. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Employee now possesses and will obtain "Confidential Information," which is all information disclosed or obtained in connection with employment with Details, (i) which has been created, discovered, developed or otherwise become known to Details, its customers, or suppliers, and/or in which proprietary rights have been assigned or otherwise provided to Details, and (ii) which has commercial value in the businesses in which Details and its customers and suppliers are engaged. Employee agrees that all Confidential Information is a valuable property and asset of Details, and Details shall be the sole owner of all patents, trademarks, copyrights, trade secrets, and other proprietary rights arising therefrom. Employee shall at all times, during and after employment maintain the confidentiality of Confidential Information, and not use or disclose same other than (a) for a purpose connected with Employee's obligations to Details under this agreement, or (b) with the written consent of the Chairman and Chief Executive Officer of Details. (i) The following are examples of Confidential Information, but not an exclusive listing: information relating to trade secrets, processes, customer lists, structures, formulas, data, know-how, techniques, marketing plans, manufacturing methods, strategies, forecasts, products, equipment utilization, software and financial data. - 6 - (ii) Notwithstanding the foregoing, Confidential Information does not include information (a) generally available to the public, (b) contained in an issued patent, or (c) generally known to persons in the printed circuit board business. B. INVENTION AND PROPRIETARY RIGHTS ASSIGNMENT. Employee hereby irrevocably grants and assigns to Details for its sole use and benefit all Proprietary Rights, being trade or service marks, designs, logos, inventions, trade secrets, improvements, technical information and suggestions regarding Details business and operations, which Employee may have heretofor developed or acquired during his employment with Details, or which may hereafter be developed or acquired during the term hereof, together with all applications, trademark, patents, copyrights (including future copyrights pursuant to Section 37 of the Copyright Act of 1986 and any amendment or successor provision thereto) related thereto and to any improvements thereon. To carry out these obligations, Employee shall during the term hereof and at any time thereafter: (i) Assure that Details has received prompt and full disclosures of all such Proprietary Rights. (ii) Execute and deliver on demand such applications, assignments, descriptions and other instruments (prepared at Details' expense) relating to Proprietary Rights as Details shall reasonably request to enable proper documentation and registrations of its right hereunder. (iii) Assist Details, at Details expense, in connection with preparing and prosecuting applications relating to Proprietary Rights, and in connection with otherwise securing and/or defending its Proprietary Rights, including by way of litigation. 7. EXCLUSIVE EMPLOYMENT WITH DETAILS. During the term, Employee shall not be employed by, or seek any employment with (except after September 30, 1998, if anticipating leaving Details on expiration of this agreement), any person (including without limitation, any individual, corporation, business association, partnership or other entity) other than Details. -7- A. EMPLOYEE ACKNOWLEDGMENTS. Employee hereby expressly acknowledges and agrees that he has received training and experience at Details which has enabled him to become a special uniquely talented marketing and sales executive in the printed circuit board business, possessing special capabilities and knowledge relating to specific customer requirements in coordination with Details' high speed turn around, high margin, superior quality product and high volume output operation. Employee further acknowledges, (i) the quick turn- around printed circuit board production business is a small fraction of the electronic component business, and even of the overall printed circuit board production portion thereof, (ii) that a material portion of the consideration being committed to by Details hereunder for the term hereof relates to the value of Employee's exclusive employment with Details and nonemployment with others, and (iii) the loss of such talents to another printed circuit board manufacturer will cause damages to Details in amounts which are difficult of ascertainment, and will cause irreparable injury to Details. B. NONCOMPETITION. Employee hereby covenants that in the event Employee shall refuse to work for Details or shall be discharged for cause as hereafter defined, Employee shall not directly or indirectly: (i) discuss, seek or obtain employment or consulting arrangements with any other electronic component manufacturer who is engaged or intends to engage in product manufacture of the type engaged in by Details (collectively: "competitive business") at any time prior to December 31, 1998, (ii) indirectly engage in any competitive business as a partner, stockholder, officer or director thereof, (iii) interfere with, disrupt or attempt to disrupt the relationship, contractual or otherwise, between Details and any other person, including without limitation, any customer, supplier or employee of Details, or (iv) induce any employee of Details to terminate employment or to engage in any competitive business. For this purpose, the term employment shall include any consultation with, or the provision of advice or other services, to another electronic component manufacturer, directly or indirectly, whether or not for compensation, which advice or services may be used for purposes competitive with the business of Details. C. REMEDIES - SPECIFIC PERFORMANCE. In addition to all remedies which may be available at law to Details arising from any breach of this section, Employee - 8 - special, unique, extraordinary and intellectual character, giving them a peculiar value, the loss of which cannot be adequately or reasonably compensated in damages in any action at law, and that a breach by Employee of any of the terms hereof will cause Details to suffer irreparable injury and damage. Employee hereby expressly agrees that Details shall be entitled to the remedies of injunction, specific performance and other equitable relief in connection with a breach or potential breach of this agreement by Employee. 