<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 13, 1998.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AURORA ELECTRONICS, INC.
(Exact name of Registrant as specified in its charter)
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<TABLE>
<S> <C>
DELAWARE 75-1539534
(State or other jurisdiction of incorporation or (I.R.S. employer identification number)
organization)
</TABLE>
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9477 WAPLES STREET, SUITE 150
SAN DIEGO, CALIFORNIA 92121
(619) 552-1213
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
---------------------
GEORGE L. MCTAVISH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
9477 WAPLES STREET, SUITE 150
SAN DIEGO, CALIFORNIA 92121
(619) 552-1213
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies to:
KENNETH G. HAWARI
HUGHES & LUCE, L.L.P.
1717 MAIN STREET, SUITE 2800
DALLAS, TEXAS 75201
(214) 939-5500
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------------
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=================================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION FEE
REGISTERED REGISTERED PER UNIT OFFERING PRICE (1)
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<S> <C> <C> <C> <C>
10% Series B Senior Subordinated Notes Due
December 31, 2004....................... $2,747,890 N/A N/A N/A
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Senior Cumulative Convertible Preferred
Stock, $.01 par value................... 32,976 N/A N/A N/A
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Units of Senior Subordinated Notes and
Senior Cumulative Convertible Preferred
Stock................................... 32,976 $183.33 $6,045,490 $1,785
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Common Stock, $.03 par value.............. 13,190,400 N/A N/A N/A
=================================================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457 of the Securities Act of 1933, as amended.
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
BECOMES EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
A GLOSSARY OF TERMS USED THROUGHOUT THIS PROSPECTUS IS PROVIDED STARTING ON PAGE
64.
AURORA ELECTRONICS, INC.
RIGHTS TO PURCHASE
32,976 UNITS
EACH CONSISTING OF
$83.33 PRINCIPAL AMOUNT OF 10% SERIES B SENIOR SUBORDINATED NOTES DUE DECEMBER
31, 2004 AND
ONE SHARE OF 7% SENIOR CUMULATIVE CONVERTIBLE PREFERRED STOCK, PAR VALUE $.01
PER SHARE
SUBSCRIPTION PRICE OF $183.33 PER UNIT
Aurora is delivering to its Public Stockholders, all of which together own
approximately 18.3% of Aurora's voting stock, Rights to subscribe for and
purchase Units, each consisting of (i) $83.33 principal amount of Aurora Senior
Subordinated Notes and (ii) one share of New Aurora Preferred Stock for a
Subscription Price of $183.33 per Unit. Each Right also carries the right to
subscribe at the Subscription Price for one Unit that is not otherwise purchased
pursuant to the exercise of Rights. The Rights are not transferable. A maximum
of 32,976 Units is being offered pursuant to the Rights Offering. The record
date for the determination of Public Stockholders entitled to receive Rights and
participate in the Rights Offering is the close of business on March 20, 1998.
Each Public Stockholder of record on the Aurora Record Date will receive a Right
to purchase one Unit at the Subscription Price for every 189 shares of Aurora
Common Stock held by such Public Stockholder as of the Aurora Record Date. No
fractional Rights or cash in lieu thereof will be distributed, and fractional
interests will be rounded down.
The Rights will expire at the Effective Time of the Merger, unless extended
by Aurora in its sole discretion, and thereafter will be void and of no effect.
All subscriptions to purchase Units are irrevocable. Rights that are not
exercised before the Expiration Time will expire and may not be exercised
thereafter. No minimum number of Units is required to be sold as a condition to
the consummation of the Rights Offering.
The closing of the Rights Offering is conditioned upon the consummation of
the merger of Sub, a wholly-owned subsidiary of Aurora, with and into Cerplex.
See "The Rights Offering -- Condition to Closing." To provide New Cerplex with
needed working capital and to enable it to retire a portion of the approximately
$30 million of existing indebtedness outstanding under the Cerplex Senior Credit
Agreement and establish the New Senior Loan, WCAS has agreed, among other
things, to purchase up to an aggregate 15,000 WCAS Units each consisting of (i)
$1,000 principal amount of Aurora Series A Senior Subordinated Notes and (ii) 12
shares of New Aurora Preferred Stock, at a price of $2,200 per unit, for a total
consideration of $33 million payable in a combination of cash and securities of
Aurora and Cerplex currently held by WCAS. The number of WCAS Units that will
actually be purchased by WCAS will be reduced by an amount equal to the number
of Units subscribed for by Public Stockholders in the Rights Offering divided by
12. See "The Merger and Related Transactions -- WCAS Financing." The proceeds of
the Rights Offering will be used for the same purposes as the proceeds of the
WCAS Financing. See "Reasons for the Rights Offering and Use of Proceeds."
The Rights Offering is intended to afford Public Stockholders the
opportunity to (i) purchase Units consisting of the same New Aurora Preferred
Stock and a substantially similar (although not identical) debt security that
comprise the WCAS Units, at a subscription price per Unit ($183.33) equal to
one-twelfth of the price ($2,200) being paid by WCAS for each WCAS Unit in
connection with the WCAS Financing and (ii) maintain their equity ownership and
voting interest in Aurora after the consummation of the WCAS Financing. Public
Stockholders who do not subscribe for the full number of Units offered to them
in the Rights Offering will own a smaller equity ownership and voting interest
in Aurora after the consummation of the Rights Offering, the WCAS Financing and
the Merger than if they were to fully subscribe for Units. In the event that
Public Stockholders do not fully subscribe for the number of Units being offered
hereunder, the percentage of Aurora's voting securities that is owned by WCAS
will increase. See "Prospectus Summary -- Dilution."
The Aurora Senior Subordinated Notes and New Aurora Preferred Stock that
comprise each Unit will be immediately detachable from each other and separately
transferable immediately upon issuance. Aurora does not intend to apply for
listing or quotation of the Units, the Aurora Senior Subordinated Notes or New
Aurora Preferred Stock on any national or regional exchange or on the NASDAQ. No
assurance can be given that there will be an adequate number of publicly held
Units or shares of New Aurora Preferred Stock or Aurora Senior Subordinated
Notes to give rise to a market in such securities or that such a market will
develop.
From the time of issuance, each share of New Aurora Preferred Stock will be
convertible at the option of the holder thereof into 400 shares of Aurora Common
Stock, subject to anti-dilution adjustment. See "Description of the Units -- New
Aurora Preferred Stock -- Conversion." The Aurora Common Stock is quoted on the
Bulletin Board under the symbol "AURU." On March 11, 1998, the last reported
sale price of the Aurora Common Stock on the Bulletin Board was $0.375 per
share. See "Price Range of Aurora Common Stock and Dividends."
AN INVESTMENT IN THE UNITS INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED
IN CONNECTION WITH AN INVESTMENT IN THE UNITS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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<S> <C> <C> <C>
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UNDERWRITING DISCOUNTS AND
SUBSCRIPTION PRICE COMMISSIONS PROCEEDS TO AURORA(1)
- -----------------------------------------------------------------------------------------------------------------------
Per Unit........................ $183.33 N/A $183.33
- -----------------------------------------------------------------------------------------------------------------------
Total........................... $6,045,490 N/A $6,045,490
=======================================================================================================================
</TABLE>
(1) Before deducting expenses payable by Aurora estimated to be $116,785.
The date of this Prospectus is March [ ], 1998.
<PAGE> 3
AVAILABLE INFORMATION
Aurora is subject to the informational requirements of the Exchange Act,
and, in accordance therewith, files reports, proxy statements, and other
information with the Commission. Such reports, proxy statements, and other
information filed by Aurora with the Commission, including the Registration
Statement on Form S-3 of which this Prospectus is a part, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Regional Offices of the Commission located at Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such material can also
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the
Commission maintains a Web site where reports, proxy statements, and other
information filed by publicly traded companies, including Aurora, may be
retrieved. The address of this site is http://www.sec.gov. The Aurora Common
Stock is quoted on the Bulletin Board.
Aurora has filed a Registration Statement on Form S-3 with the Commission
under the Securities Act with respect to the securities offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
exhibits thereto, certain parts of which are omitted as permitted by the rules
and regulations of the Commission. For further information, reference is made to
the Registration Statement, including the schedules and exhibits filed as a part
thereof. Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each such statement is qualified in
its entirety by reference to the copy of the applicable document filed as an
exhibit to the Registration Statement. The Registration Statement and the
exhibits and schedules thereto may be inspected, without charge, and copies
thereof may be obtained at prescribed rates, at the offices of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. The Registration Statement may
be retrieved from the Commission's Web site at http://www.sec.gov.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed by Aurora with the Commission
pursuant to the Exchange Act are incorporated herein by reference:
(1) Aurora's Annual Report on Form 10-K for the year ended September
30, 1997, filed January 13, 1998;
(1) Aurora's Quarterly Report on Form 10-Q for the quarter ended
December 26, 1997, filed February 9, 1998;
(3) Aurora's Current Report on Form 8-K, filed February 6, 1998; and
(4) The Joint Proxy Statement/Prospectus of Aurora and Cerplex on
Schedule 14A, filed March , 1998.
A description of the Aurora Common Stock contained in Aurora's registration
statement on Form 8-A, including any amendment or reports filed for the purpose
of updating such description, are hereby incorporated by reference into this
Prospectus.
All documents filed by Aurora pursuant to Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date of this Prospectus and prior to the
Expiration Time shall be deemed to be incorporated by reference in this
Prospectus and to be a part hereof from the date any such document is filed. All
information appearing in this Prospectus is qualified in its entirety by the
information and financial statements (including notes thereto) appearing in the
documents incorporated by reference herein.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document which is deemed to be incorporated by reference
herein modifies or
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<PAGE> 4
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
A copy of the Joint Proxy Statement/Prospectus of Aurora and Cerplex, which
is incorporated by reference into this Prospectus, is being delivered with this
Prospectus. This Prospectus incorporates by reference other documents that are
not presented herein or delivered herewith. Aurora will provide without charge
to each person to whom a copy of this Prospectus is delivered, upon written or
oral request, a copy of any and all of the other documents incorporated by
reference herein, other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into such documents. Any such request may
be directed to Aurora Electronics, Inc., 9477 Waples Street, Suite 150, San
Diego, California 92121, Attention: F. Wayne Withers, Secretary, (619) 552-1213.
---------------------
Unless the context otherwise requires, the term "Aurora" means Aurora
Electronics, Inc. and its subsidiaries taken as a whole and includes Aurora's
predecessors. Unless the context otherwise requires, the term "Cerplex" means
The Cerplex Group, Inc. and its subsidiaries taken as a whole and includes
Cerplex's predecessors.
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<PAGE> 5
PROSPECTUS SUMMARY
The following summary of certain information contained elsewhere in this
Prospectus does not purport to be complete and is qualified in its entirety by,
and should be read in conjunction with, the more detailed information appearing
elsewhere in this Prospectus or incorporated by reference in this Prospectus. A
Glossary of Terms used throughout this Prospectus is provided starting on page
64 hereof.
This Prospectus may contain "forward-looking statements" within the meaning
of Section 21E of the Exchange Act and Section 27A of the Securities Act. All
statements other than statements of historical fact are "forward-looking
statements" for purposes of these provisions, including any projections of
earnings, revenues or other financial items, any statements of the plans and
objectives of management for future operations, any statements concerning
proposed new products or services, any statements regarding future economic
conditions or performance, and any statement of assumptions underlying any of
the foregoing. In some cases, forward-looking statements can be identified by
the use of terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," or "continue,"
or the negative thereof or other comparable terminology. Although Aurora
believes that the expectations reflected in forward-looking statements contained
herein are reasonable, there can be no assurance that such expectations or any
of the forward-looking statements will prove to be correct, and actual results
could differ materially from those projected or assumed in the forward-looking
statements. Future financial condition and results, as well as any
forward-looking statements, are subject to inherent risks and uncertainties,
some of which are summarized in the section entitled "Risk Factors."
AURORA
Aurora provides spare parts distribution and electronics recycling services
to major personal computer manufacturers and computer service organizations.
Aurora operates worldwide through its wholly-owned subsidiary, AEG, with
facilities in the United States and the Netherlands. AEG distributes new and
refurbished computer spare parts, primarily to the field service departments of
computer OEMs, TPMs, and MVSOs, computer resellers and dealers, and large
corporate self-maintainers. AEG distributes spare parts from over 500
manufacturers, with particular emphasis on products from Apple Computer, AST
Computer, AT&T, Compaq, Dell Computer, Digital Equipment Corporation,
Hewlett-Packard, IBM and Toshiba. In addition, AEG provides a broad range of
materials management services, such as advance exchange, returned materials
management, inventory management, and electronic materials recycling and
remarketing.
Aurora was incorporated in Delaware in 1983. Aurora's executive offices are
located at 9477 Waples Street, Suite 150, San Diego, California 92121, and its
telephone number is (619) 552-1213.
CERPLEX
Cerplex provides repair services, spare parts sourcing and service
management for manufacturers of computer, communications and electronics office
equipment. In the computer marketplace, Cerplex primarily services display
terminals, printed circuit boards, laptops, networking equipment and
workstations. In the office automation marketplace, Cerplex services, printers,
scanners, fax machines and high value products such as copiers, ATMs and other
paper-handling equipment.
Cerplex was incorporated in California in 1990 and reincorporated in
Delaware in 1993. Cerplex's executive offices are located at 1382 Bell Avenue,
Tustin, California 92780, and its telephone number is (714) 258-5600.
1
<PAGE> 6
THE MERGER AND RELATED TRANSACTIONS
DESCRIPTION OF THE MERGER
On January 30, 1998, Aurora, Sub and Cerplex entered into the Merger
Agreement, in which the parties set forth the terms and conditions of the merger
of Sub with and into Cerplex. After the Merger, Aurora, which will be the
holding company for the combined businesses currently conducted by Aurora and
Cerplex, will change its name to "The Cerplex Group, Inc." The Merger also
contemplates an extensive refinancing of Aurora and Cerplex including, among
other things, (i) securing at least $17 million in proceeds from the New Senior
Loan and (ii) the WCAS Financing.
At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, (i) each share of Cerplex Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares to be
canceled in accordance with (ii) below and Dissenting Shares) shall be converted
into the right to receive 1.076368 shares of Aurora Common Stock, subject to
adjustment, payable upon the surrender of the certificate formerly representing
such share of Cerplex Common Stock; (ii)(a) all shares of Cerplex Common Stock
and all shares of Cerplex Preferred Stock that are held by Cerplex as treasury
shares or owned by Aurora or any wholly-owned subsidiary of Aurora, and (b) all
shares of Cerplex Preferred Stock issued and outstanding immediately prior to
the Effective Time shall be canceled and retired and cease to exist, and no
securities of Aurora or other consideration shall be delivered in exchange
therefor; and (iii) each share of Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
fully paid and nonassessable share of common stock, par value, $.01 per share,
of the Surviving Corporation.
The parties to the Merger Agreement intend for the Exchange Ratio to result
in a capital structure for Aurora in which the holders of all equity securities
on a fully-diluted basis of Cerplex issued and outstanding at the Effective Time
shall receive in the Merger equity securities of Aurora constituting 25% of the
Aurora Common Stock on a fully-diluted basis after giving effect to the Merger
and the consummation of all transactions to be consummated concurrently with the
Merger (including the Rights Offering and the WCAS Financing), not including for
purposes of such calculation 50% of the shares of Aurora Common Stock subject to
then outstanding Aurora Stock Options and 50% of the then outstanding Aurora
Stock Purchase Rights with an exercise price or conversion price greater than
$2.50. Accordingly, the parties have agreed to make such adjustments to the
Exchange Ratio as may be appropriate to give effect to the intent of the parties
set forth in the Merger Agreement.
The Merger will occur only if (i) the holders of the requisite number of
shares of Cerplex Common Stock approve and adopt the Merger Agreement and the
Merger and (ii) the holders of the requisite number of shares of Aurora capital
stock approve and adopt the proposed Aurora Charter Amendment that would
increase the amount of authorized Aurora Common Stock. The holders of more than
the requisite number of Cerplex securities and of the Aurora securities entitled
to vote on the Merger or the Aurora Charter Amendments, as the case may be, have
either agreed to vote or granted irrevocable proxies to vote in favor of these
actions. The consummation of the Merger is also subject to the satisfaction or
waiver of certain other conditions, and the Merger Agreement may be terminated
at any time prior to the Effective Time, in certain circumstances. See "The
Merger and Related Transactions -- Description of the Merger." The closing of
the Rights Offering is conditioned upon the consummation of the Merger. See "The
Rights Offering -- Condition to Closing."
SUMMARIES OF CERTAIN TERMS AND PROVISIONS OF THE MERGER AGREEMENT SET FORTH
HEREIN DO NOT PURPORT TO BE COMPLETE AND ARE QUALIFIED IN THEIR ENTIRETY BY
REFERENCE TO THE PROVISIONS OF THE MERGER AGREEMENT (A COPY OF WHICH HAS BEEN
ATTACHED AS APPENDIX A TO THE JOINT PROXY STATEMENT/PROSPECTUS OF AURORA AND
CERPLEX WHICH IS BEING DELIVERED TOGETHER WITH THIS PROSPECTUS). ALL PUBLIC
STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN ITS ENTIRETY.
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<PAGE> 7
WCAS FINANCING
To provide New Cerplex with needed working capital and to enable New
Cerplex to retire a portion of the approximately $30 million of existing
indebtedness outstanding under the Cerplex Senior Credit Agreement and establish
the New Senior Loan, WCAS has agreed, pursuant to the Purchase and Exchange
Agreement, to purchase (i) subject to the Rights Offering, up to an aggregate
15,000 WCAS Units, each consisting of (a) $1,000 principal amount of Aurora
Series A Senior Subordinated Notes and (b) 12 shares of New Aurora Preferred
Stock, at a subscription price of $2,200 per unit, for a total consideration of
$33 million payable in a combination of cash and securities of Aurora and
Cerplex currently held by WCAS; and (ii) an aggregate 33,000 shares of New
Aurora Preferred Stock in exchange for the cancellation of $10 million principal
amount of Old Aurora Subordinated Notes plus accrued interest thereon currently
held by WCAS. The number of WCAS Units that will actually be purchased by WCAS
will be reduced by an amount equal to the number of Units subscribed for by
Public Stockholders in the Rights Offering divided by 12. See "The Merger and
Related Transactions -- WCAS Financing." The WCAS Units are comprised of the
same New Aurora Preferred Stock and a substantially similar (although not
identical) debt security as the Units. For a discussion of the principal
differences between the terms of the Aurora Senior Subordinated Notes being
offered in the Rights Offering and those of the Aurora Series A Senior
Subordinated Notes being purchased by WCAS, see "Description of the
Units -- Aurora Senior Subordinated Notes -- Differences in Aurora Series A
Senior Subordinated Notes."
THE RIGHTS OFFERING
Securities Offered......... 32,976 Units. Each Unit consists of (i) $83.33
principal amount of Aurora Senior Subordinated
Notes and (ii) one share of Senior Cumulative
Convertible Preferred Stock, $.01 par value per
share.
Rights Subscription
Price...................... $183.33 in cash per Unit.
Rights or Basic
Subscription Privilege..... Each Public Stockholder of record on the Aurora
Record Date will receive one non-transferable Right
to purchase one Unit at the Subscription Price for
every 189 shares of Aurora Common Stock owned as of
the Aurora Record Date. No fractional Rights or
cash in lieu thereof will be distributed and
fractional interests will be rounded down. See "The
Rights Offering -- The Rights."
Aurora Record Date......... March 20, 1998.
Additional Subscription
Privilege.................. Each holder of Rights who exercises in full such
holder's Basic Subscription Privilege may also
subscribe at the Subscription Price for additional
Units that are not otherwise purchased by Public
Stockholders pursuant to the exercise of the Basic
Subscription Privilege. If an insufficient number
of Units is available to satisfy fully all
exercises of the Additional Subscription Privilege,
the available Units will be prorated among holders
who exercise their Additional Subscription
Privilege in proportion to the number of Units each
beneficial holder subscribed for pursuant to the
Basic Subscription Privilege, up to the amount so
subscribed for. See "The Rights
Offering -- Subscription Privileges -- Additional
Subscription Privilege."
Expiration Time............ The Expiration Time of the Rights Offering will be
the Effective Time of the Merger, unless extended
by Aurora in its sole discretion. Rights not
exercised prior to the Expiration Time will be null
and void, and will no longer be exercisable.
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<PAGE> 8
Procedure for Exercising
Rights................... The Basic Subscription Privilege and the Additional
Subscription Privilege may be exercised by properly
completing and signing the Subscription Certificate
evidencing the Rights and forwarding such
Subscription Certificate (or following the
guaranteed delivery procedures), together with
payment of the Subscription Price for each Unit
subscribed for pursuant to the Basic Subscription
Privilege and the Additional Subscription
Privilege, to the Subscription Agent prior to the
Expiration Time. If forwarding Subscription
Certificates and payment by mail, it is recommended
that insured registered mail be used. No interest
will be paid on funds delivered in payment of the
Subscription Price. See "The Rights
Offering -- Exercise of Rights."