8. DISCHARGE FOR CAUSE. Employee may be discharged only for any of the following causes, which shall be effective upon written notice thereof to employee. Upon any such discharge, (i) Employee's entitlement to benefits (subject only to legal requirements of general application for continuation of benefits, such as COBRA) and other compensation under this agreement shall cease, and (ii) Employee shall return all property of Details within 24 hours following such termination, including without limitation all Confidential Information and Proprietary Rights. A. BREACH. Any failure or refusal to comply in good faith with the obligations of employee under this agreement. In the event such breach is, in the sole determination of the Board of Directors, of a type which is not irreparable and which has not diminished the reputation of Details or the morale of its employees, Employee shall be given written notice of the nature of such breach and the requirements for cure thereof, and Employee shall immediately cure same, or if it cannot immediately be cured, shall immediately commence and diligently pursue to completion such cure, which may require reimbursement of losses arising from such breach to Details. Should such cure not be so effected, or should such breach recur thereafter, Employee shall be discharged. B. INCAPACITY. The inability to perform the obligations of employee under this agreement due to death, injury, disease, mental illness or other disability, which shall continue for a period of 90 days, or which, in the aggregate shall involve 120 days in the preceding twelve month period. C. DISHONESTY. (i) As determined by the Board in good faith based upon substantial evidence, any of the following whether or not actual criminal prosecution or - 9 - following whether or not actual criminal prosecution or conviction arises therefrom: (a) perpetration of, or attempt to perpetrate, any fraud, embezzlement or theft with respect to Details, or any of its shareholders, directors, personnel, vendors or customers, or (b) perpetration of any conduct involving moral turpitude, or (ii) conviction of any misdemeanor where imprisonment results, or (iii) conviction of any felony, or of any misdemeanor originally charged as a felony, whether or not imprisonment results. D. DISCRIMINATORY/SEXUAL MISCONDUCT. As involves personnel, vendors, and customers of Details, any conduct involving (i) unlawful discrimination based on age, gender, race, national origin, or religion; and/or (ii) unlawful sexual harassment. 9. VACATIONS AND BENEFITS. Employee shall be entitled to benefits generally available to Details full time personnel, such as participation in health care plans and similar benefit plans, including vacation and sick pay entitlements for salaried employees, vehicle use or allowances, and reimbursement of reasonable expenses incurred in the discharge of Employee's obligations hereunder. 10. INUREMENT. This agreement shall be binding upon and inure to the benefit of the parties, and their successors, assigns and personal representatives. 11. ASSIGNMENT. Employee may not assign this agreement or any interest therein. Details may assign this agreement to any entity which shall assume all of the obligations of Details hereunder, provided that either (i) Details shall own a majority of the voting securities of such entity, or (ii) such entity has purchased a majority of the assets of Details. 12. NOTICES. Any notices required or permitted under this agreement shall be in writing and shall be deemed delivered to (i) Employee when (a) personally handed to Employee, whether at Details or elsewhere, or (b) two days following depositing same in the United States Mail, postage prepaid, certified mail return receipt requested, addressed to Employee at Employee's home address as from time to time contained in the personnel records of Details, or (ii) Details, when (a) personally handed to the Chairman and/or Chief Executive Officer, or (b) two days following depositing same in the United States Mail, - 10 - postage prepaid, certified mail return receipt requested, addressed to the Chairman and/or Chief Executive Officer of Details, at the then applicable address for the administrative offices of Details. 13. INTEGRATION. This agreement, together with the 1995 Plan, contain the entire understanding of the parties relating to the subject matter hereof, and shall supersede all other written and oral prior and contemporaneous promises and agreements. 14. APPLICABLE LAW AND INTERPRETATION. This agreement is made in the State of California, and California law shall govern its interpretation. The provisions of this agreement were negotiated by the parties and/or their representatives and shall be construed in accordance with their fair meaning and intent, and not against either party generally as drafter. 15. ENFORCEMENT. Should legal action between the parties be necessary or appropriate to enforce any of the provisions hereof, the prevailing party shall be entitled to recover reasonable attorneys fees, whether or not such action proceeds to a final judgment. 16. SEVERABILITY. If any of the provisions of this agreement, as applied to a particular party or circumstance, shall be found by a court with proper jurisdiction to be void or unenforceable, such finding shall not affect the provision in any other application, or the validity or enforceability of other provisions hereof. 17. AMENDMENTS. Any amendment to this agreement must be in writing and signed by each of the parties to be valid, and any purported amendment not meeting the requirements of this section shall be without force or effect. IN WITNESS WHEREOF, this agreement is executed as of the day and year first above written. EMPLOYEE: DETAILS, INC. /s/ Lee W. Muse, Jr. by /s/ James I. Swenson CEO - -------------------- ------------------------ LEE W. MUSE, JR. JAMES I. SWENSON CHAIRMAN AND CHIEF EXECUTIVE OFFICER -11- AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN This Amendment No. 1 to the Employment Agreement and Incentive Compensation Plan is made as of October 28, 1997, between Details, Inc., a California corporation ("Details"), and Lee W. Muse, Jr. ("Employee") with respect to the following recitals of facts: RECITALS A. Employee is presently an employee of Details. B. Details and Employee entered into an Employment Agreement and Incentive Compensation Plan on September 1, 1997 (the "Agreement") which provided the terms of employment and a plan of compensation for Employee. Capitalized terms used herein shall have the meanings set forth in the Agreement, unless otherwise provided herein. C. On October 28, 1997, Details entered into an Amended and Restated Recapitalization Agreement (the "Recapitalization Agreement") pursuant to which it will exchange its capital stock for certain consideration on the closing date (the "Closing Date"). Employee is a stockholder and optionholder of Details and will derive substantial personal economic benefit from the consummation of the transaction contemplated by the Recapitalization Agreement. D. The Recapitalization Agreement contemplates that the parties hereto execute this Agreement. E. Details and Employee desire by this amendment to provide for the continued employment and to extend the term of the employment of the Employee on the terms contained in the Agreement as amended hereby. NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions hereinafter set forth, the parties agree as follows: 1. CONTINUED EMPLOYMENT OF EMPLOYEE. On and subject to the terms and conditions set forth in the Agreement as amended hereby (the "Amended Agreement"), Details hereby offers to Employee and Employee hereby accepts continued employment with Details as Vice President, Marketing and Sales. In the event of a conflict between any provision of this Amended Agreement and the Agreement, the provisions of the Amended Agreement shall control. 2. TERM. This Amended Agreement shall cover the term commencing on the Closing Date and ending three calendar years from the Closing Date (the "Expiration Date"). 3. COMPENSATION. The Base Salary for fiscal years 1997, 1998 and 1999 shall be $300,000, $350,000 and $375,000, respectively. The Base Salary for each year on or after January 1, 2000 covered by the Amended Agreement will be established by Details at a level that is at least as high as the Base Salary for 1999. The Additional Compensation shall be calculated according to the table set forth on Schedule 1 hereto and shall be based on the following EBITDA targets ("Target EBITDA") (rather than Gross Profit or any other target or measuring device or indicator).
Target Fiscal Year EBITDA ----------- ------ (In Millions) 1997 $33,396 1998 $37,571 1999 $42,267
For purposes of this Agreement, EBITDA is defined in accordance with the definition of Consolidated EBITDA in the Senior Credit Agreement dated October 27, 1997. After the preparation and finalization of the financial statements reflecting the first six months of each fiscal year (the "Six Month Financials"), details shall pay the Employee an advance on the Additional Compensation, if any, payable to the Employee for such fiscal year (the "Advance"). The Advance shall equal seventy-five percent (75%) of fifty percent (50%) of the Target Additional Compensation (i.e., the Additional Compensation that Details expects to pay Employee at fiscal year end based on Detail's good faith estimate of Details' EBITDA for such fiscal year). If the Additional Compensation for the fiscal year is less than the amount of the Advance paid to the Employee in such fiscal year, then the amount of Additional Compensation to which the Employee would otherwise be entitled in subsequent periods shall first be applied to eliminate such shortfall. 4. NONCOMPETITION. The parties hereby reaffirm the section of the Agreement entitled "Noncompetition" (the "Noncompetition Section"). The -2- Employee further agrees that the restrictions contained in the Noncompetition Section on his activities during and after his employment are necessary to protect the goodwill, confidential information and other legitimate interests of Details and its Affiliates. Section 7(b) of the Agreement is hereby amended by deleting the reference therein to "December 31, 1998" and substituting therefor a reference to "the Expiration Date." 5. DISCHARGE FOR CAUSE. The parties hereto hereby reaffirm the section of the Agreement entitled "Discharge for Cause." The parties hereto further agree that the following causes shall constitute the only causes for which the Employee may be discharged. a. BREACH. Any failure or refusal to comply in good faith with the obligations of the Employee under the Amended Agreement, which failure shall, in the sole determination of the Board of Directors, constitute gross neglect by the Employee or result from the willful misconduct of the Employee. b. DISHONESTY. As determined by the Board of Directors based upon substantial evidence, any of the following whether or not actual criminal prosecution or conviction arises therefrom: (a) perpetration of, or attempt to perpetrate, any fraud, embezzlement or theft with respect to Details, or any of its subsidiaries, shareholders, directors, personnel, vendors or customers, or (b) conviction of any felony, or of any misdemeanor originally charged as a felony, whether or not imprisonment results. 6. LIFE INSURANCE. Details agrees to use its reasonable efforts to procure a term life insurance policy in the amount of one million dollars ($1,000,000) on the life of the Employee, provided that the Employee presents typical underwriting risks for a non-smoker in good health who is Employee's age and that the Employee cooperates in Details' efforts to procure such policy. Details will pay the premiums for such policy for the period beginning on the date such policy is procured and ending on the earlier of (i) the Expiration Date or (ii) the date Employee ceases to be an employee of Details. 7. DISABILITY. Details may terminate the Employee's employment upon notice to the Employee in the event the Employee becomes disabled during his employment hereunder through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to perform substantially all of his duties and responsibilities under the Amended Agreement for a period of ninety (90) consecutive calendar days or for an aggregate of one hundred eighty (180) days during any period of three hundred sixty-five (365) -3- consecutive calendar days. In the event of a termination pursuant to the preceding sentence, Details shall continue to pay to the Employee the Base Salary payable to the Employee pursuant to the Amended Agreement for a period of up to one calendar year from the date of such disability, such Base Salary to be payable in such installments as the Base Salary is paid him under the terms of the Amended Agreement, provided however if the Employee is eligible to receive disability payments under a long-term disability plan adopted by Details, such payments of the Employee's Base Salary shall cease. 8. STOCK AWARD. Details will award Employee 3950.0435 shares of Class A-5 Common Stock on the Closing Date, which shares will be duly authorized, fully-paid and non-assessable. 9. BONUS. In addition to any other compensation to which Employee is entitled, on the date on which Employee ceases to be the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of any shares of capital stock of Details, Details will pay to Employee, whether or not he continues to be an employee at such time, an amount equal to $905,802.38. The provisions of this Section 9 shall survive the Expiration Date. 10. ENFORCEMENT. In the event that any provision of this Amended Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law. [Remainder of this page intentionally left blank] -4- Employment Agreement October 28, 1997 IN WITNESS WHEREOF, this agreement is executed as of the day and year first above written. EMPLOYEE: DETAILS, INC. /s/ Lee W. Muse, Jr. By /s/ Terry L. Wright - ---------------------------- -------------------------- Lee W. Muse, Jr. Terry L. Wright SCHEDULE 1 ---------- to Employment Agreement and Incentive Compensation Plan The Additional Compensation for each year shall be determined by the following methodology. EBITDA for each year shall be divided by the Target EBITDA for that year. The resulting fraction (expressed as a percentage) is the "EBITDA Percentage". The amount of the Additional Compensation for each year is a function of the EBITDA Percentage for that year as set forth on the table below:
- -------------------------------------------------------------------------------- If the EBITDA The Additional Compensation Percentage is: in each year shall equal: - -------------------------------------------------------------------------------- 1997 1998 1999 --------------------------------------------- Below 90% -0- -0- -0- - -------------------------------------------------------------------------------- Between 90% and below 95% $22,971 $133,333 $142,857 - -------------------------------------------------------------------------------- 95% $45,943 $266,667 $285,714 - -------------------------------------------------------------------------------- 100% $60,300 $400,000 $425,000 - -------------------------------------------------------------------------------- 105% $80,974 $470,000 $503,571 - -------------------------------------------------------------------------------- 110% $93,034 $540,000 $578,571 - -------------------------------------------------------------------------------- 115% $105,094 $610,000 $653,571 - -------------------------------------------------------------------------------- 120% $117,154 $680,000 $728,571 - --------------------------------------------------------------------------------
For an EBITDA Percentage that exceeds 95%, Additional Compensation will be determined from the foregoing table by linear interpolation based upon the actual EBITDA Percentage. For an EBITDA Percentage that exceeds 120%, Additional Compensation will be determined from the foregoing table by linear extrapolation. [Lee W. Muse, Jr.] EX-10.13 18 WRIGHT EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN This Employment Agreement and Incentive Compensation Plan ("Agreement") is made as of the 1st day of September, 1995, between Details, Inc., a California corporation ("Details"), and TERRY L. WRIGHT ("Employee") with respect to the following recitals of facts: R E C I T A L S A. Details is an electronics component manufacturer engaged in the business of quick turn-around production of high quality multilayer printed circuit boards for production prototype applications and for urgently needed assembly operations in the electronics industry. B. Employee is presently an employee of Details who has been appointed to the position of Vice President - Engineering. C. Details and Employee entered into an Employee Incentive Compensation Plan on December 12, 1994, with respect to the calendar year 1995 providing for a Base Salary and Additional Compensation to be paid to Employee quarterly during such year, provided that employment has not theretofor been terminated ("1995 Plan"). D. Details and Employee desire by this Agreement to provide for the terms of employment, an exclusive employment obligation, and a plan of compensation for employee for the three year period following the expiration of the 1995 Plan, and to amend the 1995 Plan as hereafter set forth. NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions hereinafter set forth, the parties agree as follows: 1. EMPLOYMENT OF EMPLOYEE. On and subject to the terms and conditions hereinafter set forth, Details hereby offers to Employee and Employee hereby accepts employment with Details as Vice President - Engineering. 2. TERM. This Agreement shall cover the term commencing on September 1, 1995 and ending on December 31, 1998. 3. COMPENSATION. The compensation payable to Employee under this Agreement during the term hereof shall be as follows: A. Compensation for Period from September 1, 1995 through December 31, 1995. During the remainder of the term of the 1995 Plan, Employee shall continue to receive the Base Salary and Additional Compensation as therein provided. B. Compensation for Period from January 1, 1996 through December 31, 1998. (i) The Base Salary for each Year shall be as follows:
Year Base Salary ---- ----------- 1996 $125,000 1997 $140,000 1998 $155,000
(ii) Additional Compensation for each calendar month while an employee of Details commencing with the month of January, 1996, if the Gross Profit of Details from such month shall exceed the applicable Minimum Gross Profit set forth below. "Gross Profit" in any month shall constitute the amount identified as such on Detail's regularly prepared Statement of Income for such month on a basis consistent with that in effect on the date hereof, except that the Gross Profit so reflected shall be subject to the adjustments in subsection D below in determining Additional Compensation.