NO REVOCATION.............. ONCE A HOLDER OF RIGHTS HAS EXERCISED SUCH
HOLDER'S BASIC SUBSCRIPTION PRIVILEGE OR SUCH
HOLDER'S ADDITIONAL SUBSCRIPTION PRIVILEGE, SUCH
EXERCISE MAY NOT BE REVOKED. SEE "THE RIGHTS
OFFERING -- NO REVOCATION."
Exercise Through Others.... Persons holding Aurora Common Stock beneficially
and receiving Rights issuable with respect thereto
through a broker, dealer, commercial bank, trust
company or other nominee, as well as persons
holding Aurora Common Stock directly who would
prefer to have such institutions effect
transactions relating to the Rights on their
behalf, should contact the appropriate institution
or nominee and request it to effect such
transaction for them. See "The Rights
Offering -- Exercise of Rights."
State and Foreign
Securities Laws.......... The Rights may not be exercised by any person, and
neither this Prospectus nor any related document
shall constitute an offer to sell or a solicitation
of an offer to purchase any Units, in any
jurisdiction in which such transaction would be
unlawful. See "The Rights Offering -- State and
Foreign Securities Laws."
Escrow of Funds............ Funds received upon exercise of the Basic
Subscription Privilege and the Additional
Subscription Privilege will be held in a segregated
account pending conclusion of the Rights Offering.
No interest will be paid on funds delivered in
payment of the Subscription Price.
Description of Aurora
Senior Subordinated
Notes.................... The Aurora Senior Subordinated Notes are governed
by the terms and provisions of the Indenture
between Aurora and U.S. Trust, as trustee. The
following is a summary description of the terms of
the Indenture. See "Description of the
Units -- Aurora Senior Subordinated Notes."
General. The Aurora Senior Subordinated Notes will
be general, unsecured obligations of Aurora. The
Aurora Senior Subordinated Notes will bear interest
at the rate of 10% per annum and will mature in
three equal annual installments commencing on
December 31, 2002. Interest on the Aurora Senior
Subordinated Notes will be payable semiannually, on
June 30 and December 31 of each year, commencing on
June 30, 1998.
Optional Redemption. The Aurora Senior Subordinated
Notes will be subject to redemption at the option
of Aurora from time to time, in whole or in part,
at par plus accrued interest thereon.
Mandatory Redemption. Subject to the rights of the
holders of Senior Indebtedness, Aurora is required
to apply to the mandatory redemption
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<PAGE> 9
of all or a part of the outstanding Aurora Senior
Subordinated Notes (i) 100% of Aurora's Excess Cash
Flow for any fiscal year; and (ii) 100% of its
Available Cash Proceeds of any Sale or Issuance
Transaction.
Change of Control Option. Upon the occurrence of an
Indenture Change of Control, each holder of Aurora
Senior Subordinated Notes will have the option to
put all or a part of his or her notes to Aurora,
and Aurora will be obligated to purchase the Aurora
Senior Subordinated Notes that are put to it, at a
purchase price equal to 101% of the principal
amount, plus accrued and unpaid interest thereon.
Restrictive Covenants. Under the Indenture, Aurora
will be subject to certain restrictive covenants,
including covenants restricting its ability to
consolidate or merge with or into, or sell all or
substantially all of its assets to, another entity,
limiting indebtedness for borrowed money,
restricting certain payments and limiting the
incurrence of liens unless a majority in aggregate
principal amount of the Aurora Senior Subordinated
Notes at the time outstanding waive compliance
therewith.
Events of Default. If an Event of Default occurs,
then the holders of at least 25% in aggregate
principal amount of the Aurora Senior Subordinated
Notes at the time outstanding may, at their option,
by a notice in writing to Aurora, accelerate the
maturity of the Aurora Senior Subordinated Notes,
and the Aurora Senior Subordinated Notes will
become immediately due and payable.
Subordination. The indebtedness under the Aurora
Senior Subordinated Notes is subordinate and
junior, to the extent set forth therein, to all
Senior Indebtedness.
Description of New Aurora
Preferred Stock.......... The following is a summary description of the terms
of the New Aurora Preferred Stock. See "Description
of the Units -- New Aurora Preferred Stock."
Dividends. Each holder of New Aurora Preferred
Stock will be entitled to receive from the date of
issuance dividends of $7.00 per share per annum,
payable when and as declared by the Aurora Board.
Unpaid dividends will be cumulative and will
accrue.
Redemption. The New Aurora Preferred Stock will be
mandatorily redeemable by Aurora in equal
installments on each of December 31, 2006 and 2007,
at a per share redemption price of $100 plus all
accrued and unpaid dividends thereon. In addition,
the New Aurora Preferred Stock will be redeemable
at the option of the holders thereof upon the
occurrence of a Preferred Stock Change of Control.
In the event of a Preferred Stock Change of
Control, any holder of New Aurora Preferred Stock
may require Aurora to redeem at the Redemption
Price all or any portion of the shares of New
Aurora Preferred Stock owned by such holder prior
to the effective date of such Preferred Stock
Change of Control.
Liquidation Preference. In the event of a
liquidation, dissolution or winding up of the
affairs of Aurora, each holder of New Aurora
Preferred Stock shall be entitled to receive a
liquidation preference in the amount of $100 per
share of New Aurora Preferred Stock, plus all
accrued and unpaid dividends thereon.
5
<PAGE> 10
Conversion. The New Aurora Preferred Stock will be
convertible into Aurora Common Stock at any time in
whole or in part at the option of the holders
thereof at a conversion price of $0.25 per share,
subject to adjustment. The New Aurora Preferred
Stock will be convertible in whole at the option of
Aurora on or after June 30, 1999, if (i) Aurora
shall effect a firm commitment public offering of
Aurora Common Stock or convertible securities
registered pursuant to the Securities Act resulting
in proceeds to Aurora and/or selling stockholders
of not less than $20 million and in which the
offering price to the public is greater than the
conversion price of the New Aurora Preferred Stock
or (ii) the average closing sales price of Aurora
Common Stock over any period of 20 consecutive
trading days equals or exceeds 300% of the
conversion price of the New Aurora Preferred Stock
and the average daily trading volume for the Aurora
Common Stock over such period equals or exceeds 10
million shares per week.
Consent Rights. So long as any shares of New Aurora
Preferred Stock are outstanding (except, with
respect to clause (ii) below, so long as at least
25,000 shares of New Aurora Preferred Stock are
outstanding), without the consent of the holders of
a majority of the New Aurora Preferred Stock then
outstanding voting separately as a class, Aurora
will be prohibited from (i) declaring or paying
dividends or making any distribution upon any
Junior Capital Stock, other than a dividend or
distribution payable in shares of Aurora Common
Stock, or purchasing or redeeming any Aurora Common
Stock or paying or making available any money for a
sinking fund for the purchase or redemption of any
Aurora Common Stock, unless all obligations of
Aurora to the holders of New Aurora Preferred Stock
with respect to dividends and arrearage in
redemption have been met; (ii) effecting,
validating or permitting a Preferred Stock Change
of Control; (iii) taking any action which would
amend or repeal the dividend, voting, conversion,
redemption or liquidation rights of the New Aurora
Preferred Stock; (iv) effecting or validating the
amendment, alteration or repeal of any provision of
the Aurora Charter or the Aurora Bylaws; or (v)
including by way of merger, consolidation or
otherwise, (a) creating or authorizing any
additional class or series of stock ranking senior
to or on a parity with the New Aurora Preferred
Stock as to dividends or as to rights upon
redemption, liquidation, dissolution or winding up,
or (b) increasing the authorized number of shares
of the New Aurora Preferred Stock or of any other
class or series of capital stock of Aurora ranking
senior to or on a parity with the New Aurora
Preferred Stock as to dividends or as to rights
upon redemption, liquidation, dissolution or
winding up.
Voting Rights. Except for the consent rights
granted to the holders of New Aurora Preferred
Stock or as required by law, the holders of New
Aurora Preferred Stock will vote together with the
holders of Aurora Common Stock on all matters to be
voted on by the stockholders of Aurora, and each
holder of New Aurora Preferred Stock is entitled to
the number of votes attributable to the underlying
shares of Aurora Common Stock into which the shares
of New Aurora Preferred Stock held by such holder
are convertible.
Transferability............ The Rights are not transferable. The Aurora Senior
Subordinated Notes and the New Aurora Preferred
Stock issued in the Rights Offering will be
immediately detachable from each other and
separately transferable
6
<PAGE> 11
(subject to certain restrictions imposed by the
securities laws in the case of affiliates of
Aurora).
Dilution................... Upon consummation of the Merger and the WCAS
Financing, assuming that Public Stockholders have
subscribed for and purchased all Units being
offering in the Rights Offering, Public
Stockholders will own approximately 11.7% and WCAS
will own approximately 61.2% of the Aurora Common
Stock on a fully diluted basis (assuming the
conversion of the New Aurora Preferred Stock and
the exercise of all outstanding convertible
securities and stock options). If, however, none of
the Units being offered in the Rights Offering are
subscribed for and purchased by Public
Stockholders, then Public Stockholders will own
approximately 3.8% and WCAS will own approximately
69.2% of the Aurora Common Stock on a fully diluted
basis (assuming the conversion of the New Aurora
Preferred Stock and the exercise of all outstanding
convertible securities and stock options).
Federal Income Tax
Considerations........... For United States federal income tax purposes,
Rights holders generally will not recognize taxable
income in connection with the issuance to them or
exercise by them of Rights. Rights holders may
incur gain or loss upon the sale of the Aurora
Senior Subordinated Notes and New Aurora Preferred
Stock acquired upon exercise of the Rights. See
"Federal Income Tax Considerations."
Use of Proceeds............ Aurora intends to use the proceeds of the Rights
Offering and the WCAS Financing to provide New
Cerplex with needed working capital and to enable
it to retire a portion of the approximately $30
million of outstanding indebtedness under the
Cerplex Senior Credit Agreement and establish a New
Senior Loan.
Trading of Securities...... Since December 15, 1997, Aurora Common Stock has
been traded on the Bulletin Board under the symbol
"AURU"; prior to that date, it was traded on the
AMEX. Aurora does not intend to apply for listing
or quotation of the Units, New Aurora Preferred
Stock or the Aurora Senior Subordinated Notes on
any national or regional stock exchange or on the
NASDAQ. No assurance can be given that there will
be an adequate number of publicly held Units or
shares of New Aurora Preferred Stock or the Aurora
Senior Subordinated Notes to give rise to a market
in such securities or that such a market will
develop.
Right to Terminate Rights
Offering................. Aurora expressly reserves the right, in its sole
and absolute discretion, at any time prior to the
delivery of the Units offered hereby, to terminate
the Rights Offering if the Rights Offering is
prohibited by law or regulation or the Aurora Board
concludes, in its judgment, that it is not in
Aurora's best interests to complete the Rights
Offering under the circumstances. If the Rights
Offering is terminated, all funds received pursuant
to the Rights Offering will be promptly refunded,
without interest.
Condition to Closing....... The closing of the Rights Offering is conditioned
upon the consummation of the Merger. See "The
Merger and Related Transactions -- Description of
the Merger" and "The Rights Offering -- Condition
to Closing."
7
<PAGE> 12
SUMMARY AURORA HISTORICAL CONSOLIDATED FINANCIAL DATA
The following tables set forth selected consolidated financial data
regarding Aurora's results of operations and financial position. This
information should be read in conjunction with "Aurora Management's Discussion
and Analysis of Financial Condition and Results of Operations" for the relative
periods and Aurora's Consolidated Financial Statements and related notes thereto
incorporated by reference into this Prospectus. See "Selected Financial
Information -- Selected Aurora Historical Financial Information" and "Selected
Financial Information -- Aurora Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 28,
1997 AND
DECEMBER 29, 1996
(UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30,
------------------- --------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Net revenues.......................... $ 8,324 $ 17,248 $ 64,892 $ 98,019 $141,852 $120,386 $ 58,328
Gross profit.......................... 1,275 3,869 12,986 24,443 34,582 26,350 11,274
SG&A Expenses......................... 5,122 5,063 23,466 25,943 28,170 17,573 4,657
Amortization of intangibles........... 25 251 34,044(1) 18,042(2) 9,073(3) 4,539(4) 1,284
Restructuring charge and other........ -- -- -- -- 5,643(5) 2,161 --
Litigation settlement................. -- -- -- -- -- 1,943 --
Operating income (loss)............... (3,872) (1,455) (44,524) (19,542) (8,304) 134 5,333
Interest expense...................... (1,036) (901) (4,050) (6,221) (5,522) (4,449) (1,276)
Other income (expense), net........... (94) 22 (498) (1,284) 116 197 --
Earnings (loss) from continuing
operations before taxes............. (5,002) (2,316) (49,072) (27,047) (13,710) (4,118) 2,505
Net income (loss)..................... (5,002) (2,316) (49,605) (30,353) (15,030) (6,518) 3,005
Earnings (loss) from continuing
operations
per share........................... $ (0.85) $ (0.85) $ (7.86) $ (4.44) $ (1.79) $ (0.55) $ 0.40
Net income (loss) per share........... $ (0.85) $ (0.85) $ (7.86) $ (4.44) $ (1.79) $ (0.87) $ 0.48
Weighted average number of shares
outstanding......................... 6,848 5,743 6,675 7,159(6) 8,379 7,491 6,273
RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
Ratio (* = less than 1:1)............. * * * * * * 2.96
Coverage deficiency................... $ 5,002 $ 2,316 $ 49,072 $ 27,047 $ 19,232 $ 4,118 $ n/a
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 28,
1997 AND
DECEMBER 29, 1996
(UNAUDITED) AS OF SEPTEMBER 30
------------------- -----------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital (deficit)................ $ 94 $ (435) $ (3,113) $ 610 $ 196 $ 9,013 $ 10,713
Total assets............................. 14,579 50,796 14,629 52,788 80,716 102,927 76,857
Long-term obligations (less current
maturities)............................ 39,640 27,439 36,585 25,842 46,183 51,761 25,904
Redeemable convertible preferred stock... 52,033 42,100 46,722 41,400(6)
Stockholders' equity (deficit)........... (89,179) (34,704) (83,320) (31,690) 12,338 26,903 26,655
</TABLE>
- ---------------
(1) During the fourth quarter of fiscal 1997, approximately $29,602 relating to
a write-down of intangible assets acquired in fiscal 1994 in connection with
the Century acquisition was charged to operations.
(2) During the fourth quarter of fiscal 1996, approximately $16,580 relating to
a write-down of intangible assets acquired in fiscal 1992 in connection with
the Micro-C Corporation acquisition was charged to operations.
(3) During fiscal 1995, approximately $7,400 relating to a write-down of
intangible assets associated with the repair business acquired in fiscal
1993 in connection with the FRS, Inc. acquisition was charged to operations.
(4) During fiscal 1994, approximately $2,400 relating to a write-down of
intangible assets associated with a covenant not to compete was charged to
operations.
(5) During fiscal 1995, Aurora substantially completed a major corporate
reorganization into two core businesses operating as the asset and recovery
division and the spare parts distribution division.
(6) In connection with the Recapitalization of Aurora on March 29, 1996, Aurora
repurchased approximately 4,268 shares of Aurora Common Stock and issued 607
shares of Aurora Common Stock and 400 shares of Old Aurora Preferred Stock
to WCAS and certain other purchasers.
8
<PAGE> 13
SUMMARY CERPLEX HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial data regarding Cerplex's
results of operations and financial condition. This information should be read
in conjunction with "Selected Financial Information -- Cerplex Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
the relative periods and Cerplex's Consolidated Financial Statements and related
notes incorporated by reference into this Prospectus. See "Selected Financial
Information -- Selected Cerplex Historical Financial Information" and "Selected
Financial Information -- Cerplex Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net sales................................ $141,408 $191,493 $144,328 $ 94,006 $ 22,945
Gross profit............................. 20,533 26,245 16,511 17,039 4,678
Income (loss) from continuing operations
before extraordinary items............. (16,487) (27,388) (22,047) 1,195 (8,432)
Income (loss) from discontinued
operations............................. -- -- (17,347) 1,500 13,998
Net income (loss)........................ $(16,487) $(27,388) $(39,394) $ 684 $ 5,566
======== ======== ======== ======== ========
Basic and diluted net income (loss) per
share(4):
Continuing operations.................. $ (0.56) $ (2.24) $ (1.68) $ 0.09 $ 0.16
Discontinued operations(1)............. -- -- (1.33) 0.11 --
Extraordinary item(2).................. -- -- -- (0.15) --
-------- -------- -------- -------- --------
Basic and diluted net income (loss) per
share(3)............................ $ (0.56) $ (2.24) $ (3.01) $ 0.05 $ 0.16
======== ======== ======== ======== ========
Weighted average common shares used in
the calculation of income (loss) per
share(4)............................... 29,610 13,419 13,091 13,446 11,363
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
<S> <C> <C> <C> <C> <C>
<-> B2(IN THOUSANDS)
BALANCE SHEET DATA
Working capital (deficiency)............. $(47,308) $ 12,874 $ 33,219 $ 54,768 $ 17,774
Total assets............................. $ 59,238 $105,494 $101,893 $120,707 $ 70,544
Long-term obligations (less current
maturities)............................ $ 2,960 $ 56,817 $ 68,382 $ 60,720 $ 34,205
Preferred Stock.......................... $ -- $ 7,197 $ -- $ -- $ 2
Stockholders' equity (deficiency)........ $(32,537) $(15,137) $ 168 $ 39,485 $412,470
</TABLE>
- ---------------
(1) In September 1995, Cerplex discontinued its end-of-life programs, a segment
of its business, through a liquidation of the remaining operations. Prior
period financial statements have been restated to reflect discontinuance of
this segment of the business. See Note 3 to Consolidated Financial
Statements.
(2) In May 1994, Cerplex extinguished early its Series B Subordinated Notes. As
a result, $3.5 million ($2.0 million net of tax) of the original issue
discount was recognized as an extraordinary item.
(3) For 1993, net income per share is presented on a pro forma basis to reflect
the provision for income taxes that would have been recorded had Cerplex's
predecessor affiliated corporations been taxed as C Corporations under the
Code.
(4) Effective December 31, 1997, Cerplex adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"). All per
share data has been restated to reflect the adoption of SFAS No. 128.
9
<PAGE> 14
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Set forth below are selected financial information from the consolidated
statements of operations and balance sheets of Cerplex and Aurora on a
historical and a proforma basis. The proforma financial information has been
adjusted to give effect to the Merger, the WCAS Financing and the Rights
Offering. This information should be read in conjunction with the unaudited
consolidated proforma financial information and the consolidated financial
statements of Cerplex and Aurora and notes to the consolidated financial
statements incorporated by reference into this Prospectus. See "Selected
Financial Information -- Unaudited Combined Pro Forma Financial Information."
AURORA ELECTRONICS, INC. -- AS OF DECEMBER 31, 1997 AND FOR THE YEAR ENDED
SEPTEMBER 30, 1997, AND
THE CERPLEX GROUP, INC. -- AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
CERPLEX AURORA CONSOLIDATED
-------- -------- ------------
<S> <C> <C> <C>
PRO FORMA COMBINED CONSOLIDATED STATEMENT OF OPERATIONS DATA
Net Revenues................................................ $141,408 $ 64,892 $184,324
-------- -------- --------
Gross profit................................................ 20,533 12,986 27,294
-------- -------- --------
Operating loss.............................................. (11,043) (44,524) (65,029)
-------- -------- --------
Loss before provision for income taxes...................... (13,839) (49,072) (70,434)
Provision for income taxes.................................. 2,648 533 3,024
-------- -------- --------
Net loss.................................................... $(16,487) $(49,605) $(73,458)
======== ======== ========
Dividends on preferred stock................................ (2,822) (1,491)
-------- -------- --------
Net loss to common stockholders............................. $(16,487) $(52,427) $(74,949)
======== ======== ========
Basic and diluted net loss per common share outstanding..... $ (0.56) $ (7.86) $ (1.53)
======== ======== ========
Average common shares outstanding........................... 29,610 6,675 49,112
======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
Ratio (* = less than 1:1)................................... *
Coverage deficiency......................................... $ 70,434
PRO FORMA BALANCE SHEET DATA
Working capital (deficiency)................................ $(47,308) $ 94 $ 6,414
-------- -------- --------
Total assets................................................ 59,238 14,579 122,531
-------- -------- --------
Long-term obligations (less current maturities)............. 2,960 39,640 62,146
-------- -------- --------
Redeemable convertible preferred stock...................... -- 52,033 23,095
-------- -------- --------
Stockholders' deficiency.................................... (32,537) (89,179) (17,852)
======== ======== ========
</TABLE>
10
<PAGE> 15
RISK FACTORS
Prior to making an investment decision, holders of Rights should consider
carefully the following factors relating to Aurora's business, the Merger and
related transactions and the Rights Offering, together with the information and
financial data set forth elsewhere in this Prospectus or incorporated by
reference herein.