Minimum Year Gross Profit ---- ------------ 1996 $1,000,000 1997 $1,250,000 1998 $1,500,000
-2- (iii) Subject to the maximums set forth in clause (iv) below, Additional Compensation shall be determined by applying the following percentages to the excess, in any month, of Gross Profit over Minimum Gross Profit:
AMOUNT OF EXCESS PERCENTAGE Up to $100,000 1/2% Over $100,000 to $200,000 1% Over $200,000 1 1/2%
For example, if the Gross Profit in the month of February, 1997 was $2,000,000, the Additional Compensation for such month would be $9,750 (determined by deducting from the Gross Profit of $2,000,000, the Minimum Gross Profit of $1,250,000 applicable to such month, and applying the above percentages to such $750,000 excess, i.e., 1/2% to the first $100,000, 1% to the second $100,000 and 1 1/2% to the remaining $550,000. (iv) The maximum Additional Compensation for years commencing in 1996 shall be as follows:
Maximum Additional Year Compensation ---- ------------------ 1996 $ 75,000 1997 $ 85,000 1998 $105,000
C. Employee shall be paid Additional Compensation on a quarterly basis, and subject to the usual deductions, in the same manner as is provided in the 1995 Plan. D. For purposes of determining the Additional Compensation in each month, the Gross Profit actually achieved in such month shall be adjusted as follows: (i) In each Month in which the Minimum Gross Profit is not achieved ("Deficient Month"), the deficiency shall be offset against the amount by which the Gross Profit actually achieved in each subsequent month exceeds the applicable Minimum Gross Profit for such -3- subsequent month, until the deficiency arising from the Deficient Month is fully offset. (ii) In each Month in which, in connection with enforcement of any fire or building and safety law, environmental or toxics control law, wage and hour law or other employee compensation or benefit law, occupational safety or health law, or other law regulating production or other operations, Details shall be assessed a fine, penalty or other charge by any governmental agency, or is ordered to pay additional compensation to any employee, or is ordered to pay any amount to a third party, or shall expend fees or costs for legal or other services to defend against any such action or proceeding by any governmental agency, the aggregate amount of such expenses shall reduce the Gross Profit actually achieved for such Month, and in the event that such adjustment creates or adds to a Deficient Month, the provisions of the preceding clause (ii) above relating to offsets in subsequent Months shall also be applicable. In the event that the Board of Directors had been apprised by any officer of the need to appropriate funds in order to prevent the imposition of such fine, penalty or other charge, or additional compensation, or amount ordered to be paid to a third party, in a writing delivered to the Board members in sufficient time to hold a board meeting, appropriate funds and effect compliance with such law, and the Board shall fail to do so, then the adjustment to Gross Profit in this clause (ii) shall not apply in such circumstance. E. For purposes of determining Additional Compensation in any month, the amount thereof otherwise payable shall be further reduced by the following percentages: (i) In any month in which engineering errors shall necessitate materials, whether partially or fully processed, to be scrapped, a percentage equal to one thousandth of the cost of such scrap (labor and materials expended as determined by Details). For example, if such scrap is $34,000, the percentage reduction shall be 34%. (ii) In any month in which engineering errors cause returns by customers of products shipped, a percentage equal to one thousandth of the dollar amount of such returns (as determined by Details) in excess of the following allowances: -4-
INVOICED PRICE OF SHIPMENTS DURING MONTH ALLOWANCE RETURN PRODUCT WAS SHIPPED Up to $4,000,000 $5,000 $4,000,000 to $4,999,999 $6,000 $5,000,000 to $6,999,999 $7,000 $7,000,000 to $8,999,999 $8,000 $9,000,000 to $10,999,999 $9,000 $11,000,000 and over $10,000
For example, if customers return products invoiced at a total of $34,000 in a month in which $7,400,000 is shipped, the percentage reduction shall be 26% (34,000 less allowance of 8,000, divided by 1,000). F. In addition to the foregoing, the Board of Directors, may, in its sole and exclusive discretion, grant an additional bonus to Employee. 4. GENERAL OBLIGATIONS OF EMPLOYEE. During the term hereof, employee shall: A. Devote his full employment energies, interest, abilities, time and attention to the performance of his obligations hereunder, and shall not, without the written consent of the Chairman and/or Chief Executive Officer of Details, render any service of any kind to a third party for compensation. B. Not engage in any activity which conflict with or interferes with the performance of his duties hereunder, whether or not for compensation. C. Provide his exclusive loyalty to Details, with a view toward maintaining the highest quality standards, improving profitability through cost controls, increasing revenues consistent with holding margins, assuring compliance with applicable laws, sustaining employee morale, and assuring equipment is maintained in its best operating condition. 5. SPECIFIC DUTIES OF EMPLOYEE. Subject at all times to the direction of the Board of Directors and the approval of the Chairman and/or Chief Executive Officer, employee shall: A. Implement and oversee engineering -5- functions, including, without limitation, coordination of recruiting, training and continuing education of engineering personnel, coordinating all engineering activities, implementation and maintenance of quality assurance standards, interfacing with subordinate managers and personnel, customers and with the Vice President, Sales, and the President, to assure customer requirements are satisfied. B. Coordinate accurate and complete reporting of all material information engineering functions of Details with the President, including without limitation, all information necessary for planning relating to projected requirements for capital equipment expenditures and personnel requirements. C. Maintain controls over engineering operations to assure continuous fiscal integrity and profitability. D. Maintain continuous compliance with applicable laws and regulations relating assigned requirements. E. Implement policies to continuously discover and correct deficiencies as required from time to time to assure full compliance with law, first quality effort and results by subordinate personnel and representatives, and proper internal reporting and communications. F. Represent and continuously promote the interests of Details in all customers communications, and with all subordinate personnel. G. Implement policies to maintain proper morale of personnel, adequacy of staffing, proper budgeting for current engineering and operations activities. H. Coordinate with subordinate executives, managers and supervisors to assure smooth implementation of corporate plans and objectives. I. Perform such other reasonable tasks and functions as directed by the Chairman and Chief Executive Officer of Details. -6- 6. CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT. A. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. Employee now possesses and will obtain "Confidential Information", which is all information disclosed or obtained in connection with employment with Details, (i) which has been created, discovered, developed or otherwise become known to Details, its customers, or suppliers, and/or in which proprietary rights have been assigned or otherwise provided to Details, and (ii) which has commercial value in the businesses in which Details and its customers and suppliers are engaged. Employee agrees that all Confidential Information is a valuable property and asset of Details, and Details shall be the sole owner of all patents, trademarks, copyrights, trade secrets, and other proprietary rights arising therefrom. Employee shall at all times, during and after employment maintain the confidentiality of Confidential Information, and not use or disclose same other than (a) for a purpose connected with Employee's obligations to Details under this agreement, or (b) with the written consent of the Chairman and Chief Executive Officer of Details. (i) The following are examples of Confidential Information, but not an exclusive listing: information relating to trade secrets, processes, customer lists, structures, formulas, data, know-how, techniques, marking plans, manufacturing methods, strategies, forecasts, products, equipment utilization, software and financial data. (ii) Notwithstanding the foregoing, Confidential Information does not include information (a) generally available to the public, (b) contained in an issued patent, or (c) generally known to persons in the printed circuit board business. B. INVENTION AND PROPRIETARY RIGHTS ASSIGNMENT. Employees hereby irrevocable grants and assigns to Details for its sole use and benefit all Proprietary Rights, being trade or service marks, designs, logos, inventions, trade secrets, improvements, technical information and suggestions regarding Details business and operations, which Employee may have heretofor developed or acquired during his employment with Details, or which may hereafter be developed or acquired during the term hereof, together with all applications, trademark, patents, copyrights (including future copyrights pursuant to -7- Section 37 of the Copyright Act of 1986 and any amendment or successor provision thereto) related thereto and to any improvements thereon. To carry out these obligations, Employee shall during the term hereof and at any time thereafter: (i) Assure that Details has received prompt and full disclosures of all such Proprietary Rights. (ii) Execute and deliver on demand such applications, assignments, descriptions and other instruments (prepared at Details' expense) relating to Proprietary Rights as Details shall reasonably request to enable proper documentation and registrations of its right hereunder. (iii) Assist Details, at Details expense, in connection with preparing and prosecuting applications relating to Proprietary Rights, and in connection with otherwise securing and/or defending its Proprietary Rights, including by way of litigation. 7. EXCLUSIVE EMPLOYMENT WITH DETAILS. During the term, Employee shall not be employed by, or seek any employment with (except after September 30, 1998; if anticipating leaving Details on expiration of this agreement), any person (including, without limitation, any individual, corporation, business association, partnership or other entity) other than Details. A. EMPLOYEE ACKNOWLEDGEMENTS. Employee hereby expressly acknowledges and agrees that he has received training and experience at Details which has enabled him to become a special uniquely talented engineer manager in the printed circuit board business, possessing special capabilities and knowledge relating to specific customer requirements in coordination with Details' high speed turn around, high margin, superior quality product and high volume output operation. Employee further acknowledges (i) the quick turn-around printed circuit board production business is a small fraction of the electronic component business, and even of the overall printed circuit board production portion thereof, (ii) that a material portion of the consideration being committed to by Details hereunder for the term hereof relates to the value of Employee's exclusive employment with Details and nonemployment with others, and (iii) the loss of such talents to another printed circuit -8- Employee shall be given written notice of the nature of such breach and the requirements for cure thereof, and Employee shall immediately cure same, or if it cannot immediately be cured, shall immediately commence and diligently pursue to completion such cure, which may require reimbursement of losses arising from such breach to Details. Should such cure not be so effected, or should such breach recur thereafter, Employee shall be discharged. B. INCAPACITY. The inability to perform the obligations of employee under this agreement due to death, injury, disease, mental illness or other disability, which shall continue for a period of 90 days, or which, in the aggregate shall involve 120 days in the preceding twelve month period. C. DISHONESTY. (i) As determined by the Board in good faith based upon substantial evidence, any of the following whether or not actual criminal prosecution or conviction arises therefrom: (a) perpetration of, or attempt to perpetrate, any fraud, embezzlement or theft with respect to Details, or any of its shareholders, directors, personnel, vendors or customers, or (b) perpetration of any conduct involving moral turpitude, or (ii) conviction of any misdemeanor where imprisonment results, or (iii) conviction of any felony, or of any misdemeanor originally charged as a felony, whether or not imprisonment results. D. DISCRIMINATORY/SEXUAL MISCONDUCT. As involves personnel, vendors, and customers of Details, any conduct involving (i) unlawful discrimination based on age, gender, race national origin, or religion; and/or (ii) unlawful sexual harassment. 9. VACATIONS AND BENEFITS. Employee shall be entitled to benefits generally available to Details full time personnel, such as participation in heath care plans and similar benefit plans, including vacation and sick pay entitlements for salaried employees, vehicle use or allowances, and reimbursement of reasonable expenses incurred in the discharge of Employee's obligations hereunder. -9- compensation under this agreement shall cease, and (ii) Employee shall return all property of Details within 24 hours following such termination, including without limitation all Confidential Information and Proprietary Rights. A. BREACH. Any failure or refusal to comply in good faith with the obligations of employee under this agreement. In the event such breach is, in the sole determination of the Board of Directors, of a type which is not irreparable and which has not diminished the reputation of Details or the morale of its employees, Employee shall be given written notice of the nature of such breach and the requirements for cure thereof, and Employee shall immediately cure same, or it cannot immediately be cured, shall immediately commence and diligently pursue to completion such cure, which may require reimbursement of losses arising from such breach to Details. Should such cure not be so effected, or should such breach recur thereafter, Employee shall be discharged. B. INCAPACITY. The inability to perform the obligations of employee under this agreement due to death, injury, disease, mental illness or other disability, which shall continue for a period of 90 days, or which, in the aggregate shall involve 120 days in the preceding twelve month period. C. DISHONESTY. (i) As determined by the Board in good faith based upon substantial evidence, any of the following whether or not actual criminal prosecution or conviction arises therefrom: (a) perpetration of, or attempt to perpetrate, any fraud, embezzlement or theft with respect to Details, or any of its shareholders, directors, personnel, vendors or customers, or (b) perpetration of any conduct involving moral turpitude, or (ii) conviction of any misdemeanor where imprisonment results, or (iii) conviction of any felony, or of any misdemeanor originally charged as a felony, whether or not imprisonment results. D. DISCRIMINATORY/SEXUAL MISCONDUCT. As involves personnel, vendors, and customers of Details, any conduct involving (i) unlawful discrimination based on age, gender, race, national origin, or religion; and/or (ii) unlawful sexual harassment. -10- 9. VACATIONS AND BENEFITS. Employee shall be entitled to benefits generally available to Details full time personnel, such as participation in health care plans and similar benefit plans, including vacation and sick pay entitlements for salaried employees, vehicle use or allowances, and reimbursement of reasonable expenses incurred in the discharge of Employee's obligations hereunder. 10. INUREMENT. This agreement shall be binding upon and inure to the benefit of the parties, and their successors, assigns and personal representatives. 11. ASSIGNMENT. Employee may not assign this agreement or any interest therein. Details may assign this agreement to any entity which shall assume all of the obligations of Details hereunder, provided that either (i) Details shall own a majority of the voting securities of such entity, or (ii) such entity has purchased a majority of the assets of Details. 