ISSUANCE OF NEW AURORA PREFERRED STOCK
Concurrently with the closing of the Merger and in connection with the WCAS
Financing and the Rights Offering, Aurora will issue and sell an aggregate
213,000 shares of New Aurora Preferred Stock at a price of $100 per share. These
shares are initially convertible at $0.25 per share into an aggregate 85,200,000
shares of Aurora Common Stock. As a result of the issuance of the New Aurora
Preferred Stock, holders of Aurora Common Stock will be subject to immediate and
substantial dilution (unless such holders subscribe for and purchase the maximum
number of Units being offered in the Rights Offering) and may be subject to
additional dilution in the future.
ABSENCE OF DIVIDENDS
Since September 30, 1993, no dividends have been declared or paid by Aurora
on the Aurora Common Stock and no cash dividends have ever been declared or paid
by Aurora on the Old Aurora Preferred Stock. Based upon Aurora's existing debt
obligations, its anticipated net cash flows and its business plan, management
does not anticipate Aurora having available cash to pay any cash dividends on
the New Aurora Preferred Stock and Aurora Common Stock in the foreseeable
future. Furthermore, the Chase Credit Agreement prohibits the payment of any
dividend on any capital stock of Aurora, including New Aurora Preferred Stock
and Aurora Common Stock (other than dividends payable solely in Aurora Common
Stock). Also, no cash dividends can be paid on Aurora Common Stock unless all
dividend arrearages on the New Aurora Preferred Stock have been paid in full in
cash and Aurora is not in default of any of its redemption obligations regarding
the New Aurora Preferred Stock. There can be no assurance that Aurora will be
able to pay accumulated dividends on the New Aurora Preferred Stock.
RISK OF DECREASE IN MARKET VALUE OF SUBSCRIBED-FOR UNITS
There can be no assurance that the market value of the Aurora Senior
Subordinated Notes, the New Aurora Preferred Stock or the Aurora Common Stock
into which the New Aurora Preferred Stock may be converted will not be below the
allocated portion of the Subscription Price or the implied conversion price of
the Aurora Common Stock, as the case may be, between the time a holder exercises
a Right and the time the holder takes delivery of the Aurora Senior Subordinated
Notes and the New Aurora Preferred Stock and thereafter. The exercise of a Right
is irrevocable.
ABSENCE OF TRADING MARKET FOR THE NEW AURORA PREFERRED STOCK AND THE AURORA
SENIOR SUBORDINATED NOTES
The Aurora Senior Subordinated Notes and New Aurora Preferred Stock are
immediately detachable from each other, will be represented by separate
certificates and are separately transferable. Aurora will not apply for listing
or quotation of the Units, the Aurora Senior Subordinated Notes or New Aurora
Preferred Stock on any national or regional stock exchange or on the NASDAQ, and
such securities are not likely to be tradeable. Prior to the Rights Offering,
there has been no market for the Units, the Aurora Senior Subordinated Notes or
New Aurora Preferred Stock and there can be no assurance that a market will
develop at the conclusion of the Rights Offering, or if one were to develop,
that it will be sustained. If any market does develop, the market price of these
securities might be volatile. Factors such as announcements by Aurora or its
competitors concerning proposed plans, procedures and proposed government
regulations, losses and litigation may have a significant effect on the market
price of Aurora's securities. Changes in the market price of Aurora's securities
may have no connection with Aurora's actual financial results.
The Subscription Price is not based on any estimate of the market value of
the Aurora Senior Subordinated Notes or New Aurora Preferred Stock and no
representation is made that the Aurora Senior Subordinated Notes or New Aurora
Preferred Stock offered hereby have a market value equivalent to, or
11
<PAGE> 16
could be resold at, the Subscription Price. Investors desiring to dispose of New
Aurora Preferred Stock may find it necessary to convert their shares into Aurora
Common Stock in order to dispose of them.
LIMITED TRADING MARKET AND POSSIBLE VOLATILITY OF AURORA COMMON STOCK PRICE
The Aurora Common Stock will continue to trade on the Bulletin Board
following consummation of the Merger. While the Aurora Common Stock has been
traded on the Bulletin Board prior to the Merger, the volume of trading has been
very limited and there can be no assurance of an active trading market for the
Aurora Common Stock following the Merger. In addition, the trading price of
Aurora Common Stock has been, and in the future could be, subject to significant
fluctuations in response to variations in quarterly operating results of Aurora
or New Cerplex, the depth and liquidity of the market for Aurora Common Stock,
investor perception of New Cerplex and the industry within which it competes,
the gain or loss of significant contracts, changes in management or new products
or services offered by Aurora or New Cerplex or any competitors, general trends
in the industry and other events or factors. In addition, the stock market has
experienced extreme price and volume fluctuations, which have particularly
affected the market price for many companies in similar industries and which
have often been unrelated to the operating performance of these companies. These
broad market fluctuations may adversely affect the market price of Aurora Common
Stock.
SHARES AVAILABLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale by former Cerplex
stockholders, will have on the market price of Aurora Common Stock prevailing
from time to time. Sales of substantial amounts of Aurora Common Stock
(including shares issued upon the exercise of stock options and the conversion
of preferred stock (including Old Aurora Preferred Stock and New Aurora
Preferred Stock to be issued)), or the perception that such sales could occur,
may adversely affect the prevailing market price of Aurora Common Stock.
IMPLEMENTATION OF BUSINESS STRATEGY
The success of the Merger will depend, to a large extent, upon whether the
integration of Aurora's and Cerplex's businesses is accomplished in an efficient
and effective manner. As such, Aurora and Cerplex will be subject to the risks
normally involved in the development and implementation of a new business
strategy, which will involve the integration of each company's operating,
administrative, finance, sales and marketing organizations, as well as each
company's communication technologies and the coordination of sales efforts and
streamlining of facilities and backoffice operations. In addition, both
companies' customers will need to be reassured that their services will continue
uninterrupted. Moreover, New Cerplex will be dependent upon a new management
group to effectuate and administer the new business plan successfully. Execution
of this strategy will place significant demands on New Cerplex's financial and
management resources, and there can be no assurance that such demands will not
adversely affect New Cerplex's future financial performance or that New Cerplex
will be successful in fully implementing its estimated cost savings, responding
to ongoing changes in its markets which may require adjustments to its strategy,
or in identifying, acquiring, managing or integrating additional operations. The
diversion of management attention and any difficulties encountered in the
transition process could have an adverse impact on the revenue and operating
results of New Cerplex. Implementation of New Cerplex's strategy could also be
affected by a number of factors beyond New Cerplex's control, such as loss of
personnel, the response of competitors and regulatory developments. There can be
no assurance that New Cerplex will be able to successfully implement the
strategies that it intends to pursue and achieve profitable operations in the
near and long term.
NEW MANAGEMENT
New Cerplex's future success depends greatly on the efforts and abilities
of the members of its management team. At the Effective Time, the executive
management team of New Cerplex will include several members who are new to the
companies and, in certain cases, including George L. McTavish, currently the
Chief Executive Officer of Aurora and Cerplex (who will be the Chief Executive
Officer of New
12
<PAGE> 17
Cerplex), new to the business that will be operated by New Cerplex. While each
of these executives has extensive business experience, they are still in the
process of familiarizing themselves with the specific operations of Aurora and
Cerplex. Mr. McTavish has been employed by Aurora since January 30, 1998 and by
Cerplex since February 25, 1998 and has been significantly involved both in the
day-to-day operations of Aurora and in the pre-Merger process of learning about
the business of Cerplex and planning the business strategy with respect to the
integration of the two companies. Nevertheless, after consummation of the
Merger, it is anticipated that Mr. McTavish, along with the other new members of
New Cerplex's management, will require some period of time to acquaint
themselves more fully with the operations of New Cerplex. Cerplex's former Chief
Executive Officer, Stephen J. Hopkins, resigned effective March 4, 1998,
pursuant to the Interim Management Agreement, and while he may provide
consulting services to New Cerplex, he and certain other members of the previous
management teams of Cerplex and Aurora will not be involved in the management of
New Cerplex. The need for New Cerplex's management team to further acquaint
itself with the business and operations of New Cerplex, particularly when
coupled with the risks associated with implementing the business strategy, may
have an adverse impact on the profitability, at least in the short term, of New
Cerplex.
HIGH DEGREE OF LEVERAGE; FUTURE CAPITAL REQUIREMENTS
Following consummation of the Merger, New Cerplex will be highly leveraged.
With the Aurora Senior Subordinated Notes, the Aurora Series A Senior
Subordinated Notes, the New Senior Loan and the currently outstanding loan by
Chase to Aurora pursuant to the Chase Credit Agreement, New Cerplex will have
approximately $48 million in principal amount of debt outstanding, which will
result in a long-term debt to total capitalization ratio of 1.24 to 1.00, on a
pro forma basis. As a result of this leverage, there is no assurance New Cerplex
will be able to meet its debt service requirements. Also, the degree to which
New Cerplex will be leveraged could adversely affect New Cerplex's ability to
obtain additional financing for working capital, acquisitions or other purposes
and could make it more vulnerable to economic downturns and competitive
pressures. New Cerplex's future capital requirements and the sufficiency of
available funds will depend on numerous factors that are difficult to predict,
including results of operations, the timing and cost of acquisitions, and
efforts to expand existing operations. If funds available from the Aurora Senior
Subordinated Notes, the Aurora Series A Senior Subordinated Notes, the New
Senior Loan and the Chase Credit Agreement and cash flows from operations are
insufficient to meet current or planned operating requirements, New Cerplex will
be required to obtain additional funds through equity or debt financings or from
other sources. The terms of any equity financings may be dilutive to Aurora
stockholders and the terms of any debt financings may contain restrictive
covenants which limit New Cerplex's ability to pursue certain courses of action.
In addition, the New Senior Loan, the Aurora Senior Subordinated Notes, the
Aurora Series A Senior Subordinated Notes and the Chase Credit Agreement will
limit Aurora's ability to incur debt other than pursuant to the existing
facilities. There can be no assurance that additional funding will be available
on acceptable terms, if at all. If adequate funds are not available, New Cerplex
may be required to forego strategic decisions or delay, scale back or eliminate
certain aspects of its operations, which could have a material adverse effect on
New Cerplex's business, financial condition, and results of operations.
FAILURE TO OBTAIN NEW SENIOR LOAN
The parties' obligation to consummate the Merger is subject to, among other
things, the receipt of at least $17 million of proceeds from the New Senior Loan
on terms reasonably acceptable to Aurora and to WCAS. There can be no assurance
that the New Senior Loan will be obtained. Aurora's failure to obtain the New
Senior Loan would prevent consummation of the Merger unless such condition
precedent is waived by all parties to the Merger Agreement, in which case the
failure to obtain such financing would have a material adverse effect on New
Cerplex's business and ability to implement its business strategy. If the Merger
is not consummated the Rights Offering will be terminated.
CONTROL BY WCAS
WCAS currently owns approximately 79.5% of Aurora's voting stock. Upon
consummation of the Merger and the WCAS Financing, WCAS will, in the aggregate,
beneficially own approximately, depending on the
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number of Units purchased by Public Stockholders in the Rights Offering, between
61.2% and 69.2% of the voting stock of Aurora on an as-converted basis. Since
WCAS will be able to elect the entire Aurora Board, WCAS will be able to control
all matters requiring approval by the stockholders of Aurora. In addition, the
Aurora Board will have authority under the Aurora Charter to issue shares of
preferred stock in one or more series and fix the rights, preferences,
privileges and restrictions granted to or imposed upon any unissued shares of
preferred stock. The issuance of preferred stock may adversely affect voting and
dividend rights, rights upon liquidation and other rights of holders of Aurora
Common Stock and may result in immediate and substantial dilution to the
stockholders of Aurora Common Stock. The issuance of New Aurora Preferred Stock
and the control by WCAS of Aurora may also have the effect of delaying,
deferring or preventing a change in control of Aurora.
AURORA'S NET OPERATING LOSS CARRYFORWARDS AND POSSIBLE FUTURE ACQUISITIONS
Aurora estimates that it currently has U.S. Federal NOLs of approximately
$54.5 million, which if unused will begin to expire in 2007 and which may be
used, to the extent available, to offset regular U.S. Federal taxable income of
Aurora (including New Cerplex following completion of the Merger) during the
carryforward period (i.e., through 2012). Section 382 of the Code contains
complex rules that place an annual limitation on the amount of NOLs that a
corporation may utilize after an "Ownership Change," as defined in the Code.
While Aurora believes that it has not experienced, and as a result of the Merger
will not experience, an Ownership Change, Section 382 may either result in
restrictions on Aurora's ability to enter into future acquisition transactions
in which equity of Aurora would be issued or could delay or prevent the
utilization of the NOLs that Aurora otherwise would be entitled to use. This
latter effect could result in higher federal income taxes in a given year than
if Aurora had not been subject to the annual limitation.
LOSSES AND ACCUMULATED DEFICIT
For the three-month period ended December 28, 1997, Aurora reported a net
loss of $5.0 million and an operating loss of $3.9 million. For the year ended
September 30, 1997, Aurora reported a net loss of $49.6 million and an operating
loss of $44.5 million. As of December 28, 1997, Aurora had an accumulated
deficit of $135.3 million. For the three-month period ended December 27, 1997,
Cerplex reported a net loss of $3.2 million and operating income of $0.1
million. For the year ended December 27, 1997, Cerplex reported a net loss of
$16.5 million, including an operating loss of $11.0 million. As of December 27,
1997, Cerplex had an accumulated deficit of $90.9 million. New Cerplex would be
expected to experience losses following the Merger and for the foreseeable
future, and New Cerplex will require additional funding and financial support.
Continued losses could materially and adversely affect the business and value
of, and the market for, Aurora's equity securities.
DEPENDENCE ON THE ELECTRONICS AND COMPUTER INDUSTRY
Both Aurora's and Cerplex's businesses are dependent upon the continued
growth, viability and financial stability of its customers and potential
customers in the electronics industry, particularly the computer industry. The
electronics and computer industry has been characterized by rapid technological
change, compressed product life cycles and pricing and margin pressures. The
factors affecting segments of the electronics and computer industry in general,
and Aurora's and Cerplex's OEM customers in particular, could have an adverse
effect on Aurora's and Cerplex's business. Recently, several of Aurora's and
Cerplex's customers experienced severe financial difficulty resulting in
significant losses to Aurora and Cerplex as a result of write-downs of
receivables and other assets. There can be no assurance that existing customers
or future customers will not experience financial difficulty, which could have a
material adverse effect on New Cerplex's business.
INVENTORY OBSOLESCENCE
The market for personal computers and subsystems is characterized by
rapidly changing technology and frequent new product introductions. Innovations
and improvements in computer and subsystem design, engineering and production
may shorten the useful lives of existing systems and associated spare parts.
Such
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rapid changes and improvements in technology, coupled with the need to maintain
sufficient inventory levels of spare parts to ensure ready availability, will
subject New Cerplex to the risk of inventory obsolescence.
RELIANCE ON SHORT-TERM PURCHASE ORDERS AND CONTRACTS
Aurora generally distributes spare parts to, and receives its recyclable
material from, customers pursuant to non-exclusive contracts that do not contain
guaranteed or minimum quantities and are subject to cancellation on short notice
at the customer's discretion. Similarly, Cerplex's customer contracts are
typically subject to termination on short notice at the customer's discretion,
and purchase orders under such contracts typically only cover services over a
90-day period. Many of Aurora's and Cerplex's contracts will remain in effect
following consummation of the Merger. In addition, it is anticipated that New
Cerplex's customer contracts will have terms comparable to those customer
contracts of Aurora and Cerplex. There is no assurance that Cerplex's and
Aurora's existing customers will continue to do business with New Cerplex after
the Effective Time. The termination of any material contracts or any substantial
decrease in orders received from major customers could have a material adverse
effect on New Cerplex's business.
DEPENDENCE ON KEY CUSTOMERS
For the year ended December 28, 1997, Rank Xerox, BT and Digital Equipment
Corporation accounted for approximately 32%, 12% and 11% of Cerplex's revenues,
respectively. For the fiscal year ended September 30, 1997, IBM accounted for
approximately 11% of Aurora's revenues. There can be no assurance that such
customers will not terminate any or all of their arrangements with New Cerplex,
significantly change, reduce or delay the amount of services ordered from New
Cerplex, or significantly change the terms upon which New Cerplex and these
customers do business. Any such termination, change, reduction, or delay could
have a material adverse effect on New Cerplex's business.
COMPETITION
New Cerplex will compete with the in-house repair and service centers of
OEMs and TPMs. There is no indication that these companies will choose to
outsource their repair and service needs. In certain instances, these companies
will compete directly with New Cerplex to provide services to third party OEMs
and TPMs. Moreover, the industry in which New Cerplex will operate is
fragmented, and New Cerplex will face competition from a variety of small
independent suppliers. Competition for business from OEM, TPM and MVSO customers
is based on a number of factors, including breadth of services provided and
price. Certain of New Cerplex's prospective competitors will have greater
revenue or larger capitalizations than New Cerplex. There can be no assurance
that New Cerplex will be able to compete effectively in its target markets.
DISCONTINUED OPERATIONS; CHANGE IN STRATEGY
In September 1995, Cerplex adopted a plan to discontinue its end-of-life
programs, a line of business which historically generated a significant
percentage of Cerplex's total sales, but which was experiencing declining sales.
In connection with discontinuing its end-of-life business, Cerplex changed
certain elements of its business strategy, underwent changes in management and
operations, developed a direct sales force and terminated the majority of its
outside sales representatives, reduced its emphasis on inventory acquisitions
and focused on targeted customers in specific industries; nevertheless, there
can be no assurance that such changes will positively impact New Cerplex's
business and results of operations in the short or long term.
In addition, in October 1997, Aurora completed the sale of the remainder of
its depot repair services operation and sold its Irvine, Scotland facility,
which was part of its asset recovery business. Aurora has also emphasized
systems and sub-systems in its product selection and is considering closing or
selling its integrated circuit processing facility in an effort to limit
Aurora's exposure to the price fluctuations in integrated circuits. Although in
connection with these changes Aurora altered certain elements of its business
strategy and underwent changes in management and operations, there can be no
assurance that such changes will positively impact New Cerplex's business and
results of operations in the short or long term.
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EXPANSION OF INTERNATIONAL SALES
During their respective 1997 fiscal years, approximately 59% of Cerplex's
sales and approximately 25% of Aurora's sales were derived from international
operations. For their respective 1996 fiscal years, approximately 41% of
Cerplex's sales and approximately 22% of Aurora's sales were international.
There can be no assurance that New Cerplex will be able to successfully market,
sell, and deliver its products and services in these markets. In addition to the
uncertainty as to New Cerplex's ability to maintain or expand its international
presence, there are certain risks inherent in doing business on an international
level, such as unexpected changes in regulatory requirements, export
restrictions, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, problems in collecting
accounts receivable, political instability, fluctuations in currency exchange
rates, and potentially adverse tax consequences, any of which could adversely
impact the success of New Cerplex's international operations. There can be no
assurance that one or more of such factors will not have a material adverse
effect on New Cerplex's international operations and, consequently, on New
Cerplex's business, operating results and financial condition.
OTHER UNCERTAINTIES
Other operating, financial or legal risks or uncertainties are discussed in
this Prospectus or in Aurora's or Cerplex's other filings with the Commission
from time to time in specific contexts. New Cerplex would, of course, be subject
to general economic risks, the risk of interruption in the source of supply, the
risk of loss of a major customer or supplier, and other risks and uncertainties.
THE RIGHTS OFFERING
THE RIGHTS
Aurora is distributing non-transferable Rights to its Public Stockholders
as of the Aurora Record Date, at no cost to such record holders. Each Public
Stockholder of record on the Aurora Record Date will receive a Right to purchase
one Unit at the Subscription Price for every 189 shares of Aurora Common Stock
owned as of the Aurora Record Date. The Subscription Price for one Unit is
$183.33 in cash. Each Unit consists of $83.33 principal amount of Aurora Senior
Subordinated Notes and one share of New Aurora Preferred Stock. A maximum of
32,976 Units may be purchased by Public Stockholders pursuant to the Rights
Offering. The Rights will be evidenced by non-transferable Subscription
Certificates. Rights must be exercised in whole, not in part. No fractional
Rights or cash in lieu thereof will be distributed and fractional interests will
be rounded down.
No Subscription Certificate may be divided in such a way as to permit the
holder of such certificate to receive a greater number of Rights than the number
to which such Subscription Certificate entitles its holder, except that a
depository, bank, trust company or securities broker or dealer holding Aurora
Common Stock on the Aurora Record Date for more than one beneficial owner may,
upon proper showing to the Subscription Agent, exchange its Subscription
Certificate to obtain a Subscription Certificate for the number of Rights to
which all such beneficial owners in the aggregate would have been entitled had
each been a record holder on the Aurora Record Date. Aurora reserves the right
to refuse to issue any such Subscription Certificate if such issuance would be
inconsistent with the principle that each beneficial owner's holdings will be
rounded down to the nearest whole number of Rights.