12. NOTICES. Any notices required or permitted under this agreement shall be in writing and shall be deemed delivered to (i) Employee when (a) personally handed to Employee, whether at Details or elsewhere, or (b) two days following depositing same in the United States Mail, postage prepaid, certified mail return receipt requested, addressed to Employee at Employee's home address as from time to time contained in the personnel records of Details, or (ii) Details, when (a) personally handed to the Chairman and/or Chief Executive Officer, or (b) two days following depositing same in the United States Mail, postage prepaid, certified mail return receipt requested, addressed to the Chairman and/or Chief Executive Officer of Details, at the then applicable address for the administrative offices of Details. 13. INTEGRATION. This agreement, together with the 1995 Plan, contain the entire understanding of the parties relating to the subject matter hereof, and shall supersede all other written and oral prior and contemporaneous promises and agreements. 14. APPLICABLE LAW AND INTERPRETATION. This agreement is made in the State of California, and California law shall govern its interpretation. The provisions of this agreement where negotiated by the parties and/or their representatives and shall be -11- construed in accordance with their fair meaning and intent, and not against either party generally as drafter. 15. ENFORCEMENT. Should legal action between the parties be necessary or appropriate to enforce any of the provisions hereof, the prevailing party shall be entitled to recover reasonable attorneys fees, whether or not such action proceeds to a final judgement. 16. SEVERABILITY. If any of the provisions of this agreement, as applied to a particular party or circumstance, shall be found by a court with proper jurisdiction to be void or unenforceable, such finding shall not affect the provision in any other application, or the validity or enforceability of other provisions hereof. 17. AMENDMENTS. Any amendment to this agreement must be in writing and signed by each of the parties to be valid, and any purported amendment not meeting the requirements of this section shall be without force or effect. IN WITNESS WHEREOF, this agreement is executed as of the day and year first above written. EMPLOYEE: DETAILS, INC. /s/ Terry L. Wright by /s/ James I. Swenson CEO - ----------------------- ------------------------- TERRY L. WRIGHT JAMES I. SWENSON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER -12- AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT AND INCENTIVE COMPENSATION PLAN This Amendment No. 1 to the Employment Agreement and Incentive Compensation Plan is made as of October 28, 1997, between Details, Inc., a California corporation ("Details"), and Terry Wright ("Employee") with respect to the following recitals of facts: RECITALS A. Employee is presently an employee of Details. B. Details and Employee entered into an Employment Agreement and Incentive Compensation Plan on September 1, 1997 (the "Agreement") which provided the terms of employment and a plan of compensation for Employee. Capitalized terms used herein shall have the meanings set forth in the Agreement, unless otherwise provided herein. C. On October 28, 1997, Details entered into an Amended and Restated Recapitalization Agreement (the "Recapitalization Agreement") pursuant to which it will exchange its capital stock for certain consideration on the closing date (the "Closing Date"). Employee is a stockholder and optionholder of Details and will derive substantial personal economic benefit from the consummation of the transaction contemplated by the Recapitalization Agreement. D. The Recapitalization Agreement contemplates that the parties hereto execute this Agreement. E. Details and Employee desire by this amendment to provide for the continued employment and to extend the term of the employment of the Employee on the terms contained in the Agreement as amended hereby. NOW THEREFORE, in consideration of the foregoing recitals and the mutual covenants and conditions hereinafter set forth, the parties agree as follows: 1. CONTINUED EMPLOYMENT OF EMPLOYEE. On and subject to the terms and conditions set forth in the Agreement as amended hereby (the "Amended Agreement"), Details hereby offers to Employee and Employee hereby accepts continued employment with Details as Vice President-Engineering. In the event of a conflict between any provision of this Amended Agreement and the Agreement, the provisions of the Amended Agreement shall control. 2. TERM. This Amended Agreement shall cover the term commencing on the Closing Date and ending three calendar years from the Closing Date (the "Expiration Date"). 3. COMPENSATION. The Base Salary for fiscal years 1997, 1998 and 1999 shall be $140,000, $155,000 and $170,000, respectively. The Base Salary for each year on or after January 1, 2000 covered by the Amended Agreement will be established by Details at a level that is at least as high as the Base Salary for 1999. The Additional Compensation shall be calculated according to the table set forth on Schedule 1 hereto and shall be based on the following EBITDA targets ("Target EBITDA") (rather that Gross Profit or any other measuring device or indicator).
Target Fiscal Year EBITDA ----------- ------ (In Millions) 1997 $ 33,396 1998 $ 37,571 1999 $ 42,267
For purposes of this Agreement, EBITDA is defined in accordance with the definition of Consolidated EBITDA in the Senior Credit Agreement dated October 27, 1997. After the preparation and finalization of the financial statements reflecting the first six months of each fiscal year ("Six Month Financials"), Details shall pay the Employee an advance on the Additional Compensation, if any, payable to the Employee for such fiscal year (the "Advance"). The Advance shall equal seventy-five percent (75%) of fifty percent (50%) of the Target Additional Compensation (i.e., the Additional Compensation that Details expects to pay Employee at fiscal year end based on Detail's good faith estimate of Details' EBITDA for such fiscal year). If the Additional Compensation for the fiscal year is less than the amount of the Advance paid to the Employee in such fiscal year, then the amount of Additional Compensation to which the Employee would otherwise be entitled in subsequent periods shall first be applied to eliminate such short shortfall. 4. NONCOMPETITION. The parties hereby reaffirm the section of the Agreement entitled "Noncompetition" (the "Noncompetition Section"). The -2- Employee further agrees that the restrictions contained in the Noncompetition Section on his activities during and after his employment are necessary to protect the goodwill, confidential information and other legitimate interests of Details and its Affiliates. Section 7(b) of the Agreement is hereby amended by deleting the reference therein to "December 31, 1998" and substituting therefor a reference to "the Expiration Date." 5. DISCHARGE FOR CAUSE. The parties hereto hereby reaffirm the section of the Agreement entitled "Discharge for Cause." The parties hereto further agree that the following causes shall constitute the only causes for which the Employee may be discharged. a. BREACH. Any failure or refusal to comply in good faith with the obligations of the Employee under the Amended Agreement, which failure shall, in the sole determination of the Board of Directors, constitute gross neglect by the Employee or result from the willful misconduct of the Employee. b. DISHONESTY. As determined by the Board of Directors based upon substantial evidence, any of the following whether or not actual criminal prosecution or conviction arises therefrom: (a) perpetration of, or attempt to perpetrate, any fraud, embezzlement or theft with respect to Details, or any of its subsidiaries, shareholders, directors, personnel, vendors or customers, or (b) conviction of any felony, or of any misdemeanor originally charged as a felony, whether or not imprisonment results. 6. LIFE INSURANCE. Details agrees to use its reasonable efforts to procure a term life insurance policy in the amount of one million dollars ($1,000,000) on the life of the Employee, provided that the Employee presents typical underwriting risks for a non-smoker in good health who is Employee's age and that the Employee cooperates in Details' efforts to procure such policy. Details will pay the premiums for such policy for the period beginning on the date such policy is procured and ending on the earlier of (i) the Expiration Date or (ii) the date Employee ceases to be an employee of Details. 7. DISABILITY. Details may terminate the Employee's employment upon notice to the Employee in the event the Employee becomes disabled during his employment hereunder through any illness, injury, accident or condition of either a physical or psychological nature and, as a result, is unable to preform substantially all of his duties and responsibilities under the Amended Agreement for a period of ninety (90) consecutive calendar days or for an aggregate of one hundred eighty (180) days during any period of three hundred sixty-five (365) -3- consecutive calendar days. In the event of a termination pursuant to the preceding sentence, Details shall continue to pay to the Employee the Base Salary payable to the Employee pursuant to the Amended Agreement for a period of up to one calendar year from the date of such disability, such Base Salary to be payable in such installments as the Base Salary is paid him under the terms of the Amended Agreement, provided however if the Employee is eligible to receive disability payments under a long-term disability plan adopted by Details, such payments of the Employee's Base Salary shall cease. 8. STOCK AWARD. Details will award Employee 993.0454 shares of Class A-5 Common Stock on the Closing Date, which shares will be duly authorized, fully-paid and non-assessable. 9. BONUS. In addition to any other compensation to which Employee is entitled, on the date on which Employee ceases to be the beneficial owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of any shares of capital stock of Details, Details will pay to Employee, whether or not he continues to be an employee at such time, an amount equal to $227,719.73. The provisions of this Section 9 shall survive the Expiration Date. 10. ENFORCEMENT. In the event that any provision of this Amended Agreement shall be determined by any court of competent jurisdiction to be unenforceable by reason of its being extended over too great a time, too large a geographic area or too great a range of activities, such provision shall be deemed to be modified to permit its enforcement to the maximum extent permitted by law. [Remainder of this page intentionally left blank] -4- Employment Agreement October 28, 1997 IN WITNESS WHEREOF, this Agreement is executed as of the day and year first above written. EMPLOYEE DETAILS, INC. /s/ Terry L. Wright By /s/ Lee W. Muse, Jr. - ------------------------- --------------------------------- Terry L. Wright Lee W. Muse, Jr. SCHEDULE 1 ---------- to Amendment No. 1 to Employment Agreement and Incentive Compensation Plan The Additional Compensation for each year shall be determined by the following methodology. EBITDA of each year shall be divided by the Target EBITDA for that year. The resulting fraction (expressed as a percentage) is the "EBITDA Percentage". The amount of the Additional Compensation for each year is a function of the EBITDA Percentage for that year as set forth on the table below:
- -------------------------------------------------------------------------------- If the EBITDA The Additional Compensation Percentage is: in each year shall equal: - -------------------------------------------------------------------------------- 1997 1998 1999 ------------------------------------------- Below 90% -0- -0- -0- - -------------------------------------------------------------------------------- Between 90% and below 95% $4,746 $35,000 $38,387 - -------------------------------------------------------------------------------- 95% $9,492 $70,000 $76,774 - -------------------------------------------------------------------------------- 100% $14,238 $105,000 $115,161 - -------------------------------------------------------------------------------- 105% $17,390 $128,250 $140,661 - -------------------------------------------------------------------------------- 110% $20,543 $151,500 $166,161 - -------------------------------------------------------------------------------- 115% $23,695 $174,750 $191,661 - -------------------------------------------------------------------------------- 120% $26,848 $198,000 $217,161 - --------------------------------------------------------------------------------
For an EBITDA Percentage that exceeds 95%, Additional Compensation will be determined from the foregoing table by linear interpolation based upon the actual EBITDA Percentage. For an EBITDA Percentage that exceeds 120%, Additional Compensation will be determined from the foregoing table by linear extrapolation. [Terry Wright] EX-12.1 19 STATEMENT REGARDING COMPUTATION OF RATIO EARNINGS EXHIBIT 12.1 DETAILS, INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
UNAUDITED PRO FORMA UNAUDITED NINE MONTHS UNAUDITED NINE MONTHS PRO FORMA ENDED PRO FORMA ENDED TWELVE MONTHS YEAR ENDED DECEMBER 31, SEPTEMBER 30, YEAR ENDED SEPTEMBER 30, ENDED ------------------------------------ -------------- DECEMBER 31, -------------- SEPTEMBER 30, 1992 1993 1994 1995 1996 1996 1997 1996 1996 1997 1997 ---- ---- ------ ------ ------ ------ ------ ------------ ------ ------ ------------- Income (loss) before in- come taxes.............. (195) 34 18,164 26,385 18,621 13,568 7,974 10,112 7,035 7,163 10,240 Fixed charges: Interest expense....... 57 167 181 371 9,518 6,974 7,427 19,082 14,343 14,332 19,071 Rentals: 1/3 of all lease rentals................ 211 239 179 207 -- -- -- -- -- -- -- ---- --- ------ ------ ------ ------ ------ ------ ------ ------ ------ Total fixed charges.... 268 406 360 578 9,518 6,974 7,427 19,082 14,343 14,332 19,071 Earnings before income taxes and fixed charges. 73 440 18,524 26,963 28,139 20,542 15,401 29,194 21,378 21,495 29,311 Ratio of earnings to fixed charges........... -- (1) 1.1x 51.5x 46.6x 3.0x 2.9x 2.1x 1.5x 1.5x 1.5x 1.5x
- ---- (1) Earnings were not sufficient to cover Fixed Charges by $195. 1 EX-23.1 20 CONSENT OF INDEPENDENT AUDITORS EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the captions "Experts," "Summary Historical Consolidated Financial Data," and "Selected Historical Consolidated Financial Data," and to the use of our report dated February 14, 1997 in the Registration Statement (Form S-4) and related Prospectus of Details, Inc. for the registration of its $100 million 10% Senior Subordinated Notes due 2005. /s/ McGladrey & Pullen, LLP --------------------------- McGladrey & Pullen, LLP Anaheim, California November 26, 1997 EX-25.1 21 STATEMENT OF ELIGIBILITY OF FORM T-1 Exhibit 25.1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 ------ STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) -- STATE STREET BANK AND TRUST COMPANY (Exact name of trustee as specified in its charter) Massachusetts 04-1867445 (Jurisdiction of incorporation or (I.R.S. Employer organization if not a U.S. national bank) Identification No.) 225 Franklin Street, Boston, Massachusetts 02110 (Address of principal executive offices) (Zip Code) John R. Towers, Esq. Executive Vice President and General Counsel 225 Franklin Street, Boston, Massachusetts 02110 (617) 654-3253 (Name, address and telephone number of agent for service) --------------------- Details, Inc. (Exact name of obligor as specified in its charter) California 33-0779123 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1231 Simon Circle Anaheim, California 92806 (Address of principal executive offices) (Zip Code) -------------------- 10% Senior Subordinated Notes (Title of indenture securities) GENERAL Item 1. General Information. Furnish the following information as to the trustee: (a) Name and address of each examining or supervisory authority to which it is subject. Department of Banking and Insurance of The Commonwealth of Massachusetts, 100 Cambridge Street, Boston, Massachusetts. Board of Governors of the Federal Reserve System, Washington, D.C., Federal Deposit Insurance Corporation, Washington, D.C. (b) Whether it is authorized to exercise corporate trust powers. Trustee is authorized to exercise corporate trust powers. Item 2. Affiliations with Obligor. If the Obligor is an affiliate of the trustee, describe each such affiliation. The obligor is not an affiliate of the trustee or of its parent, State Street Boston Corporation. (See note on page 2.) Item 3. through Item 15. Not applicable. Item 16. List of Exhibits. List below all exhibits filed as part of this statement of eligibility. 