SUBSCRIPTION PRIVILEGES
Basic Subscription Privilege. One Right will entitle the holder thereof to
receive, upon payment of the Subscription Price, one Unit, consisting of $83.33
principal amount of Aurora Senior Subordinated Notes and one share of New Aurora
Preferred Stock.
Additional Subscription Privilege. Subject to the allocation described
below, each Right also carries the right to subscribe at the Subscription Price
for additional Units not subscribed for through the exercise of the
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Basic Subscription Privilege by other Rights holders (the "Excess Units"). Only
Rights holders who exercise the Basic Subscription Privilege in full will be
entitled to exercise the Additional Subscription Privilege.
If the Excess Units are not sufficient to satisfy all subscriptions
pursuant to the Additional Subscription Privilege, the Excess Units will be
allocated pro rata (subject to the elimination of fractional Units) among those
Rights holders exercising the Additional Subscription Privilege, in proportion,
not to the number of Units requested pursuant to the Additional Subscription
Privilege, but to the number of Units each beneficial holder subscribed for
pursuant to the Basic Subscription Privilege; provided, however, that if such
pro rata allocation results in any Rights holder being allocated a great number
of Excess Units than such holder subscribed for pursuant to the exercise of such
holder's Additional Subscription Privilege, then such holder will be allocated
only such number of Excess Units as such holder subscribed for and the remaining
Excess Units will be allocated among all other holders exercising the Additional
Subscription Privilege.
Banks, brokers and other nominee holders of Rights who exercise the Basic
Subscription Privilege and the Additional Subscription Privilege on behalf of
beneficial owners of Rights will be required to certify to the Subscription
Agent and Aurora in connection with the exercise of the Basic Subscription
Privilege and the Additional Subscription Privilege, as to the aggregate number
of Rights that have been exercised and the number of Units that are being
subscribed for pursuant to the Basic Subscription Privilege and the Additional
Subscription Privilege by each beneficial owner of Rights on whose behalf such
nominee holder is acting.
EXPIRATION TIME
The Rights will expire at the Effective Time of the Merger unless extended
by Aurora in its sole discretion. After the Expiration Time, unexercised Rights
will expire and may not be exercised thereafter. Aurora will not be obligated to
honor any purported exercise of Rights received by the Subscription Agent after
the Expiration Time, regardless of when the documents relating to such exercise
were sent, except pursuant to the Guaranteed Delivery Procedures described
below.
DETERMINATION OF SUBSCRIPTION PRICE
The Subscription Price for each Unit ($183.33) offered in the Rights
Offering is based on the price being paid by WCAS for each WCAS Unit ($2,200) in
the WCAS Financing. The allocation of the aggregate Subscription Price between
the Aurora Senior Subordinated Notes ($83.33) and the New Aurora Preferred Stock
($100) comprising each Unit is based on the allocation of the aggregate price of
each WCAS Unit between the Aurora Series A Senior Subordinated Notes ($1,000)
and New Aurora Preferred Stock comprising each WCAS Unit. Both the aggregate
WCAS Unit price and the allocation of such price between its component
securities were determined by negotiations between WCAS, Aurora and Cerplex, as
part of the overall negotiations of the terms of the Merger, the WCAS Financing
and the other related transactions, and were approved by a majority of the
disinterested members of the Aurora Board. The Subscription Price should not be
considered as an indication of the actual value of Aurora, the Aurora Common
Stock, the New Aurora Preferred Stock or the Aurora Senior Subordinated Notes.
There can be no assurance that the market price of the Aurora Common Stock will
not decline during the subscription period or that, following the issuance of
the Rights and of the Units upon exercise of the Rights, a subscribing Rights
holder will be able to sell Aurora Senior Subordinated Notes and New Aurora
Preferred Stock purchased in the Rights Offering at an aggregate price equal to
or greater than the Subscription Price.
EXERCISE OF RIGHTS
Rights may be exercised by delivery to the Subscription Agent, prior to the
Expiration Time, of the properly completed and duly executed Subscription
Certificate evidencing such Rights (together with any required signature
guarantees), accompanied by payment in full of the Subscription Price for each
Unit subscribed for pursuant to the Basic Subscription Privilege and the
Additional Subscription Privilege. Such payment in full must be made by (i)
check or bank draft drawn upon a United States bank or postal, telegraphic or
express money order payable to "American Stock Transfer & Trust Company, as
Subscription Agent"; or (ii) wire transfer of funds to the account maintained by
the Subscription Agent for such purpose at
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[ ], Account No.[ ], ABA No. [ ], for the account of American
Stock Transfer & Trust Company as agent for Aurora Electronics, Inc. Payment of
the Subscription Price will be deemed to have been received by the Subscription
Agent only upon (a) clearance of any uncertified check, (b) receipt by the
Subscription Agent of any certified check or bank draft drawn upon a U.S. bank
or of any postal, telegraphic or express money order, or (c) receipt of good
funds in the Subscription Agent's account designated above. PLEASE NOTE THAT
FUNDS PAID BY UNCERTIFIED PERSONAL CHECK MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR. ACCORDINGLY, PUBLIC STOCKHOLDERS WHO WISH TO PAY THE SUBSCRIPTION PRICE
BY MEANS OF UNCERTIFIED PERSONAL CHECK ARE URGED TO MAKE PAYMENT SUFFICIENTLY IN
ADVANCE OF THE EXPIRATION TIME TO ENSURE THAT SUCH PAYMENT IS RECEIVED AND
CLEARS BY SUCH DATE, AND ARE URGED TO CONSIDER PAYMENT BY MEANS OF CERTIFIED OR
CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
Subscription Certificates and payment of the Subscription Price should be
delivered to one of the addresses set forth below under "-- Subscription Agent."
If a Rights holder wishes to exercise Rights, but time will not permit such
holder to cause the Subscription Certificate(s) evidencing such Rights to reach
the Subscription Agent prior to the Expiration Time, such Rights may
nevertheless be exercised if all of the following conditions (the "Guaranteed
Delivery Procedures") are met:
(a) such holder has caused payment in full of the Subscription Price
for each Unit being subscribed for pursuant to the Basic Subscription
Privilege and the Additional Subscription Privilege to be received (in the
manner set forth above) by the Subscription Agent prior to the Expiration
Time;
(b) the Subscription Agent receives, prior to the Expiration Time, a
notice of guaranteed delivery (a "Notice of Guaranteed Delivery"),
substantially in the form provided with the instructions distributed with
the Subscription Certificates, from a member firm of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc., or a commercial bank or trust company having an office or
correspondent in the United States, stating the name of the exercising
Rights holder, the number of Rights represented by the Subscription
Certificate(s) held by such exercising holder, the number of Units being
subscribed for pursuant to the Basic Subscription Privilege and the number
of Units, if any, being subscribed for pursuant to the Additional
Subscription Privilege, and guaranteeing the delivery to the Subscription
Agent of any Subscription Certificate(s) evidencing such Rights within
three NASDAQ NMS trading days following the date of the Notice of
Guaranteed Delivery; and
(c) the properly completed and duly executed Subscription
Certificate(s), including any required signature guarantees, evidencing the
Rights being exercised is received by the Subscription Agent within three
NASDAQ NMS trading days following the date of the Notice of Guaranteed
Delivery relating thereto. The Notice of Guaranteed Delivery may be
delivered to the Subscription Agent in the same manner as Subscription
Certificates at the addresses set forth below, or may be transmitted to the
Subscription Agent by facsimile transmission (facsimile no. ([ ])
[ ]-[ ]). Additional copies of the form of Notice of Guaranteed
Delivery are available upon request from the Subscription Agent.
Unless a Subscription Certificate (i) provides that the Units to be issued
pursuant to the exercise of Rights represented thereby are to be delivered to
the record holder of such Rights or (ii) is submitted for the account of a
member firm of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc., or a commercial bank or trust
company having an office or correspondent in the United States, signatures on
such Subscription Certificate must be guaranteed by an eligible guarantor
institution ("Eligible Guarantor Institution") as defined in Rule 17Ad-15 of the
Exchange Act, subject to the standards and procedures adopted by the
Subscription Agent.
Funds received in payment of the Subscription Price for Units will be held
in a segregated account pending issuance of such Units. No interest will be paid
on funds delivered in payment of the Subscription Price. If a Rights holder
exercising the Additional Subscription Privilege is allocated less than all of
the
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Excess Units that such holder wished to subscribe for pursuant to the Additional
Subscription Privilege, the excess funds paid by such holder in respect of the
Subscription Price for Units not issued will be returned by mail without
interest or deduction as soon as practicable after the Expiration Time.
Certificates representing the securities comprising the Units purchased will be
delivered to the purchaser as soon as practicable after the Expiration Time and
after all allocations have been effected. It is expected that such certificates
will be available for delivery five business days following the Expiration Time.
A holder of record of Aurora Common Stock, such as a broker, a trustee or a
depository for securities, should notify the respective beneficial owners
thereof as soon as possible to ascertain such beneficial owners' intentions and
to obtain instructions with respect to the Rights beneficially owned by them.
Beneficial owners of Aurora Common Stock or Rights held through such a holder of
record should contact the holder and request the holder to effect transactions
in accordance with the beneficial owner's instructions.
If either the number of Rights being exercised is not specified on a
Subscription Certificate, or the payment delivered is not sufficient to pay the
full aggregate Subscription Price for all Units stated to be subscribed for, the
Rights holder will be deemed to have exercised the maximum number of Rights that
could be exercised for the amount of the payment delivered by such Rights
holder. If the payment delivered by the Rights holder exceeds the aggregate
Subscription Price for the number of Rights evidenced by the Subscription
Certificate(s) delivered by such Rights holder, the payment will be applied,
until depleted, to subscribe for Units in the following order: (i) to subscribe
for the number of Units, if any, indicated on the Subscription Certificate(s)
pursuant to the Basic Subscription Privilege; (ii) to subscribe for Units until
the Basic Subscription Privilege has been fully exercised with respect to all of
the Rights represented by the Subscription Certificate; and (iii) to subscribe
for additional Units pursuant to the Additional Subscription Privilege (subject
to any applicable proration). Any excess payment remaining after the foregoing
allocation will be returned to the Rights holder as soon as practicable by mail,
without interest or deduction.
The instructions accompanying the Subscription Certificates should be read
carefully and followed in detail. DO NOT SEND SUBSCRIPTION CERTIFICATES TO
AURORA.
THE METHOD OF DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENT OF THE
SUBSCRIPTION PRICE TO THE SUBSCRIPTION AGENT WILL BE AT THE ELECTION AND RISK OF
THE RIGHTS HOLDERS, BUT IF SENT BY MAIL IT IS RECOMMENDED THAT SUCH CERTIFICATES
AND PAYMENTS BE SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, AND THAT A SUFFICIENT NUMBER OF DAYS BE ALLOWED TO ENSURE DELIVERY TO
THE SUBSCRIPTION AGENT AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION TIME.
BECAUSE UNCERTIFIED PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR, RIGHTS HOLDERS ARE STRONGLY URGED TO PAY, OR ARRANGE FOR PAYMENT, BY
MEANS OF CERTIFIED OR CASHIER'S CHECK, MONEY ORDER OR WIRE TRANSFER OF FUNDS.
Certain directors and officers of Aurora will assist Aurora in the Rights
Offering by, among other things, participating in informational meetings
regarding the Rights Offering, generally being available to answer questions of
potential subscribers and soliciting orders in the Rights Offering. None of such
directors or officers will receive additional compensation for such services or
are registered as securities brokers or dealers under the federal or applicable
state securities laws, nor are any of such persons affiliated with any broker or
dealer. Because none of such persons are in the business of either effecting
securities transactions for others or buying and selling securities for their
own account, they are not required to register as brokers or dealers under the
federal securities laws. In addition, the proposed activities of such directors
and officers are exempt from registration pursuant to a specific safe harbor
provision under Rule 3a4-1 under the Exchange Act. Substantially similar
exemptions from registration are available under applicable state securities
laws.
All questions concerning the timeliness, validity, form and eligibility of
any exercise of Rights will be determined by Aurora, whose determinations will
be final and binding. Aurora, in its sole discretion, may waive any defect or
irregularity, or permit a defect or irregularity to be corrected within such
time as it may determine, or reject the purported exercise of any Right by
reason of any defect or irregularity in such exercise. Subscriptions will not be
deemed to have been received or accepted until all irregularities have been
waived or
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cured within such time as Aurora determines in its sole discretion. Neither
Aurora nor the Subscription Agent will be under any duty to give notification of
any defect or irregularity in connection with the submission of Subscription
Certificates or incur any liability for failure to give such notification.
Any questions or requests for assistance concerning the method of
exercising Rights or requests for additional copies of this Prospectus, the
Instructions or the Notice of Guaranteed Delivery should be directed to the
Subscription Agent, American Stock Transfer & Trust Company, at its address set
forth on the back cover page of this Prospectus.
NO REVOCATION
ONCE A HOLDER OF RIGHTS HAS EXERCISED SUCH HOLDER'S BASIC SUBSCRIPTION
PRIVILEGE OR SUCH HOLDER'S ADDITIONAL SUBSCRIPTION PRIVILEGE, SUCH EXERCISE MAY
NOT BE REVOKED.
STATE AND FOREIGN SECURITIES LAWS
The Rights Offering is not being made in any state or other jurisdiction in
which it is unlawful to do so, nor is Aurora selling or accepting any offers to
purchase any Units from holders of Rights who are residents of any such state or
other such jurisdiction. Aurora, if it so determines in its sole discretion, may
decline to make modifications to the terms of the Rights Offering requested by
certain states or other jurisdictions or to qualify the Aurora Senior
Subordinated Notes or New Aurora Preferred Stock (or the underlying Aurora
Common Stock issuable upon conversion thereof) in any state or other
jurisdiction, in which event holders of Rights resident in those states or
jurisdictions will not be eligible to participate in the Rights Offering.
SUBSCRIPTION AGENT
Aurora has appointed American Stock Transfer & Trust Company as
Subscription Agent for the Rights Offering. The Subscription Agent's address,
which is the address to which the Subscription Certificates and payment of the
Subscription Price should be delivered, as well as the address to which Notice
of Guaranteed Delivery must be delivered, is:
[ ]
Attn: [ ]
[ ]
[ ]
[ ]
The Subscription Agent's telephone number is ([ ]) [ ]-[ ] and its
facsimile number is ([ ]) [ ]-[ ].
Any questions or requests for additional copies of this Prospectus, the
instructions accompanying the Subscription Certificates or the Notice of
Guaranteed Delivery may be directed to the Subscription Agent at the address and
telephone number set forth above.
Aurora will pay the fees and expenses of the Subscription Agent, and has
also agreed to indemnify the Subscription Agent from any liability which it may
incur in connection with the Rights Offering.
Aurora has not employed any brokers, dealers or underwriters in connection
with the solicitation of exercises of Rights in the Rights Offering, and, except
as described above, no other commissions, fees or discounts will be paid in
connection with the Rights Offering. Certain employees of Aurora may solicit
responses from Rights holders, but such employees will not receive any
commissions or compensation for such services other than their normal employment
compensation.
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AURORA BOARD DETERMINATION
The Aurora Board has determined that the transactions contemplated by the
Merger, the WCAS Financing and the Rights Offering are in the best interests of
Aurora and its Public Stockholders.
CONDITION TO CLOSING
The closing of the Rights Offering is conditioned upon the consummation of
the Merger. The Merger will occur only if (i) the holders of the requisite
number of shares of Cerplex Common Stock approve and adopt the Merger Agreement
and the Merger and (ii) the holders of the requisite number of shares of Aurora
capital stock approve and adopt the proposed Aurora Charter Amendment that would
increase the amount of authorized Aurora Common Stock. The holders of more than
the requisite number of Cerplex securities and of the Aurora securities entitled
to vote on the Merger or the Aurora Charter Amendments, as the case may be, have
either agreed to vote or granted irrevocable proxies to vote in favor of these
actions. The consummation of the Merger is also subject to the satisfaction or
waiver of certain other conditions, and the Merger Agreement may be terminated
at any time prior to the Effective Time, in certain circumstances. See "The
Merger and Related Transactions -- Description of the Merger."
DESCRIPTION OF THE UNITS
The Units offered in the Rights Offering each consist of $83.33 principal
amount of Aurora Senior Subordinated Notes and one share of New Aurora Preferred
Stock.
The Aurora Senior Subordinated Notes and the New Aurora Preferred Stock
that comprise each Unit are immediately detachable and separately transferable.
The Units will be evidenced by separate certificates for the Aurora Senior
Subordinated Notes and the New Aurora Preferred Stock which comprise the Units.
AURORA SENIOR SUBORDINATED NOTES
The following is a summary of the terms of the Indenture and the Aurora
Senior Subordinated Notes and is qualified in its entirety by reference to the
form of Indenture and the form of Aurora Senior Subordinated Note attached
thereto, copies of which have been filed with the Registration Statement of
which this Prospectus forms a part.
The terms of the Aurora Series A Senior Subordinated Notes being purchased
by WCAS as part of the WCAS Financing are substantially similar (although not
identical) to the terms of the Aurora Senior Subordinated Notes as set forth in
the Indenture, except as discussed herein. See "-- Differences in Aurora Series
A Senior Subordinated Notes."
Upon the consummation of the Rights Offering, Aurora will issue to Public
Stockholders purchasing Units up to an aggregate $2,747,890.08 principal amount
of Aurora Senior Subordinated Notes.
General
The Aurora Senior Subordinated Notes will be general, unsecured obligations
of Aurora and will be issued under an Indenture with U.S. Trust, as trustee. The
Aurora Senior Subordinated Notes will bear interest at the rate of 10% per annum
and will mature in three equal annual installments commencing on December 31,
2002. Interest on the Aurora Senior Subordinated Notes will be payable
semiannually, on June 30 and December 31 of each year, commencing on June 30,
1998.
Optional Redemption
The Aurora Senior Subordinated Notes may be prepaid at any time at the
option of Aurora, in whole or in part, upon not less than 20 nor more than 60
days' notice at a price equal to the unpaid principal amount thereof plus
accrued and unpaid interest thereon.
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Mandatory Redemption
Subject to the terms of the Senior Indebtedness, (i) within 105 days after
the end of each fiscal year of Aurora, Aurora shall apply 100% of the Excess
Cash Flow of Aurora to the redemption of the Aurora Senior Subordinated Notes
and the Aurora Series A Senior Subordinated Notes; and (ii) within five days
after the consummation of any Sale or Issuance Transaction by Aurora, Aurora
shall apply 100% of its Available Cash Proceeds of such Sale or Issuance
Transaction to the redemption of the Aurora Senior Subordinated Notes and the
Aurora Series A Senior Subordinated Notes. To the extent that any such
redemption is of less than all of the Aurora Senior Subordinated Notes and the
Aurora Series A Senior Subordinated Notes then outstanding, such redemption
shall be made on a pro rata basis with respect to the Aurora Senior Subordinated
Notes and the Aurora Series A Senior Subordinated Notes, based on the aggregate
principal amount of the Aurora Senior Subordinated Notes and the Aurora Series A
Senior Subordinated Notes then outstanding. If less than all of the Aurora
Senior Subordinated Notes are to be redeemed at any time, the Trustee shall
select the Aurora Senior Subordinated Notes to be redeemed from the outstanding
Aurora Senior Subordinated Notes not previously called for redemption on a pro
rata basis, by lot or by such other method as the Trustee in its sole discretion
shall deem fair and appropriate and which may provide for the selection for
redemption of portions equal to $83.33 in principal amount or any integral
multiple thereof.
The term "Excess Cash Flow" is defined in the Indenture to mean for any
fiscal period of Aurora, an amount which, on a combined basis in conformity with
generally accepted accounted principles, is equal to: (i) the excess of the sum
(without duplication): (A) net income for such fiscal period; (B) expenses for
such fiscal period for depreciation, amortization and other similar non-cash
charges, to the extent that the same are deducted from net revenues in
determining net income for such fiscal period; (C) the difference between (1)
the amount of taxes imposed on Aurora deducted from net revenues to determine
net income for such fiscal period and (2) the amount of taxes actually paid by
Aurora during such fiscal period; and (D) the difference between (1) any
extraordinary or non-recurring items of expense deducted from net revenues to
determine net income for such fiscal period and (2) the aggregate amount of all
cash payments made by Aurora during such period on account of extraordinary or
non-recurring items of expense, whether or not accrued in such period; over the
sum (without duplication) of: (1) the aggregate amount during such fiscal period
of scheduled payments of principal on (x) the Aurora Senior Subordinated Notes
and the Aurora Series A Senior Subordinated Notes, (y) the indebtedness under
the Chase Credit Agreement and (z) any indebtedness permitted under the Chase
Credit Agreement; (2) the amount of actual payments by Aurora in cash during
such fiscal period for capital expenditures; and (3) the difference between (1)
any extraordinary or non-recurring items of income added to net revenues to
determine net income and (2) the aggregate amount of all cash receipts received
by Aurora during such period on account of extraordinary or non-recurring items
of income, whether or not accrued in such period; (ii) plus (in the case of a
decrease) or minus (in the case of an increase) the change in the amount of
working capital as at the end of such fiscal period as compared with the amount
of working capital as at the end of the immediately preceding fiscal period.