1. A copy of the articles of association of the trustee as now in effect. A copy of the Articles of Association of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 2. A copy of the certificate of authority of the trustee to commence business, if not contained in the articles of association. A copy of a Statement from the Commissioner of Banks of Massachusetts that no certificate of authority for the trustee to commence business was necessary or issued is on file with the Securities and Exchange Commission as Exhibit 2 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 3. A copy of the authorization of the trustee to exercise corporate trust powers, if such authorization is not contained in the documents specified in paragraph (1) or (2), above. A copy of the authorization of the trustee to exercise corporate trust powers is on file with the Securities and Exchange Commission as Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated herein by reference thereto. 4. A copy of the existing by-laws of the trustee, or instruments corresponding thereto. A copy of the by-laws of the trustee, as now in effect, is on file with the Securities and Exchange Commission as Exhibit 4 to the Statement of Eligibility and Qualification of Trustee (Form T-1) filed with the Registration Statement of Eastern Edison Company (File No. 33-37823) and is incorporated herein by reference thereto. 1 5. A copy of each indenture referred to in Item 4. if the obligor is in default. Not applicable. 6. The consents of United States institutional trustees required by Section 321(b) of the Act. The consent of the trustee required by Section 321(b) of the Act is annexed hereto as Exhibit 6 and made a part hereof. 7. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority. A copy of the latest report of condition of the trustee published pursuant to law or the requirements of its supervising or examining authority is annexed hereto as Exhibit 7 and made a part hereof. NOTES In answering any item of this Statement of Eligibility which relates to matters peculiarly within the knowledge of the obligor or any underwriter for the obligor, the trustee has relied upon information furnished to it by the obligor and the underwriters, and the trustee disclaims responsibility for the accuracy or completeness of such information. The answer furnished to Item 2. of this statement will be amended, if necessary, to reflect any facts which differ from those stated and which would have been required to be stated if known at the date hereof. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the trustee, State Street Bank and Trust Company, a corporation organized and existing under the laws of The Commonwealth of Massachusetts, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Boston and The Commonwealth of Massachusetts, on the 25th day of November, 1997. STATE STREET BANK AND TRUST COMPANY By: /s/ Earl W. Dennison Jr. ---------------------------- Earl W. Dennison Jr. Vice President 2 EXHIBIT 6 CONSENT OF THE TRUSTEE Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of 1939, as amended, in connection with the proposed issuance by Details, Inc. of its 10% Senior Subordinated Notes, we hereby consent that reports of examination by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. STATE STREET BANK AND TRUST COMPANY By: /s/ Earl W. Dennison Jr. ---------------------------- Earl W. Dennison Jr. Vice President Dated: November 25, 1997 3 EXHIBIT 7 Consolidated Report of Condition of State Street Bank and Trust Company, Massachusetts and foreign and domestic subsidiaries, a state banking institution organized and operating under the banking laws of this commonwealth and a member of the Federal Reserve System, at the close of business June 30, 1997, published ------------- in accordance with a call made by the Federal Reserve Bank of this District pursuant to the provisions of the Federal Reserve Act and in accordance with a call made by the Commissioner of Banks under General Laws, Chapter 172, Section 22(a).
Thousands of ASSETS Dollars Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin............. 1,842,337 Interest-bearing balances...................................... 8,771,397 Securities.......................................................... 10,596,119 Federal funds sold and securities purchased under agreements to resell in domestic offices of the bank and its Edge subsidiary............................ 5,953,036 Loans and lease financing receivables: Loans and leases, net of unearned income ...................... 5,769,090 Allowance for loan and lease losses ........................... 74,031 Allocated transfer risk reserve................................ 0 Loans and leases, net of unearned income and allowances........ 5,695,059 Assets held in trading accounts..................................... 916,608 Premises and fixed assets........................................... 374,999 Other real estate owned............................................. 755 Investments in unconsolidated subsidiaries.......................... 28,992 Customers' liability to this bank on acceptances outstanding........ 99,209 Intangible assets................................................... 229,412 Other assets........................................................ 1,589,526 ---------- Total assets........................................................ 36,097,449 ========== LIABILITIES Deposits: In domestic offices............................................ 11,082,135 Noninterest-bearing....................................... 8,932,019 Interest-bearing.......................................... 2,150,116 In foreign offices and Edge subsidiary......................... 13,811,677 Noninterest-bearing....................................... 112,281 Interest-bearing.......................................... 13,699,396 Federal funds purchased and securities sold under agreements to repurchase in domestic offices of the bank and of its Edge subsidiary............................ 6,785,263 Demand notes issued to the U.S. Treasury and Trading Liabilities.... 755,676 Other borrowed money................................................ 716,013 Subordinated notes and debentures................................... 0 Bank's liability on acceptances executed and outstanding............ 99,605 Other liabilities................................................... 841,566 Total liabilities................................................... 34,091,935 ---------- EQUITY CAPITAL Perpetual preferred stock and related surplus....................... 0 Common stock........................................................ 29,931 Surplus............................................................. 437,183 Undivided profits and capital reserves/Net unrealized holding gains (losses)..................................................... 1,542,695 Cumulative foreign currency translation adjustments................. (4,295) Total equity capital................................................ 2,005,514 ---------- Total liabilities and equity capital................................ 36,097,449
4 I, Rex S. Schuette, Senior Vice President and Comptroller of the above named bank do hereby declare that this Report of Condition has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true to the best of my knowledge and belief. Rex S. Schuette We, the undersigned directors, attest to the correctness of this Report of Condition and declare that it has been examined by us and to the best of our knowledge and belief has been prepared in conformance with the instructions issued by the Board of Governors of the Federal Reserve System and is true and correct. David A. Spina Marshall N. Carter Truman S. Casner 5 EX-27 22 FINANCIAL DATA SCHEDULE
5 YEAR 9-MOS DEC-31-1996 DEC-31-1997 JAN-01-1996 JAN-01-1997 DEC-31-1996 SEP-30-1997 168,900 942,300 0 0 9,511,000 10,148,100 300,000 400,000 1,237,800 2,413,700 12,472,700 14,551,000 12,846,900 14,931,000 2,047,100 1,828,800 27,502,500 31,685,800 15,986,300 20,443,100 78,350,300 70,229,200 0 0 13,531,900 13,531,900 5,300,500 5,300,500 42,106,000 83,350,000 27,502,500 31,685,800 67,515,000 55,420,800 67,515,000 55,420,800 30,504,800 27,018,700 30,504,800 27,018,700 8,973,900 13,056,500 27,100 100,000 9,517,800 7,427,000 18,620,800 7,974,100 6,265,000 3,400,000 28,036,300 15,345,600 0 0 0 0 0 0 12,355,800 4,574,000 0 0 0 0
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