"Available Cash Proceeds" is defined in the Indenture to mean the gross
cash proceeds received by Aurora from any Sale or Issuance Transaction, less all
fees and expenses incurred in connection therewith, including, without
limitation, legal expenses, customary commissions, and all federal, state, local
and foreign taxes assessed in connection therewith.
"Sale or Issuance Transaction" is defined in the Indenture to mean (i) any
sale, transfer, lease, sale and leaseback or other disposition by Aurora to any
person of all or any part of its property or assets, in any case in a single
transaction or a series of related transactions (other than any of the foregoing
for fair value of property that (x) is of inventory in the ordinary course of
business or (y) is of worn-out or obsolete assets); or (ii) the issuance (other
than by dividend) of any capital stock or other ownership interest of Aurora
pursuant to an offering or offerings registered under the Securities Act.
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Change of Control Option
Upon the occurrence of an Indenture Change of Control, each holder of
Aurora Senior Subordinated Notes will have the option to put all or a part of
their Aurora Senior Subordinated Notes to Aurora, and Aurora will have the
obligation to purchase the Aurora Senior Subordinated Notes that are put to it,
at a purchase price equal to 101% of the principal amount, plus accrued and
unpaid interest thereon. Subject only to the provisions of the Indenture
governing subordination, Aurora is required to commence its offer to purchase
within 10 days following the date of the occurrence of the transaction resulting
in an Indenture Change of Control, and each holder of the Aurora Senior
Subordinated Notes is entitled to tender all or any portion of the Aurora Senior
Subordinated Notes owned by such holder pursuant to such offer to purchase,
subject to the requirement that any portion of the Aurora Senior Subordinated
Notes tendered by a holder must be in an integral multiple of $83.33 principal
amount. Aurora is obliged to obtain any required consent of the holders of any
Senior Indebtedness or repay some or all of such Senior Indebtedness to the
extent necessary to permit the repurchase of all of the Aurora Senior
Subordinated Notes put to it upon an Indenture Change of Control.
The Indenture defines an "Indenture Change of Control" means (i) the sale,
lease or transfer, whether direct or indirect, of all or substantially all the
assets of Aurora to any person or group other than WCAS, (ii) the liquidation or
dissolution of Aurora or the adoption of a plan of liquidation or dissolution of
Aurora, (iii) the acquisition of beneficial ownership by any person or group
other than WCAS of voting stock of Aurora representing more than 50% of the
voting power of all outstanding shares of such voting stock, whether by merger,
consolidation or otherwise, or (iv) during any period of two consecutive years,
the failure of those individuals who at the beginning of such period constituted
the Aurora Board (together with any new directors whose election or appointment
by the Aurora Board or whose nomination for election or appointment by the
stockholders of Aurora was approved by a vote of a majority of the directors
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) to
constitute a majority of the Aurora Board then in office; provided, however,
that in no event shall a foreclosure on any collateral pledged by Aurora in
respect of obligations arising under or in connection with the Chase Credit
Agreement constitute an Indenture Change of Control.
Affirmative Covenants and Restrictive Covenants
Under the Indenture, Aurora is subject to certain restrictive covenants,
including covenants to maintain an office or offices for the registration of
transfer and exchange of the Aurora Senior Subordinated Notes; pay material
taxes and assessments; maintain its corporate existence; maintain its
significant properties in good condition and repair; keep adequately insured;
keep proper books and records; notify the holders of Aurora Senior Subordinated
Notes of an Event of Default (or any event which, upon notice or lapse of time
or both, would constitute such an Event of Default) or of any action, suit or
proceeding which would have a materially adverse effect; and, subject to the
provisions of applicable credit and other agreements and applicable laws, to
provide funds from its subsidiaries to permit the payment of principal and
interest on the Aurora Senior Subordinated Notes.
Aurora has also covenanted not to (i) except in specified instances, enter
into, or permit any of its subsidiaries to enter into, any transaction with any
of its or any subsidiary's officers, directors, employees or any person related
by blood or marriage to any such person or any entity in which any such person
owns any beneficial interest, or (ii) incur or permit to remain outstanding any
indebtedness for money borrowed ("Indebtedness") except for (a) Senior
Indebtedness; (b) Indebtedness outstanding on the date of original issuance of
the Aurora Senior Subordinated Notes, (c) Indebtedness permitted to be incurred
under the Chase Credit Agreement, as in effect from time to time, after the
original issuance of the Aurora Senior Subordinated Notes (other than
Indebtedness that is subordinate or junior in right of payment (to any extent)
to any Senior Indebtedness and senior or pari passu in right of payment (to any
extent) to the Aurora Senior Subordinated Notes), or under any successor
agreement to the Chase Credit Agreement, or (d) if there exists no such credit
agreement, as may be mutually agreed upon by Aurora and the holders of a
majority of the aggregate principal amount of the Aurora Senior Subordinated
Notes then outstanding. Aurora has also agreed not to issue any of its capital
stock or any capital stock of any of its subsidiaries which by its terms (or
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by the terms of any security into which it is convertible or for which it is
exchangeable), is redeemable at the option of the holder thereof on or prior to
December 31, 2005. Aurora has also agreed not to consolidate or merge with or
into, or sell or otherwise dispose of all or substantially all of its property
to any other corporation or other entity, unless it is the surviving company in
the transaction or the surviving company expressly assumes the due and punctual
payment of principal and interest on the Aurora Senior Subordinated Notes.
The terms of the Aurora Senior Subordinated Notes limit Aurora's ability to
declare or pay dividends, make distributions on, redeem, retire, purchase or
otherwise acquire any shares of any class of its own stock, except for (i)
certain pro rata share distributions to all holders of a class of stock, (ii)
payments of cash dividends on account of New Aurora Preferred Stock and (iii)
dividends, distributions or payments by subsidiaries to Aurora or to other
wholly-owned subsidiaries of Aurora. Except as permitted under the Chase Credit
Agreement, Aurora may not make any payments of principal of, or acquire, any
Indebtedness other than Senior Indebtedness, the Aurora Senior Subordinated A
Notes and the Aurora Senior Subordinated Notes. Aurora has also agreed to
restrictions on its ability to create or permit to exist liens on its assets.
Aurora will be bound by the affirmative and restrictive covenants set forth
in the Aurora Senior Subordinated Notes unless a majority in aggregate principal
amount of the Aurora Senior Subordinated Notes at the time outstanding waive
compliance therewith.
Events of Default
The following will constitute "Events of Default" under the Indenture:
(i) default shall be made in the payment of the principal of the
Aurora Senior Subordinated Notes when and as the same shall become due and
payable, whether at maturity or at a date fixed for prepayment or
repurchase or by acceleration or otherwise;
(ii) default shall be made in the payment of any installment of
interest on the Aurora Senior Subordinated Notes according to their terms
when and as the same shall become due and payable;
(iii) default shall be made in the due observance or performance of
any covenant, condition or agreement on the part of Aurora contained in the
provisions of the Indenture imposing requirements on consolidation, mergers
and certain asset sales of Aurora;
(iv) default in the observance or performance of any other covenant,
condition or agreement on the part of Aurora to be observed or performed
pursuant to the Aurora Senior Subordinated Notes, beyond any applicable
cure period;
(v) the falsity or incorrectness of any representation or warranty
made by or on behalf of Aurora;
(vi) default in Aurora's observance or performance of any covenant,
condition or agreement in the Aurora Series A Senior Subordinated Notes
which is not cured within 20 days after notice;
(vii) the commencement by Aurora or any of its subsidiaries of a
voluntary case, or the entry of a decree or order in respect of Aurora or
any of its subsidiaries in any involuntary case, under the federal or state
bankruptcy laws or other similar laws, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) of Aurora or any of its subsidiaries for any substantial part of
any of their property or ordering the winding-up or liquidation of any of
their affairs and the continuance of any such decree or order unstayed and
in effect for a period of 30 consecutive days;
(viii) a default or an event of default as defined in any instrument
evidencing or under which Aurora or any of its subsidiaries has outstanding
at the time any Indebtedness in excess of $500,000 in aggregate principal
amount, which results in acceleration of the maturity of the Indebtedness
thereunder and which is not rescinded or annulled within 20 days; or
(ix) final judgment (not reimbursed by insurance policies of Aurora or
any of its subsidiaries) for the payment of money in excess of $500,000
shall be rendered against Aurora or any of its subsidiaries and the same
shall remain undischarged for a period of 30 days during which execution
shall not be effectively stayed.
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A majority in aggregate principal amount at maturity of the outstanding
Aurora Senior Subordinated Notes, by notice to the Trustee, may waive an
existing default or Event of Default and its consequences, except a default in
the payment of principal of, premium, if any, or interest on the Aurora Senior
Subordinated Notes or in respect of a covenant or provision of the Indenture
which cannot be modified or amended without the consent of the holder of each
outstanding Aurora Senior Subordinated Note affected. The holders of at least
25% in aggregate principal amount of the Aurora Senior Subordinated Notes at the
time outstanding may, at their option, by a notice in writing to Aurora,
accelerate the maturity of the Aurora Senior Subordinated Notes and the Aurora
Senior Subordinated Notes will become immediately due and payable.
Subordination
The indebtedness under the Aurora Senior Subordinated Notes is subordinate
and junior, to the extent set forth therein, to all Senior Indebtedness. "Senior
Indebtedness" includes the principal of, premium, if any, and interest on, and
all reasonable fees, reimbursement and indemnity obligations, and all other
obligations arising in connection with, any indebtedness for borrowed money of
Aurora, contingent or otherwise, outstanding or created, incurred, issued,
assumed or guaranteed in the future, for which, in the case of any particular
indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such indebtedness shall
not be subordinate in right of payment to any other indebtedness of Aurora,
including all indebtedness and other obligations under the Chase Credit
Agreement and the New Senior Loan, together with any agreement entered into in
connection with the restatement, renewal, extension, restructuring, refunding or
refinancing of the obligations under such credit agreements.
Differences in Aurora Series A Senior Subordinated Notes
The terms of the Aurora Series A Senior Subordinated Notes comprising the
WCAS Units being purchased by WCAS are substantially similar to the terms of the
Aurora Senior Subordinated Notes as set forth in the Indenture, except as
follows:
(i) The Aurora Senior Subordinated Notes are denominated in multiples
of $83.33 while the Aurora Series A Senior Subordinated Notes are
denominated in multiples of $1,000. In addition, the Aurora Series A Senior
Subordinated Notes were sold privately to WCAS and are not covered by a
trust indenture.
(ii) In matters in which the vote, consent or approval of the holders
of the Aurora Senior Subordinated Notes is required, the holders thereof
are treated as a class separate and apart from the Aurora Series A Senior
Subordinated Notes.
(iii) the Purchase and Exchange Agreement pursuant to which the Aurora
Series A Senior Subordinated Notes are being purchased contain various
representations and warranties of Aurora, the breach of which may result in
a default under the Aurora Series A Senior Subordinated Notes. The
Indenture does not contain such representations and warranties.
(iv) Except for certain rights, such as the right to be paid the
principal of, or the premium, if any, or interest on the Aurora Senior
Subordinated Notes as and when due which cannot be waived, modified or
amended without the consent of the holder of each affected Aurora Senior
Subordinated Note, the rights of the holders of the Aurora Senior
Subordinated Notes may be amended, modified or waived, and in some cases
may be exercised, only with the consent of the holders of a majority (or in
some cases involving exercises of rights, 25%) of the principal amount of
the Aurora Senior Subordinated Notes outstanding. Since the Aurora Series A
Senior Subordinated Notes were sold privately to WCAS, the amendment,
modification, waiver and exercise of rights thereunder are not generally
subject to the consent of specified percentages of holders.
(v) Under the subordination provisions of the Aurora Series A Senior
Subordinated Notes, in the case of a default by Aurora that is not as a
result of insolvency, bankruptcy, liquidation, reorganization,
receivership, dissolution or other similar proceedings involving Aurora or
its creditors or its property, and is not as a result of the failure of
Aurora to pay the principal of or interest on the Senior Indebtedness, the
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holders of the Aurora Series A Senior Subordinated Notes have the right to
seek enforcement or collection of all amounts payable on account of
principal of or interest on the Aurora Series A Senior Subordinated Notes
if the holders of the Senior Indebtedness do not do so by the end of a 179
day blockage period following such default. The holders of the Aurora
Senior Subordinated Notes do not have such a right, but do have the right
to share on a pro rata basis in any recoveries made by the holders of the
Aurora Series A Senior Subordinated Notes pursuant to the exercise of such
rights (other than for the account of the holders of Senior Indebtedness).
NEW AURORA PREFERRED STOCK
The following is a summary of the terms of the New Aurora Preferred Stock
and is qualified in its entirety by reference to the Certificate of
Designations, a copy of which has been filed with the Registration Statement of
which this Prospectus forms a part.
Upon the consummation of the Rights Offering, Aurora will issue to Public
Stockholders purchasing Units up to an aggregate 32,976 shares of New Aurora
Preferred Stock.
Number of Shares
The number of authorized shares of New Aurora Preferred Stock is 213,000.
Upon the consummation of the Rights Offering and the WCAS Financing all 213,000
authorized shares of New Aurora Preferred Stock will be issued and outstanding.
Dividends
Each holder of record of the New Aurora Preferred Stock will be entitled to
receive dividends of $7.00 per share per annum, payable when and as declared by
the Aurora Board. Such dividends will be cumulative and will accrue from and
after the date of issue whether or not declared and whether or not there are
funds of Aurora legally available for the payment of dividends. Accrued but
unpaid dividends will not bear interest.
Dividends will cease to accumulate in respect of New Aurora Preferred Stock
on the redemption date (see "-- Redemption"), unless Aurora defaults in the
payment of the amounts necessary for such redemption, in which case dividends
will continue to accumulate at an annual rate of $7.00 per share until such
payment is made.
While any New Aurora Preferred Stock is outstanding, Aurora will not
declare or pay any dividend, or make any distribution, on any Junior Capital
Stock, other than a dividend or distribution payable solely in shares of Aurora
Common Stock, or make any payment on account of, or set apart for payment money
for a sinking fund for the purchase or redemption of Junior Capital Stock,
unless and until all dividend arrearages, if any, on the New Aurora Preferred
Stock have been paid in full in cash and Aurora is not in arrears or default in
any of its redemption obligations. "Junior Capital Stock" means any shares of
capital stock of Aurora, including Aurora Common Stock and Old Aurora Preferred
Stock other than shares of Aurora's capital stock permitted to rank on a parity
with or senior to the New Aurora Preferred Stock. See "-- Consent Rights."
Redemption
The New Aurora Preferred Stock will be mandatorily redeemable by Aurora in
equal installments on each of December 31, 2006 and 2007, at a per share
redemption price (the "Redemption Price") of $100 plus all accrued and unpaid
dividends thereon. In addition, New Aurora Preferred Stock will be redeemable at
the option of the holders thereof upon the occurrence of any of the following
(each, a "Preferred Stock Change of Control"): (i) the sale, lease or transfer,
whether direct or indirect, of all or substantially all the assets of Aurora to
any person or group other than WCAS or (ii) the acquisition of beneficial
ownership by any person or group other than WCAS of voting stock of Aurora
representing more than 50% of the voting power of all outstanding shares of such
voting stock, whether by merger, consolidation or otherwise. In the event of a
Preferred Stock Change of Control, any holder of New Aurora Preferred Stock may
require Aurora to redeem at the Redemption Price all or any portion of the
shares of New Aurora Preferred Stock owned by such holder
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(any such redemption of less than all of a holder's shares to be in integral
multiples of 1,000 shares) prior to the effective date of such Preferred Stock
Change of Control.
If the funds of Aurora legally available for redemption of New Aurora
Preferred Stock on any redemption date are insufficient to redeem the full
number of shares of New Aurora Preferred Stock to be redeemed on such date,
those funds which are legally available will be used to redeem the maximum
possible number of such shares of New Aurora Preferred Stock ratably from each
holder whose share are otherwise required to be redeemed. At any time thereafter
when additional funds of Aurora become legally available for the redemption of
New Aurora Preferred Stock, such funds will be used, at the end of the next
succeeding fiscal quarter, to redeem the balance of the shares which Aurora had
been obligated to redeem, ratably on the same basis as set forth in the
preceding sentence.
Liquidation Preference
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of Aurora, the holders of New Aurora Preferred Stock will be entitled
to be paid out of Aurora's assets available for distribution to its
stockholders, before any payment will be made or any assets distributed to the
holders of any Junior Capital Stock, an amount in cash equal to $100 per share
plus all accrued and unpaid dividends thereon. If (after making all
distributions to which holders of capital stock ranking senior to the New Aurora
Preferred Stock are entitled) Aurora's remaining assets are not sufficient to
pay in full the liquidation payments payable to the holders of the New Aurora
Preferred Stock and the holders of any capital stock ranking on parity
therewith, then the holders of all such shares will share ratably in such
distribution of assets. For the purposes of the foregoing, no Preferred Stock
Change of Control shall be deemed to be a liquidation, dissolution or winding up
of Aurora.
Conversion
The holder of each share of New Aurora Preferred Stock will have the right
at any time prior to the 15th day after receipt of a notice of the liquidation,
dissolution or winding up of Aurora, at such holder's option, to convert such
share into Aurora Common Stock. Subject to provisions for adjustment, each share
of New Aurora Preferred Stock will be convertible into such number of shares of
Aurora Common Stock, as is obtained by (i) multiplying the number of shares of
New Aurora Preferred Stock to be converted by $100, (ii) adding the Additional
Conversion Amount, if any, and (iii) dividing the result by the conversion price
of $0.25 or, if there has been an adjustment of the conversion price, the
conversion price as in effect on the date any New Aurora Preferred Stock is
surrendered for conversion (such price, as last adjusted, being referred to
herein sometimes as the "Conversion Price"). Upon the conversion of any shares
of New Aurora Preferred Stock, Aurora will pay the holder thereof, out of funds
legally available for such purpose, any accrued and unpaid dividends thereon. If
Aurora is for any reason unable to pay some or all of such accrued and unpaid
dividends, any amount not so paid shall constitute the "Additional Conversion
Amount."
If Aurora issues or sells (or is, as described in the next succeeding
paragraph, deemed to have issued or sold) shares of Aurora Common Stock without
consideration or for a consideration per share less than the Conversion Price in
effect immediately prior to such issue or sale, then, upon such issue or sale,
the Conversion Price will be adjusted to the price determined by dividing (i) an
amount equal to the sum of (a) the number of shares of Aurora Common Stock
outstanding immediately prior to such issue or sale (including as outstanding
all shares of Aurora Common Stock issuable upon conversion of outstanding New
Aurora Preferred Stock or upon conversion of outstanding Convertible Securities)
multiplied by the then existing Conversion Price, and (b) the consideration, if
any, received by Aurora upon such issue or sale, by (ii) the total number of
shares of Aurora Common Stock outstanding immediately after such issue or sale
(including as outstanding all shares of Aurora Common Stock issuable upon
conversion of outstanding New Aurora Preferred Stock or upon conversion of
outstanding Convertible Securities, in each case without giving effect to any
adjustment in the number of shares so issuable by reason of such issue or sale).
The Conversion Price will be subject to adjustment from time to time upon
the following events: (i) Aurora issues or sells any Aurora Common Stock for a
total consideration per share less than the
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Conversion Price in effect immediately prior to such issue or sale; (ii) Aurora
grants any rights to subscribe for or purchase, or any options for the purchase
of, Aurora Common Stock or any stock (other than New Aurora Preferred Stock) or
securities convertible into or exchangeable for Aurora Common Stock (such rights
or options being herein sometimes called "Options" and such convertible or
exchangeable stock or securities being herein sometimes called "Convertible
Securities") for a total consideration per share of Aurora Common Stock
deliverable upon conversion or exchange of such Options less than the Conversion
Price in effect immediately prior to the granting of such Options; (iii) Aurora
issues or sells any Convertible Securities for a total consideration per share
of Aurora Common Stock deliverable upon conversion of such Convertible
Securities less than the Conversion Price in effect immediately prior to such
issue or sale of Convertible Securities; or (iv) Aurora declares a dividend or
makes any other distribution on the outstanding Aurora Common Stock payable in
Aurora Common Stock, Options or Convertible Securities or subdivides its
outstanding shares of Aurora Common Stock into a greater number of shares (in
which cases the Conversion Price in effect immediately prior thereto will be
proportionately reduced), or combines the outstanding shares of Aurora Common
Stock into a smaller number of shares (in which case the Conversion Price in
effect immediately prior thereto will be proportionately increased).
Notwithstanding anything to the contrary contained herein, no adjustment to the
Conversion Price will be made in the case of (a) the issuance of shares of
Aurora Common Stock upon conversion of New Aurora Preferred Stock; (b) the
issuance of Options or shares of Aurora Common Stock to employees of Aurora,
either directly or pursuant to Options, pursuant to plans or arrangements
approved by the Aurora Board; (c) the issuance of shares of Aurora Common Stock
in respect of any Convertible Securities or Options issued by Aurora prior to
the date of the filing of the Certificate of Designations; (d) the issuance of
Aurora Common Stock or Options or Convertible Securities as consideration in the
acquisition by assumption or otherwise by Aurora of substantially all of the
assets of any other entity or more than 50% of the voting power of any other
entity, including by way of merger or consolidation; or (e) the issuance of
Options or Convertible Securities (or the shares of Aurora Common Stock issuable
upon conversion or exercise thereof) to banks or other lenders as consideration
for providing debt financing to Aurora.
In the event of any capital reorganization or reclassification of the
capital stock of Aurora, whether by way of consolidation or merger or otherwise
(each, a "Reorganization"), then adequate provision (in form satisfactory to the
holders of a majority of the then outstanding shares of New Aurora Preferred
Stock) will be made whereby each holder of New Aurora Preferred Stock will have
the right to receive, in lieu of the Aurora Common Stock immediately prior
thereto receivable upon the conversion of New Aurora Preferred Stock, such
shares of stock, securities or assets receivable upon such Reorganization by a
holder of the number of shares of Aurora Common Stock into which such New Aurora
Preferred Stock might have been converted immediately prior to such
Reorganization, and the Conversion Price will be subject to immediate adjustment
to the value of the Aurora Common Stock reflected by the terms of such
Reorganization (if the value so reflected is less than the Conversion Price in
effect immediately prior to such Reorganization). In the event of a merger or
consolidation of Aurora as a result of which a greater or lesser number of
shares of Aurora Common Stock or other equity interests of the surviving entity
are issuable to holders of Aurora Common Stock, the Conversion Price in effect
immediately prior to such merger or consolidation will be proportionately
reduced or increased, as the case may be. Aurora will not effect a Preferred
Stock Change of Control unless prior to its consummation the acquiring or
successor entity (if other than Aurora) assumes in writing the obligation to
deliver to the holders of New Aurora Preferred Stock such shares of stock,
securities or assets such holders may be entitled to receive.
The New Aurora Preferred Stock will be convertible in whole at the option
of Aurora on or after June 30, 1999, if (i) Aurora shall effect a firm
commitment public offering of Aurora Common Stock or Convertible Securities
registered pursuant to the Securities Act, resulting in proceeds to Aurora
and/or selling stockholders of not less than $20 million and in which the
offering price to the public is greater than the Conversion Price of the New
Aurora Preferred Stock then in effect or (ii) the average closing sales price of
the Aurora Common Stock over any period of 20 consecutive trading days equals or
exceeds 300% of the Conversion Price of the New Aurora Preferred Stock then in
effect and the average daily trading volume for the Aurora Common Stock over
such period equals or exceeds 10 million shares per week.
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Aurora will at all times reserve and keep available out of its authorized
but unissued capital stock, solely for the purpose of issuance upon conversion
of New Aurora Preferred Stock, such number of shares of Aurora Common Stock as
will then be issuable upon conversion of all outstanding New Aurora Preferred
Stock into Aurora Common Stock.
Consent Rights
So long as any shares of New Aurora Preferred Stock are outstanding
(except, with respect to clause (ii) below, so long as at least 25,000 shares of
New Aurora Preferred Stock are outstanding), without the consent of the holders
of a majority of the New Aurora Preferred Stock then outstanding voting
separately as a class, Aurora will be prohibited from (i) declaring or paying
dividends or making any distribution upon any Junior Capital Stock, other than a
dividend or distribution payable in shares of Aurora Common Stock, or purchasing
or redeeming any Aurora Common Stock or paying or making available any money for
a sinking fund for the purchase or redemption of any Aurora Common Stock, unless
all obligations of Aurora to the holders of New Aurora Preferred Stock with
respect to dividends and arrearage in redemption have been met; (ii) effecting,
validating or permitting a Preferred Stock Change of Control; (iii) taking any
action which would amend or repeal the dividend, voting, conversion, redemption
or liquidation rights of the New Aurora Preferred Stock; (iv) effecting or
validating the amendment, alteration or repeal of any provision of the Aurora
Charter or the Aurora Bylaws; or (v) including by way of merger, consolidation
or otherwise, (a) creating or authorizing any additional class or series of
stock ranking senior to or on a parity with the New Aurora Preferred Stock as to
dividends or as to rights upon redemption, liquidation, dissolution or winding
up, or (b) increasing the authorized number of shares of the New Aurora
Preferred Stock or of any other class or series of capital stock of Aurora
ranking senior to or on a parity with the New Aurora Preferred Stock as to
dividends or as to rights upon redemption, liquidation, dissolution or winding
up.
Voting Rights
Except for the consent rights (see "-- Consent Rights") granted to the
holders of New Aurora Preferred Stock or as required by law, the holders of New
Aurora Preferred Stock will vote together with the holders of Aurora Common
Stock on all matters to be voted on by the stockholders of Aurora, and each
holder of New Aurora Preferred Stock will be entitled to the number of votes
attributable to the underlying shares of Aurora Common Stock into which the
shares of New Aurora Preferred Stock held by such holder are convertible.
TRANSFERABILITY
The Aurora Senior Subordinated Notes and New Aurora Preferred Stock offered
hereby to the Rights holders, and the Aurora Common Stock issuable upon
conversion of the New Aurora Preferred Stock, have been registered under the
Securities Act. Accordingly, Aurora Senior Subordinated Notes and New Aurora
Preferred Stock purchased upon the exercise of Rights, and Aurora Common Stock
issuable upon conversion of the New Aurora Preferred Stock, will be freely
transferable by the holders thereof, except to the extent held by persons who
are deemed "affiliates" of Aurora under Rule 144 under the Securities Act. In
general, under Rule 144, as currently in effect, persons who are deemed
affiliates of Aurora would be entitled to sell within any three-month period a
number of shares that does not exceed the greater of 1% of the outstanding
Aurora Common Stock or the average weekly reported volume of trading in the
Aurora Common Stock on all national securities exchanges and/or reported through
the automated quotation system of a registered securities association during the
four calendar weeks preceding such sale. Aurora has not applied for listing or
quotation of any of the securities being offered hereby, and there can be no
assurance that a market will develop for such securities. See "Risk
Factors -- Absence of Trading Market for Aurora Senior Subordinated Notes and
New Aurora Preferred Stock."
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<PAGE> 34
REASONS FOR THE RIGHTS OFFERING AND USE OF PROCEEDS
Aurora has entered into the Merger Agreement with Sub and Cerplex pursuant
to which Sub, a wholly-owned subsidiary of Aurora, will be merged with and into
Cerplex. See "The Merger and Related Transactions -- Description of the Merger."
To provide New Cerplex with needed working capital and to enable it to retire a
portion of the approximately $30 million of existing indebtedness outstanding
under the Cerplex Senior Credit Agreement and establish the New Senior Loan,
WCAS has agreed, among other things, to purchase up to an aggregate 15,000 WCAS
Units each consisting of (i) $1,000 principal amount of Aurora Series A Senior
Subordinated Notes and (ii) 12 shares of New Aurora Preferred Stock, at a price
of $2,200 per unit, for a total consideration of $33 million payable in a
combination of cash and securities of Aurora and Cerplex currently held by WCAS.
Pursuant to the Cerplex Senior Credit Agreement, indebtedness outstanding under
the term loan ($25,320,620 as of January 30, 1998) bears interest at a rate of
prime plus 7.125% (15.625%) and amounts outstanding under the revolver
($4,866,984 as of January 30, 1998) bear interest at a rate of 19%. The loans
under the Cerplex Senior Credit Agreement become due and payable on May 1, 1998.
The number of WCAS Units that will actually be purchased by WCAS will be reduced
by an amount equal to the number of Units subscribed for by Public Stockholders
in the Rights Offering divided by 12. See "The Merger and Related
Transactions -- WCAS Financing." The Rights Offering is intended to afford
Public Stockholders the opportunity to (a) purchase Units consisting of the same
New Aurora Preferred Stock and a substantially similar (although not identical)
debt security that comprise the WCAS Units at a subscription price per Unit
($183.33) equal to one-twelfth of the price ($2,200) being paid by WCAS for each
WCAS Unit in connection with the WCAS Financing and (b) maintain their equity
ownership and voting interest in Aurora after the consummation of the WCAS
Financing. The proceeds of the Rights Offering will be used for the same
purposes as the proceeds of the WCAS Financing.
THE MERGER AND RELATED TRANSACTIONS
DESCRIPTION OF THE MERGER
On January 30, 1998, Aurora, Sub and Cerplex entered into the Merger
Agreement, in which the parties set forth the terms and conditions of the merger
of Sub with and into Cerplex. After the Merger, Aurora, which will be the
holding company for the combined businesses currently conducted by Aurora and
Cerplex, will change its name to "The Cerplex Group, Inc." The Merger also
contemplates an extensive refinancing of Aurora and Cerplex including, among
other things, (i) securing at least $17 million in proceeds from the New Senior
Loan and (ii) the WCAS Financing.
At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, (i) each share of Cerplex Common Stock issued
and outstanding immediately prior to the Effective Time (other than shares to be
canceled in accordance with (ii) below and Dissenting Shares) shall be converted
into the right to receive 1.076368 shares of Aurora Common Stock, subject to
adjustment, payable upon the surrender of the certificate formerly representing
such share of Cerplex Common Stock; (ii) (a) all shares of Cerplex Common Stock
and all shares of Cerplex Preferred Stock that are held by Cerplex as treasury
shares or owned by Aurora or any wholly-owned subsidiary of Aurora, and (b) all
shares of Cerplex Preferred Stock issued and outstanding immediately prior to
the Effective Time, shall be canceled and retired and cease to exist, and no
securities of Aurora or other consideration shall be delivered in exchange
therefor; and (iii) each share of Sub Common Stock issued and outstanding
immediately prior to the Effective Time shall be converted into and become one
fully paid and nonassessable share of common stock, par value, $.01 per share,
of the Surviving Corporation.
The parties to the Merger Agreement intend for the Exchange Ratio to result
in a capital structure for Aurora in which the holders of all equity securities
on a fully-diluted basis of Cerplex issued and outstanding at the Effective Time
shall receive in the Merger equity securities of Aurora constituting 25% of the
Aurora Common Stock on a fully-diluted basis after giving effect to the Merger
and the consummation of all transactions to be consummated concurrently with the
Merger (including the Rights Offering and the WCAS
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<PAGE> 35
Financing), not including for purposes of such calculation 50% of the shares of
Aurora Common Stock subject to then outstanding Aurora Stock Options and 50% of
the then outstanding Aurora Stock Purchase Rights with an exercise price or
conversion price greater than $2.50. Accordingly, the parties have agreed to
make such adjustments to the Exchange Ratio as may be appropriate to give effect
to the intent of the parties set forth herein; provided that such adjustments
may be made no later than five business days prior to the Effective Time. If the
Merger is not consummated by April 30, 1998, the Bank Warrants will remain
outstanding, resulting in a change in the Exchange Ratio from 1.076368 to
1.019861. No other material adjustments to the Exchange Ratio, including those
resulting from changes in the market value of Aurora Common Stock or Cerplex
Common Stock prior to the Effective Time, will be made.
No fractional shares of Aurora Common Stock will be issued in connection
with the Merger. Fractional shares otherwise issuable will be settled for cash,
without interest, based on the fractional interest to which such holder would
otherwise be entitled multiplied by the average last sale price of shares of
Aurora Common Stock for the 20 trading days immediately prior to the Effective
Time as reported by the Bulletin Board.
The Merger will occur only if (i) the holders of the requisite number of
shares of Cerplex Common Stock approve and adopt the Merger Agreement and the
Merger and (ii) the holders of the requisite number of shares of Aurora capital
stock approve and adopt the proposed Aurora Charter Amendment that would
increase the amount of authorized Aurora Common Stock. The holders of more than
the requisite number of Cerplex securities and of the Aurora securities entitled
to vote on the Merger or the Aurora Charter Amendments, as the case may be, have
either agreed to vote or granted irrevocable proxies to vote in favor of these
actions.
Consummation of the Merger is also subject to the satisfaction or waiver
(to the extent such waiver is permitted by law) of certain other conditions,
including the expiration or early termination of any applicable waiting period
under the HSR Act and that no action shall have been instituted by the
Department of Justice or the FTC challenging or seeking to enjoin the Merger,
which action shall have not been withdrawn or terminated. A failure of any such
conditions to be satisfied, if not waived, would prevent consummation of the
Merger.
The waiting period under the HSR Act was terminated on February 25, 1998.
In addition to the foregoing conditions, the obligations of Aurora and Sub
to consummate the Merger are subject to satisfaction or waiver of additional
conditions including that: (i) the aggregate number of Dissenting Shares shall
not constitute more than 5% of the number of shares of Cerplex Common Stock
outstanding as of immediately prior to the Effective Time; (ii) Aurora shall
have obtained at least $17 million of proceeds from the New Senior Loan on terms
reasonably acceptable to Aurora, as determined in good faith by Aurora; and
(iii) Citibank, Cerplex's senior lender, shall have complied with the
Forbearance Agreement in all material respects, and Cerplex shall have satisfied
in full its obligations under the Cerplex Senior Credit Agreement, the liens
granted thereunder shall have been discharged and the Cerplex Senior Credit
Agreement shall have been terminated.
In addition to the foregoing conditions, the obligation of Cerplex to
consummate the Merger is subject to satisfaction or waiver of additional
conditions, including that (i) Aurora shall have appointed William A. Klein and
Robert Finzi to the Aurora Board; and (iii) Aurora shall have obtained at least
$17 million of proceeds from the New Senior Loan and the Purchase and Exchange
Agreement shall have been consummated.
The Merger Agreement may be terminated at any time prior to the Effective
Time, whether before or after approval by the stockholders of Cerplex, (i) by
the written mutual consent of Cerplex and Aurora, (ii) by either party if (a)
the Merger is not consummated by June 30, 1998, (b) the requisite Cerplex or
Aurora stockholder approval is not obtained, (c) there shall be a final,
nonappealable order preventing the consummation of the Merger, (d) the other
party breaches a representation or warranty contained in the Merger Agreement
the effect of which is a material adverse effect on the breaching party or (e)
the other party breaches in any material respect any of the covenants or
agreements set forth in the Merger Agreement, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such breach is
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<PAGE> 36
given by the non-breaching party, (iii) by Aurora, if the Cerplex Board
withdraws or modifies in a manner adverse to Aurora its recommendation of
approval of the Merger Agreement or the Merger, makes any recommendation with
respect to an Acquisition Transaction, or takes any material action in violation
of the "no solicitation" covenant contained in the Merger Agreement, or (iv) by
Cerplex, if such termination is necessary to allow Cerplex to enter into an
Acquisition Transaction that the Cerplex Board has determined in good faith, by
a majority vote after consultation with its financial advisors and based upon
the advice of its legal counsel, is more favorable to the stockholders of
Cerplex than the Merger.
Except as otherwise required by law, the Merger Agreement may be amended or
modified and any condition specified therein may be waived without re-submission
to the stockholders of Aurora or Cerplex by the mutual consent of Aurora and
Cerplex. The closing of the Rights Offering is conditioned upon the consummation
of the Merger. See "The Rights Offering -- Condition to Closing."
WCAS FINANCING
To provide New Cerplex with needed working capital and to enable New
Cerplex to retire a portion of the approximately $30 million of existing
indebtedness outstanding under the Cerplex Senior Credit Agreement and establish
a New Senior Loan, WCAS has agreed, pursuant to the Purchase and Exchange
Agreement, to purchase (i) up to an aggregate 15,000 WCAS Units, each consisting
of (a) $1,000 principal amount of Aurora Series A Senior Subordinated Notes and
(b) 12 shares of New Aurora Preferred Stock, at a subscription price of $2,200
per unit, for a total consideration of $33,000,000 payable in a combination of
cash and securities of Aurora and Cerplex currently held by WCAS; and (ii) an
aggregate 33,000 shares of New Aurora Preferred Stock in exchange for the
cancellation of $10 million principal amount of Old Aurora's Subordinated Notes
plus accrued interest thereon currently held by WCAS and originally purchased by
WCAS in connection with the Recapitalization. The number of WCAS Units that will
actually be purchased by WCAS will be reduced by an amount equal to the number
of Units subscribed for and purchased by Public Stockholders in the Rights
Offering divided by 12.
WCAS will pay a portion of the purchase price of the WCAS Units by (i)
exchanging up to an aggregate $2.8 million principal amount of Aurora's 10%
Senior Subordinated Demand Notes plus accrued interest thereon originally
purchased by WCAS on December 5, 1997, (ii) surrendering the aggregate $18
million of Cerplex Subordinated Notes and the Cerplex Warrants currently held by
WCAS, valued for such purpose at the purchase price paid by WCAS for such
securities pursuant to the Purchase and Exchange Agreement, or approximately
$5.8 million, and (iii) surrendering the Aurora Bridge Notes (WCAS has already
purchased $6.1 million principal amount of Aurora Bridge Notes since January 30,
1998), valued at the aggregate principal amount of such notes surrendered plus
accrued interest thereon. The balance of the purchase price of the WCAS Units
will be paid in cash. The obligation of WCAS to purchase the WCAS Units and the
additional 33,000 shares of New Aurora Preferred Stock are subject to the
satisfaction of certain conditions, including the consummation of the Merger and
Aurora's receipt of at least $17 million of proceeds from the New Senior Loan on
terms reasonably acceptable to WCAS.
FOR A MORE DETAILED DESCRIPTION OF THE TERMS OF THE MERGER, THE WCAS
FINANCING AND THE OTHER TRANSACTIONS RELATED TO THE MERGER, REFER TO THE JOINT
PROXY STATEMENT/PROSPECTUS SENT TO STOCKHOLDERS CONTEMPORANEOUSLY WITH THIS
PROSPECTUS. ALL PUBLIC STOCKHOLDERS ARE URGED TO READ THE MERGER AGREEMENT IN
ITS ENTIRETY.
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<PAGE> 37
CAPITALIZATION
The following table sets forth the book capitalization of Aurora as of
December 28, 1997, and Cerplex as of December 31, 1997 and as adjusted to give
effect to the Merger, the WCAS Financing and the Rights Offering. This table
should be read in conjunction with the consolidated financial statements of
Aurora and Cerplex and the related notes thereto incorporated by reference in
this Prospectus.
CAPITALIZATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
------------------- PROFORMA
CERPLEX AURORA REFERENCE DEBT CREDIT COMBINED
-------- --------- --------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net long-term debt.................... $ 2,960 $ 40,592 (B)(C) $ 13,565 $ 33,111 $ 63,098
Redeemable preferred stock............ -- 52,033 (A)(B)(C) 50,238 21,300 23,095
Stockholder's equity:
Common stock........................ 36 348 (A)(G) 36 2,040 2,388
Additional paid-in capital.......... 59,718 62,438 (A)(B)(C)(D)(G) 63,753 73,322 131,725
Accumulated deficit................. (90,901) (135,326) (G) -- 90,901 (135,326)
Treasury stock...................... -- (16,639) -- -- (16,639)
Cumulative translation adjustment... (1,390) -- (G) -- 1,390 --
-------- --------- --------------- -------- -------- ---------
Total Stockholders' Equity.... (32,537) (89,179) 63,789 167,653 (17,852)
-------- --------- --------------- -------- -------- ---------
Total capitalization.................. $(29,577) $ 3,446 $127,592 $222,064 $ 68,341
======== ========= =============== ======== ======== =========
</TABLE>
NOTES TO PRO FORMA COMBINED COMPENSATION TABLE
<TABLE>
<CAPTION>
DEBIT CREDIT
------ ------
<S> <C> <C> <C>
(A) To record the conversion of Aurora Convertible Preferred
Stock and series B, C & D Preferred Stock to Common Stock.
Aurora Redeemable Convertible Preferred Stock............... 50,238
Common Stock................................................ 794
Additional paid-capital..................................... 49,444
(B) To record the exchange of Old Aurora Subordinated Notes for
33,000 shares of New Aurora Preferred Stock.
Long-term debt (senior subordinated debt-WCAS).............. 10,765
Long-term debt (unamortized discount and issue costs)....... 1,111
Aurora Redeemable Convertible Preferred Stock............... 3,300
Additional paid-in capital.................................. 6,354
(C) To record the purchase of 15,000 units of Aurora Series A
Senior Subordinated Notes and New Aurora Preferred Stock by
WCAS.
Cash........................................................ 24,400
Long-term debt (Cerplex subordinated debt).................. 18,069
Long-term debt (Subordinated Demand Note -- WCAS)........... 2,800
Aurora Redeemable Convertible Preferred Stock............... 18,000
Long-term debt (new senior subordinated debt-WCAS).......... 15,000
Additional paid-in capital.................................. 10,013
Long-term debt (unamortized discount-Cerplex)............... 2,256
(D) To record payment of Cerplex bank debt at 98.5% of face
value.
Current portion of long-term debt-Cerplex................... 29,945
Cash........................................................ 29,495
Additional paid-in capital.................................. 450
</TABLE>
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<PAGE> 38
<TABLE>
<CAPTION>
DEBIT CREDIT
------ ------
<S> <C> <C> <C>
(E) To record exchange of Aurora common shares for Cerplex
common shares.
Goodwill.................................................... 40,844
Cerplex Common Stock........................................ 36
Cerplex paid-in capital..................................... 59,718
Cerplex accumulated deficit................................. 90,901
Common Stock................................................ 1,246
Additional paid-in capital.................................. 7,061
Cumulative translation adjustment........................... 1,390
</TABLE>
Goodwill resulting from the Merger has been determined as the excess of (i)
the fair value of the Aurora shares issued to Cerplex stockholders over (ii) the
net fair value of the assets less the liabilities of Cerplex. Management
believes that recent public trading prices of the Aurora and Cerplex common
shares do not reflect a reasonable fair value of the shares to be issued.
Management believes that a fair value is approximately 80% of the negotiated
conversion price of the New Aurora Preferred Stock. Based upon a $0.25 per share
conversion price for the New Aurora Preferred Stock, management believes the
fair value of the Aurora Common Stock to be issued to Cerplex shareholders is
$0.20 per share.
Based upon the historical operating losses of Aurora and Cerplex,
management expects to amortize the resulting goodwill over not more than five
years. Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (FAS
121), requires that the carrying value of long-lived assets be reviewed for
impairment whenever circumstances indicate that the carrying amount may not be
recoverable based upon estimates of undiscounted future cash flows. If this
review indicates that the asset value is not likely to be recoverable from these
cash flows, the carrying value will be reduced to fair value. It is possible
that a subsequent FAS 121 review may require a reduction of the carrying value
of the goodwill resulting from the purchase accounting method for the Merger.
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<PAGE> 39
SELECTED FINANCIAL INFORMATION
SELECTED AURORA HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following tables set forth selected consolidated financial data
regarding Aurora's results of operations and financial position. This
information should be read in conjunction with "-- Management's Discussion and
Analysis of Financial Condition and Results of Operations" for the relative
periods and Aurora's Consolidated Financial Statements and related notes thereto
incorporated into this Prospectus by reference.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 28, 1997
AND DECEMBER 29,
1996
(UNAUDITED) FOR THE YEAR ENDED SEPTEMBER 30,
-------------------- -----------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- -------
(IN THOUSANDS EXCEPT PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA
Net revenues...................... $ 8,324 $ 17,248 $ 64,892 $ 98,019 $141,852 $120,386 $58,328
Gross profit...................... 1,275 3,869 12,986 24,443 34,582 26,350 11,274
SG&A expenses..................... 5,122 5,063 23,466 25,943 28,170 17,573 4,657
Amortization of intangibles....... 25 251 34,044(1) 18,042(2) 9,073(3) 4,539(4) 1,284
Restructuring charge and other.... -- -- -- -- 5,643(5) 2,161 --
Litigation settlement............. -- -- -- -- -- 1,943 --
Operating income (loss)........... (3,872) (1,455) (44,524) (19,542) (8,304) 134 5,333
Interest expense.................. (1,036) (901) (4,050) (6,221) (5,522) (4,449) (1,276)
Other income (expense), net....... (94) 22 (498) (1,284) 116 197 --
Earnings (loss) from continuing
operations before taxes......... (5,002) (2,316) (49,072) (27,047) (13,710) (4,118) 2,505
Net income (loss)................. (5,002) (2,316) (49,605) (30,353) (15,030) (6,518) 3,005
Earnings (loss) from continuing
operations per share............ $ (0.85) $ (0.85) $ (7.86) $ (4.44) $ (1.79) $ (0.55) $ 0.40
Net income (loss) per share....... $ (0.85) $ (0.85) $ (7.86) $ (4.44) $ (1.79) $ (0.87) $ 0.48
Weighted average number of shares
outstanding..................... 6,848 5,743 6,675 7,159(6) 8,379 7,491 6,273
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 28,
1997 AND
DECEMBER 29, 1996
(UNAUDITED) AS OF SEPTEMBER 30,
-------------------- -----------------------------------------------------------
1997 1996 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital................... $ 94 $ (435) $ (3,113) $ 610 $ 196 $ 9,013 $10,713
Total assets...................... 14,579 50,796 14,629 52,788 80,716 102,927 76,857
Long-term obligations (less
current maturities)............. 39,640 27,439 36,585 25,842 46,183 51,761 25,904
Redeemable convertible preferred
stock........................... 52,033 42,100 46,722 41,400(6)
Stockholders' equity (deficit).... (89,179) (34,704) (83,320) (31,690) 12,338 26,903 26,655
</TABLE>
- ---------------
(1) During the fourth quarter of fiscal 1997, approximately $29,602 relating to
a write-down of intangible assets acquired in fiscal 1994 in connection with
the Century acquisition was charged to operations.
(2) During the fourth quarter of fiscal 1996, approximately $16,580 relating to
a write-down of intangible assets acquired in fiscal 1992 in connection with
the Micro-C Corporation acquisition was charged to operations.
(3) During fiscal 1995, approximately $7,400 relating to a write-down of
intangible assets associated with the repair business acquired in fiscal
1993 in connection with the FRS, Inc. acquisition was charged to operations.
(4) During fiscal 1994, approximately $2,400 relating to a write-down of
intangible assets associated with a covenant not to compete was charged to
operations.
(5) During fiscal 1995, Aurora substantially completed a major corporate
reorganization into two core businesses operating as the asset and recovery
division and the spare parts distribution division.
(6) In connection with the Recapitalization, on March 29, 1996, Aurora
repurchased approximately 4,268 shares of Aurora Common Stock and issued 607
shares of Aurora Common Stock and 400 shares of Old Aurora Preferred Stock
to WCAS and certain other purchasers.
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<PAGE> 40
AURORA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
This Prospectus may contain forward-looking statements which involve risks
and uncertainties. Aurora's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in the section
"Risk Factors."
OVERVIEW
Aurora provides spare parts distribution and electronics recycling services
to major personal computer manufacturers and field service organizations. As it
exists today, Aurora was formed on September 30, 1992. Prior to September 30,
1992, the corporation was known as BSN Corp. and was engaged in the sporting
goods industry. From 1990 through 1992, BSN divested itself of a majority of its
sporting goods assets and, effective September 30, 1992, announced that all of
its remaining sporting goods assets would be accounted for as discontinued
operations and that such operations would be sold. Effective September 30, 1992,
Aurora entered the computer and electronics industry through the acquisition of
Micro-C Corporation, a San Diego, California based company founded in 1985,
which provided both integrated circuits recycling services to computer OEMs and
memory integrated circuits distribution services for semiconductor
manufacturers. Effective September 30, 1993, Aurora acquired FRS, Inc., a
Sacramento, California based company founded in 1984, which provided depot
repair services to computer and peripheral OEMs. Effective March 1, 1994, Aurora
acquired Century Computer Marketing, a Marina del Rey, California based company
founded in 1984, a leading supplier of new and refurbished spare parts to the
computer maintenance market.
In the third quarter of fiscal 1995, Aurora completed a corporate
reorganization, in which it: (a) exited the memory upgrade manufacturing and
supply business formerly known as the Premier Division; and (b) substantially
downsized its depot repair services operation acquired in the FRS, Inc.
acquisition, and refocused these operations to support Aurora's remaining spare
parts distribution and electronic recycling services business.
In March 1996, Aurora completed the Recapitalization.
In October of 1997, Aurora completed the sale of the remainder of its depot
repair services operation and sold its Irvine, Scotland recovery processing
facility. A reserve for the losses resulting from these transactions was accrued
in the fourth quarter of fiscal 1997. In addition, Aurora has emphasized systems
and sub-systems in its product selection and is considering closing or selling
its integrated circuit processing facility in an effort to limit its exposure to
the price fluctuations of integrated circuits.
RESULTS OF OPERATIONS
Comparative Results of Operations for the Three Months Ended December 26, 1997
and December 29, 1996
Net revenues for the first quarter of fiscal 1998 were $8,324, as compared
to $17,248 in net revenues for the corresponding quarter in the prior fiscal
year. Aurora's decline in revenues was due substantially to a continued decline
in the average sales prices for DRAM memory chips in its ARS Division and an
overall decline in the prices of computer repair parts in its PSS Division and
in part to the shut down of the depot repair services operations.
Gross profit for the first quarter of fiscal 1998 was $1,275 (15.3% of net
revenues), as compared to $3,869 (22.4% of net revenues) for the first quarter
of fiscal 1997. The decrease in gross profit was due primarily to the decline in
revenues from electronics recycling and spare parts distribution mentioned
above.
SG&A expenses for the first quarter of fiscal 1998 were $5,122 (61.5% of
net revenues), as compared to $5,063 (29.4% of net revenues) for the same
quarter of the prior fiscal year. The increase as a percent of revenues was due
to the significant decline in revenues noted above. Amortization expense for the
first quarter
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<PAGE> 41
of fiscal 1998 was $25, compared to $251 for the first quarter of fiscal 1997.
The decrease was due to the write-off in the fourth quarter of fiscal 1997 of
goodwill related to the acquisition of Century Computer Marketing.
Net interest expense for the first quarter of fiscal 1998 was $1,036, or
12.5% of revenues, as compared to $901, or 5.2% of revenues, for the same period
in fiscal 1997. The increase in interest expense is due to higher loan balances
on the Chase Credit Agreement.
Net loss to common stockholders for the first quarter of fiscal 1998 was
$5,814, as compared to net loss of $3,016 for the first quarter of fiscal 1997.
The loss in the quarter is the result of operating losses from electronics
recycling and spare parts distribution.
Results of Operations -- Year Ended September 30, 1997 Compared with Year
Ended September 30, 1996
Net revenues for the year ended September 30, 1997 for Aurora were $64,892,
as compared to $98,019 for the year ended September 30, 1998. Gross profit for
fiscal 1997 was $12,986 (20.0% of net revenues), as compared to gross profit for
fiscal 1996 of $24,443 (24.9% of net revenues). Aurora's decline in revenues and
gross profit was due to a continued decline in the average sales prices for DRAM
memory chips in ARS and an overall decline in the prices of computer repair
parts in its PSS.
SG&A expenses for fiscal 1997 were $23,466 (36.2% of revenue), as compared
to $25,943 (26.5% of revenue) for fiscal 1996. Included in the 1996 SG&A
expenses were approximately $725 in-one time charges related to the
Recapitalization. The increase of the SG&A expenses as a percentage of revenue
was due to the reduction in revenues described in the preceding paragraph.
Amortization expense for fiscal 1997 was $34,044, as compared with $18,042
in fiscal 1996. The 1997 expense included $29,602 of unamortized goodwill and
other intangibles remaining from the acquisition of Century Computer Marketing
and $3,390 of computer system software and development costs in PSS. In
consideration of the continued decline in prices for computer repair parts,
management's projections do not support recovery of these assets over their
amortization lives. The fiscal 1996 amortization included the write-off of
$16,580 of goodwill related to the acquisition of Micro-C Corporation, Inc.
Net interest expense for fiscal 1997 was $4,050, or 6.2% of revenue, as
compared to $6,221, or 6.3% of revenue, for fiscal 1996. The interest expense
for fiscal 1996 includes approximately $2,243 of charges related to the
Recapitalization, which includes approximately $1,070 of previously capitalized
finance charges, $917 of interest, fees and expenses due to Aurora's previous
lenders and $256 relating to the 9 1/4% Senior Subordinated Notes.
Other expense for 1997 was $498, including a loss of approximately $450
from the sale of Aurora's repair facility in Sacramento, California, and its
asset recovery facility in Irvine, Scotland. Other expense for fiscal 1996 was
$1,284, including writedowns and disposal of property and equipment totaling
$1,369.
Provision for income taxes for fiscal 1997 was $533, as compared to $3,306
for fiscal 1996. The fiscal 1997 provision includes the increase in the deferred
income tax valuation allowance in the amount of $500 for deferred tax assets not
anticipated to be realized. The fiscal 1996 provision includes an increase of
the deferred income tax valuation allowance in the amount of $3,234 due to
management's determination that the deferred tax asset will not be fully
realized.
Net loss applicable to common stockholders for fiscal 1997 was $52,427, as
compared to $31,753 for fiscal 1996. The fiscal 1997 loss included dividends on
preferred stock of approximately $2,822, writedowns of information system
software and development costs of approximately $3,390, and the write-off of
goodwill from the Century acquisition of approximately $29,602.
Results of Operations -- Year Ended September 30, 1996 Compared with Year Ended
September 30, 1995
Net revenues for the year ended September 30, 1996 for Aurora were $98,019,
as compared to $141,852 for the year ended September 30, 1995. Aurora's decline
in revenues was due primarily to the discontinuation of the Premier Division
($36,254) during fiscal 1995. Excluding the Premier Division, net revenues for
fiscal 1996 decreased 7.2% over fiscal 1995. The decrease was due to a 27.4%
decline in revenues in the IC recycling
37
<PAGE> 42
and recovery business, offset by an increase of 5.3% in revenues for PSS. The
decline in revenues for ARS was due primarily to a decline during the year in
the average sales price for DRAM chips of approximately 87.0%.
Gross profit for fiscal 1996 was $24,443 (24.9% of net revenues), as
compared to gross profit for fiscal 1995 of $34,582 (24.4% of net revenues). The
decrease in gross profit was due primarily to the discontinuation of the Premier
Division and the decrease of approximately $6,261 for ARS over the comparable
period in fiscal 1995. This decline in gross profit was due to the decline of
DRAM prices discussed above.
SG&A expenses for fiscal 1996 were $25,943, (26.5% of revenue) as compared
to $28,170, (19.9% of revenue) for fiscal 1995. Included in the SG&A expenses
were approximately $725 in one time charges related to the Recapitalization. The
increase of the SG&A expenses as a percentage of revenue was due to the
reduction in revenues from the discontinuation of the Premier Division and the
decline in revenues for ARS.
Amortization expense for fiscal 1996 was $18,042 (18.4% of revenue), as
compared to $9,073, (6.4% of revenue) for fiscal 1995. The increase was due to
the write-off in the fourth quarter of fiscal 1996 of $16,580 of goodwill
related to the acquisition of Micro-C Corporation, which was only partially
matched by the write-off in the third quarter of fiscal 1995 of goodwill related
to the acquisition of FRS, Inc. Management wrote off the goodwill related to the
Micro-C acquisition due to the deterioration of the pricing levels in the
integrated circuits market and their negative effects on Aurora's business
prospects going forward.
Net interest expense for fiscal 1996 was $6,221, (6.3% of revenue), as
compared to $5,522 (3.9% of revenue) for fiscal 1995. The interest expense for
1996 includes approximately $2,243 of charges related to the Recapitalization
which includes approximately $1,070 of previously capitalized finance charges,
$917 of interest, fees and expenses due to Aurora's previous lenders and $256
relating to the 9 1/4% Senior Subordinated Notes.
Other income (expense) for fiscal 1996 included writedowns and disposal of
property and equipment totaling $(1,369).
Provision for income taxes for fiscal 1996 was $3,306 (3.4% of revenue) as
compared to $1,320 (.9% of revenue) for fiscal 1995. This provision includes the
increase of the deferred income tax valuation allowance in the amount of $3,234
due to management's determination that the deferred tax asset will not be fully
realized. Management reached this conclusion as a result of the limitation in
the utilization of Aurora's net operating loss carryforwards caused by the
change of ownership pursuant to the Recapitalization.
Net loss applicable to common stockholders for fiscal 1996 was $31,753, as
compared to a net loss of $15,030 for fiscal 1995. The fiscal 1996 loss included
approximately $6,620 of charges incurred in the second quarter of fiscal 1996
due to the Recapitalization completed on March 29, 1996, $6,320 of reduced
operating income from the ARS when compared to 1995, dividends on preferred
stock of approximately $1,400, writedowns and disposal of property and equipment
totaling $1,369, and the write-off of goodwill from the Micro-C acquisition
totaling $16,580.
LIQUIDITY AND CAPITAL RESOURCES
Aurora's primary requirements for capital are directly related to its
levels of accounts receivable, inventories, additions to its property and
equipment, and required debt principal payments. Aurora's working capital was
$94 as of December 26, 1997, as compared to working capital deficit of $(3,113)
as of September 30, 1997. The working capital increase was the result of the
purchase of $2,500 of Series C Redeemable Convertible Preferred stock by WCAS on
October 2, 1997, the purchase of $2,000 of Series D Redeemable Convertible
Preferred Stock by WCAS on October 24, 1997, and a $2,800 loan from WCAS on
December 2, 1997.
WCAS provided Aurora with an additional $1,200 in debt financing in January
of 1998.
At June 30, 1996, and at various subsequent dates, AEG was not in
compliance with certain financial covenants under the Chase Credit Agreement. To
obtain waivers of noncompliance from the lenders, on September 30, 1996, Aurora,
AEG and WCAS entered into a Financial Support Agreement, pursuant to which, with
subsequent amendments, WCAS has guaranteed $16,292, the total borrowings
currently
38
<PAGE> 43
outstanding under the Chase Credit Agreement, and Aurora has granted WCAS
warrants to purchase 2,656 shares of Aurora Common Stock at prices ranging from
$1.025 to $2.09 per share. The Chase Credit Agreement has been amended to waive
all events of non-compliance with financial covenants, to eliminate future
financial covenants and to establish the maturity date for the facility as April
30, 1999. At present, no additional borrowings are available under the Chase
Credit Agreement.
As a result of the Merger, the current equity holders of Cerplex will be
entitled to receive in a tax-free exchange approximately 25% of the post-Merger,
fully-diluted Aurora Common Stock, after giving effect to the WCAS Financing.
After giving effect to the Merger and the WCAS Financing, WCAS will, in the
aggregate, beneficially own approximately 69.2% of the voting stock of Aurora on
an as-converted basis. Consequently, if none of the Public Stockholders elect to
participate in the Rights Offering, the Public Stockholders would own
approximately 3.8% of the fully-diluted Aurora Common Stock following the
Merger.
The Merger is conditioned upon, among other things, Aurora obtaining the
WCAS Financing. Unless the Merger is consummated and the WCAS Financing
obtained, management believes that Aurora will continue to experience operating
losses and negative cash flow in fiscal 1998 without having additional funds
available to it pursuant to the Chase Credit Agreement. WCAS has provided Aurora
financial support by loan guarantees, preferred stock purchases and direct
loans; however, there can be no assurance that such additional capital will
continue to be available to Aurora. Absent continued financial support of WCAS,
it is unlikely that Aurora can successfully implement its 1998 business plans
and strategies.
39
<PAGE> 44
SELECTED CERPLEX HISTORICAL FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected financial data regarding Cerplex's
results of operations and financial position. This information should be read in
conjunction with "-- Cerplex Management's Discussion and Analysis of Financial
Condition and Results of Operations" for the relative periods and Cerplex's
Consolidated Financial Statements and related notes thereto incorporated into
this Prospectus by reference.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net sales................................ $141,408 $191,493 $144,328 $ 94,006 $22,945
Gross profit............................. 20,533 26,245 16,511 17,039 4,678
Income (loss) from continuing operations
before extraordinary items............. (16,487) (27,388) (22,047) 1,195 (8,432)
Income (loss) from discontinued
operations............................. -- -- (17,347) 1,500 13,998
Net income (loss)........................ $(16,487) $(27,388) $(39,394) $ 684 $ 5,566
======== ======== ======== ======== =======
Basic and diluted net income (loss) per
share(4):
Continuing operations.................. $ (0.56) $ (2.24) $ (1.68) $ 0.09 $ 0.16
Discontinued operations(1)............. -- -- (1.33) 0.11 --
Extraordinary item(2).................. -- -- -- (0.15) --
-------- -------- -------- -------- -------
Basic and diluted net income (loss) per
share(3)............................ $ (0.56) $ (2.24) $ (3.01) $ 0.05 $ 0.16
======== ======== ======== ======== =======
Weighted average common shares used in
the calculation of income (loss) per
share(4)............................... 29,610 13,419 13,091 13,446 11,363
======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital (deficiency)............. $(47,308) $ 12,874 $ 33,219 $ 54,768 $17,774
Total assets............................. 59,238 105,494 101,893 120,707 70,544
Long-term obligations (less current
maturities)............................ 2,960 56,817 68,382 60,720 34,205
Preferred stock.......................... -- 7,197 -- -- 2
Stockholders' equity (deficiency)........ (32,537) (15,137) 168 39,485 12,470
</TABLE>
- ---------------
(1) In September 1995, Cerplex discontinued its end-of-life programs, a segment
of its business, through a liquidation of the remaining operations. Prior
period financial statements have been restated to reflect discontinuance of
this segment of the business. See Note 3 to Consolidated Financial
Statements.
(2) In May 1994, Cerplex extinguished early its Series B Subordinated Notes. As
a result, $3.5 million ($2.0 million net of tax) of the original issue
discount was recognized as an extraordinary item.
(3) For 1993, net income per share is presented on a pro forma basis to reflect
the provision for income taxes that would have been recorded had Cerplex's
predecessor affiliated corporations been taxed as C Corporations under the
Code.
(4) Effective December 31, 1997, Cerplex adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128"). All per
share data has been restated to reflect the adoption of SFAS No. 128.
40
<PAGE> 45
CERPLEX MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
This Prospectus may contain forward-looking statements which involve risks
and uncertainties. Cerplex's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in the section
"Risk Factors."
OVERVIEW
Cerplex is an independent provider of electronic parts repair, spare parts
sales and management, and logistics. Cerplex's net sales have fluctuated
substantially over the last few years, primarily as a result of acquisitions and
divestitures as well as Cerplex's ongoing liquidity problems. Cerplex is no
longer permitted under the terms of the Cerplex Senior Credit Facility to engage
in acquisitions. Cerplex's results of operations have been adversely affected
over the last three years due to a variety of factors discussed below.
During the second quarter of 1997, the Cerplex Board authorized and
committed management to implement a consolidation and cost reduction plan to
reduce North America staffing. As part of the restructuring, Cerplex closed
several facilities, and relocated these businesses to its remaining facilities.
During the first half of 1997, Cerplex sold PCS and the subsidiaries of
Cerplex's MODCOMP/Cerplex subsidiary. Also during 1997, Cerplex was in default
under the Cerplex Senior Credit Agreement resulting in numerous waivers and
amendments. On January 30, 1998, Aurora signed the Merger Agreement with
Cerplex. As a result of the Merger, Cerplex would become a wholly-owned
subsidiary of Aurora, and the current equity holders of Cerplex would be
entitled to receive in a tax-free exchange approximately 25% of the post-merger,
fully-diluted common stock of Aurora, after giving effect to the WCAS Financing.
Under the terms of the Merger Agreement, each share of Cerplex Common Stock
would convert into shares of Aurora Common Stock at the Exchange Ratio. The
Merger is subject to regulatory approvals and the satisfaction of certain other
conditions precedent, including securing the New Senior Loan. The Merger is
expected to be completed by the end of April 1998. Cerplex's results of
operations and liquidity for 1997 were not significantly impacted as a result of
severe financial difficulties of major customers and Cerplex is not aware of
significant financial difficulties being encountered by any of its current major
customers.
The results of operations for 1996 reflect, to a large degree, the
resolution of several matters that have been adversely impacting Cerplex.
Specifically, Cerplex closed its unprofitable Texas operations and reached a
settlement with the SpectraVision bankruptcy; it established reserves for the
impairment of assets, and incurred additional losses on common stock received in
settlement of various transactions; it closed its training business, resulting
in restructuring charges and asset write-downs; and, due to changes in Cerplex's
business or the business of third parties, Cerplex recorded charges for
inventory write-downs, uncollectable receivables and other assets.
During the third quarter of 1995, the Cerplex Board approved a liquidation
plan to discontinue its end-of-life programs, a segment of Cerplex, through
liquidation of these operations. In its end-of-life programs, Cerplex assumed
all responsibilities for the support and repair of products which are no longer
manufactured or are being phased out of manufacturing. Generally, when Cerplex
undertook an end-of-life program, it acquired substantially all of the unique
test equipment, repair equipment and inventories needed to support the program.
Services provided by Cerplex under end-of-life programs include repair,
provision of spare parts for a defined period of time, plant return and parts
reclamation, engineering and document control, warehousing, and vendor
certification and management. Cerplex no longer undertakes these programs. The
liquidation of end-of-life programs has been accounted for as discontinued
operations, and prior period financial statements have been restated to reflect
the discontinuance of this segment of the business.
41
<PAGE> 46
RESULTS OF OPERATIONS
Results of Continuing Operations
The following table sets forth items from Cerplex's Consolidated Statement
of Operations as a percentage of net sales.
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 85.4% 86.3% 88.6%
----- ----- -----
Gross profit................................................ 14.5% 13.7% 11.4%
Selling, general and administrative expenses................ 19.3% 20.6% 23.4%
Restructuring charges....................................... 3.0% 1.1% --
Operating income (loss)..................................... (7.8)% (8.0)% (12.0)%
</TABLE>
Net Sales
Net sales for the year ended December 31, 1997 decreased 26.2% to $141.4
million from $191.5 million in 1996. The decrease was due, in large part, to the
fact that Cerplex sold PCS in April 1997 and MODCOMP/Cerplex effective June 30,
1997. In addition, net sales of Cerplex's spare parts business decreased $14.1
million while its repair business decreased $15.6 million. Cerplex's liquidity
problems also contributed to the decreases in Cerplex's spare parts business and
repair business. Many of Cerplex's parts suppliers reduced the amount of credit
and/or refused to ship parts other than on a C.O.D. basis, thus hampering
Cerplex's ability to fill customer orders. These decreases were offset by an
increase of approximately $13.6 million from Cerplex's European operations.
Net sales for the year ended December 31, 1996 increased $47.2 million or
32.7% to $191.5 million from $144.3 million in 1995. The increase was due
primarily to the acquisitions of Cerplex SAS in June 1996 and the remaining 51%
interest in MODCOMP/Cerplex in April 1996, along with a full year of sales
generated by PCS which was acquired in June 1995. The approximately $60 million
year-to-year revenue increase from these acquisitions was partially offset by
approximately $10 million decrease in net sales from the sale, in early 1996 of
Cerplex's InCirT division, and from lower sales due to (i) the shutdown in
September 1996 of Cerplex's Texas contract manufacturing facility and Washington
computer training facility; (ii) reduced sales to BT; and (iii) decreased sales
in the North American spare parts business.
Net sales during 1995 increased $50.3 million or 53.5% to $144.3 million
from $94.0 million in 1994. The increase in net sales was due primarily to the
acquisition of a repair depot of BT and the acquisition of Apex in the second
half of 1994, the acquisition of PCS in June 1995 and, to a lesser extent,
increased sales from new customers using existing facilities.
Gross Profit
Gross profit for 1997, as a percentage of net sales increased to 14.5%
compared to 13.7% in 1996. The slight improvement is primarily the result of the
full year of operations of Cerplex SAS and the six months of operations from
MODCOMP/Cerplex at higher gross profit margins. The higher gross profit of each
of Cerplex SAS and MODCOMP/Cerplex was offset by low profit margins in Cerplex's
North America parts and repair business. Gross profit from North America
operations was negatively impacted by a $2.5 million inventory write-off at June
30, 1997. The June 30, 1997 inventory write-off was partially offset by a net
$1.8 million reversal of a valuation reserve in September 30, 1997 related to
trade credits. A $1.8 million valuation reserve has been recorded in 1996 and
another $1.0 million recorded in the second quarter of 1997. In addition, as a
result of Cerplex's liquidity problems Cerplex was forced to use alternative
sources for parts procurement resulting in a higher cost for materials.
Gross profit for 1996, as a percentage of net sales, increased to 13.7%,
compared with 11.4% for the prior year. The improvement in the gross profit
percentage is primarily attributable to the 1996 acquisitions of Cerplex SAS and
the remaining 51% interest in MODCOMP/Cerplex, together with a full year of
operations from the 1995 acquisition of PCS. This gross profit improvement,
however, was adversely affected by a variety
42
<PAGE> 47
of factors primarily relating to Cerplex's North American operations including
but not limited to the impact of unprofitable contracts or operations within
Cerplex's Texas contract manufacturing and Washington computer training
facilities which were closed during the third quarter and completion of certain
other unprofitable contracts which Cerplex was winding down. The effect of these
factors included approximately $2.5 million in inventory write-downs, and $4.9
million in charges related to the contract manufacturing operations in Texas,
computer training operations in Washington and telephones purchased from Lucent.
Gross profit as a percentage of net sales during 1995 decreased to 11.4%
from 18.1% in 1994. The decrease in gross profit percentage from 1994 was
primarily due to losses incurred on contracts Cerplex was renegotiating or
winding down, a reduction in new orders from SpectraVision which filed for
protection under Chapter 11 of the U.S. Bankruptcy Code in May 1995, and other
miscellaneous inventory adjustments.
Selling, General and Administrative
Selling, general and administrative expenses ("SG&A") decreased $12.8
million or 32.3% in 1997 compared to 1996. SG&A as a percentage of net sales
decreased to 19.3% compared to 20.6% in 1996. The decrease in spending is due to
the sale of PCS and MODCOMP/Cerplex in the first half of 1997 offset by the
inclusion of a full year of operations of Cerplex SAS. The slight improvement in
SG&A as a percentage of net sales is attributable to Cerplex's consolidation and
cost reduction plan which was initiated in June 1997 and which reduced North
America staffing by 44 employees in Cerplex's marketing, selling, finance and
management information systems functions.
During 1996, SG&A expenses increased by $5.7 million to $39.5 million,
while as a percentage of net sales decreased to 20.8% compared with 23.4% in
1995. The increase in dollar spending is primarily due to the addition of the
Cerplex SAS and MODCOMP/Cerplex acquisitions in 1996 and a full year of expenses
from PCS, which was acquired in 1995. Increased SG&A spending was partially
offset by a $2.5 million decrease in bad debt provision to $4.8 million in 1996
compared with $7.3 million in 1995.
SG&A expenses as a percentage of net sales in 1995 increased to 23.4% from
12.6% in 1994. SG&A expenses included a $9.8 million provision representing
losses on receivables from three customers, two of which were operating under
Chapter 11 of the U.S. Bankruptcy Code, and losses on an investment in a stock
purchase warrant. SG&A expenses were also up due to additional headcount, higher
insurance expenses, and increased sales commissions.
Restructuring Expenses
During 1997, Cerplex closed its Poughkeepsie, New York and Redmond,
Washington spare parts business and relocated them to Lawrence, Massachusetts
resulting in a reduction of 63 employees. Cerplex also closed the Tustin,
California operation and consolidated this operation with Cerplex's hub-based
operations in northern and southern California, Kentucky and Massachusetts.
Additionally, Cerplex had a reduction in force resulting in the termination of
73 employees in Cerplex's selling, marketing, production, finance and management
information systems departments. In conjunction with the closures and reduction
in force, Cerplex recorded a restructuring charge of $4.3 million. Of the $4.3
million in restructuring charges, approximately $0.8 million was related to
severance payments for terminated employees, approximately $2.0 million was due
to the write-off of leasehold improvements and approximately $1.5 million was
due to rent and settlements for terminated leases. During the remainder of 1997,
Cerplex paid approximately $1.0 million of severance and termination benefits
and lease payments on vacated facilities. The remaining balance of $1.2 million
at December 31, 1997 mainly consists of lease obligations for excess facilities
and remaining severance and termination benefits and is expected to be paid in
1998.
During the third quarter of 1996, Cerplex closed its contract manufacturing
operations in Texas and its computer training operations in Redmond, Washington.
In connection with the closure of these operations, Cerplex recorded
restructuring charges of $2.1 million. The restructuring charges related to
write-downs of property and equipment and other assets to net realizable value,
accruals for lease commitments, severance pay for approximately 180 employees,
and other costs needed to complete closure of the facilities.
43
<PAGE> 48
Other Income and Expenses
During 1997, Cerplex sold all of its shares of Pen Interconnect common
stock, resulting in a loss of $0.4 million which is reported as other expense.
In April 1996, Cerplex sold its contract manufacturing division, InCirT, in
Tustin, California to Pen Interconnect for $3.5 million in cash and restricted
common stock of Pen Interconnect, which was valued at approximately $2 million
at the time of the acquisition. The gain on the sale of InCirT was $0.5 million.
Later in fiscal 1996, Cerplex determined that the value of the restricted common
stock had been permanently impaired due to subsequent declines in market value
and, reduced the value of these investments to the fair market value at December
31, 1996. The related loss of $1.1 million on the impairment of these
investments was included in other expense.
Equity in earnings from joint venture decreased by $2.0 million to $0.4
million in 1996 compared with $2.4 million in 1995 primarily due to Cerplex
acquiring the remaining 51% in MODCOMP/Cerplex in April 1996 and consolidating
the results of the operations and financial condition after that date. These
earnings were attributed to Cerplex's 49% ownership in MODCOMP/Cerplex which was
formed in December 1994.
Interest Expense
Interest expense fluctuated very little in 1997 despite the reduction of
approximately $12.6 million in debt. The comparable interest expense, in light
of reduced borrowing, is attributable to a higher weighted average interest rate
and amortization of restructuring fees and the expense charge related to
issuance of warrants associated with the numerous waivers and amendments Cerplex
negotiated with its senior lenders. Additionally, effective August 19, 1997 the
interest rate on Cerplex's senior subordinated debt was raised from 9.5% to
15.0%. Average borrowings outstanding were $53.3 million during 1997 compared to
$63.6 million during 1996. The effective interest rate on the Cerplex Senior
Credit Agreement increased 16.3% in 1997 from 10.0% in 1996. Amortization of
loan fees and other related costs were approximately $2.4 million during 1997 as
compared to $2.3 million during 1996.
Interest expense for 1996 increased $3.2 million to $8.3 million from $5.1
million in 1995 as a result of increased average borrowings under the Cerplex
Senior Credit Facility, a higher weighted average interest rate and amortization
of loan discount and commitment fees. Average borrowings outstanding were $63.6
million during 1996 compared with $60.1 million during 1995. The effective
interest rate on credit facilities increased to 10.0% in 1996 from 8.5% in 1995.
Loan amortization costs were approximately $2.3 million during 1996.
Interest expense for 1995 increased to $5.1 million from $4.1 million in
1994. The increase in interest expense is attributed to higher weighted average
borrowings outstanding incurred to finance acquisitions, increased working
capital requirements and the capital contribution to MODCOMP/Cerplex. Average
borrowings outstanding were $60.1 million during 1995 compared with $37.6
million during 1994. Interest expense during 1994 included $0.5 million of
amortization of original issue discount related to Cerplex's Series B
Subordinated Notes which were repaid in May 1994. The effective interest rate on
long-term credit facilities decreased to 8.5% in 1995 from 9.8% in 1994.
Income Taxes
Total income tax expense for 1997, 1996, and 1995 was allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Loss from continuing operations............................ $2,648 $1,718 $2,089
Discontinued operations.................................... -- -- 42
------ ------ ------
$2,648 $1,718 $2,131
====== ====== ======
</TABLE>
44
<PAGE> 49
Income tax expense during 1997, 1996 and 1995 was related primarily to
income taxes on earnings of Cerplex's operations in Europe. The effective tax
rate differs from the statutory rate primarily as a result of the impact of not
recording an income benefit related to operating losses in the United States.
SFAS No. 109, "Accounting for Income Taxes," provides for the recognition of
deferred tax assets if realization of such assets is more likely than not.
Cerplex's valuation allowance reduces the deferred tax asset to the amount
realizable. Cerplex has provided a full valuation allowance against net federal
and state deferred tax assets due to uncertainties surrounding their
realization. Cerplex will evaluate the realizability of the deferred tax assets
on a quarterly basis.
Discontinued Operations
In September 1995, Cerplex decided to discontinue its end-of-life programs
segment through a liquidation of remaining operations. In connection with the
decision to discontinue its end-of-life programs, Cerplex provided $15.4 million
for the estimated loss from liquidation of these operations, primarily related
to the disposition of inventory, fixed assets and other related assets. The
liquidation of non-contract operations was completed during 1996 and the
remaining contractual obligations with a final customer was completed in 1997.
A summary of operating results for discontinued operations is shown below:
<TABLE>
<CAPTION>
1995
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Net Sales................................................... $ 19,815
========
Income (loss) from operations
Income (loss) before taxes................................ (1,924)
Provision for taxes....................................... 42
--------
Net loss from discontinued operations............. (1,966)
Estimated loss from liquidation of
Discontinued operations, no tax benefit recognized........ (15,381)
--------
Net loss from discontinued operations............. $(17,347)
========
</TABLE>
Year 2000 Compliance
Many existing software programs use only two digits to identify the year in
the date field. If such programs are not corrected, date data concerning the
Year 2000 could cause many computer applications to fail, lock-up or generate
erroneous results.
Cerplex has committed personnel and resources to resolve potential Year
2000 issues. Cerplex is in the process of identifying and assessing its
mission-critical systems related to the Year 2000. Although Cerplex plans to
address Year 2000 issues with respect to Cerplex's mission-critical internal
systems in sufficient time prior to the century rollover, there can be no
assurance that there will not be interruption of operations or other limitations
of system functionality, or that Cerplex will not incur substantial costs to
avoid such occurrences.
Cerplex is currently assessing the cost to remediate its Year 2000 issues.
Although the actual cost to remediate these issues is not yet fully known, based
upon information to date, it is not expected that the remediation will have a
material impact on Cerplex's financial condition or operating results.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS Nos. 130
and 131, "Reporting Comprehensive Income" ("SFAS 130") and "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), respectively
(collectively, the "Statements"). The Statements are effective for fiscal years
beginning after December 15, 1997. SFAS 130 establishes standards for reporting
of comprehensive income and its components in annual financial statements. SFAS
131 establishes standards for reporting financial and descriptive information
about an enterprise's operating segments in its annual financial
45
<PAGE> 50
statements and selected segment information in interim financial reports.
Reclassification or restatement of comparative financial statements or financial
information for earlier periods is required upon adoption of SFAS 130 and SFAS
131, respectively. Application of the Statements' requirements is not expected
to have a material impact on Cerplex's consolidated financial position, results
of operations or loss per share data as currently reported.
LIQUIDITY AND CAPITAL RESOURCES
Senior Credit Facility
Summary. The Cerplex Senior Credit Agreement contains a variety of
restrictions, including prohibitions on dividends and the incurrence of
additional debt. During portions of 1996 and 1997 Cerplex was in default of
various covenants in the Cerplex Senior Credit Agreement, which resulted in a
series of waivers and amendments over the course of the two years. As described
below, the amendments resulted in a decreased borrowing base from the initial
$60 million to $30 million and in significantly increased interest rates. The
amendments also resulted in the issuance of the Bank Warrants. As of January 30,
1998, $25,320,620 in principal was outstanding under the term loan at an
interest rate of prime plus 7.125% (15.625%) and $4,886,984 was outstanding
under the revolver at an interest rate of 19%. The loans under the Cerplex
Senior Credit Agreement become due and payable May 1, 1998.
Cerplex and Citibank entered into the Forbearance Agreement on January 30,
1998, which provides for the forbearance of certain defaults through the earlier
of April 30, 1998 or the date the Merger Agreement is terminated. In addition,
Citibank agreed to accept the Repayment Amount as full payment for the loans
under the Cerplex Senior Credit Facility and to terminate all of the Bank
Warrants if the Cerplex Senior Credit Facility is paid in full on or prior to
April 30, 1998 in connection with the Merger.
Terms of Amendments. In April 1997, the Cerplex Senior Credit Agreement was
amended to provide for borrowings comprising a revolver and a term loan. The
revolver had a maximum amount available of $6.0 million. The interest rate on
the revolver was the prime lending rate plus 2.25%. The term loan was for $38.9
million and carried an interest rate of prime lending rate plus 3.125%. In
addition, Cerplex must use to pay down the term loan 66.67% of all cumulative
cash flow in excess of $9.0 million during 1997, and generally 66.67% of all
proceeds from asset, stock investment and subsidiary sales, as well as 25% of
the proceeds of any equity offerings. Cerplex reduced the term loan and the
revolver by an aggregate of approximately $8.25 million on April 11, 1997 in
connection with the sale of PCS. The April 1997 amendment to the Cerplex Senior
Credit Agreement amendment included revised covenants for profitability, current
ratio, minimum tangible net worth, leverage and working capital.
In June 1997 and August 1997, the Cerplex Senior Credit Agreement was again
amended to reduce the maximum amount available under the term loan and the
revolver to $31.4 million and $4.9 million, respectively. The interest rate on
revolving loans was changed to the prime lending rate plus 2.00% for all non-
revolving loans outstanding on August 6, 1997 and 15% for all revolving loans
made thereafter. The interest rate on the term loan was increased to the prime
lending rate plus 3.125%. The interest rates under the term loan and revolver
were required to increase by 1% per month, effective September 1, 1997, for each
month in which such obligations were not paid in full, up to a maximum increase
of 4%. As a result, at December 31, 1997, the interest rate on each of the loans
had increased by an additional 4%. In addition, the mandatory pay down of the
term loans and/or the revolving loans with the proceeds of any equity offering
was reduced from 25% to 20%, although the first $1.5 million of any equity
offerings must be used to permanently reduce the term loan and/or the revolver.
Under the August 1997 amendment, approximately $6.1 million of the net proceeds
from the sale of MODCOMP/Cerplex were used to pay down the term loan, and $2.0
million of the proceeds were used to pay down the revolver. Cerplex reborrowed
$2.0 million of the proceeds from the sale of MODCOMP/Cerplex that were used to
pay down the revolver.
On January 30, 1998 the Cerplex Senior Credit Agreement was again amended
by the Seventh Amendment to Credit Agreement to add a minimum consolidated
adjusted EBITDA requirement, further restrict Cerplex's ability to pay dividends
on shares and make other junior payments and add as an event of default under
the Cerplex Senior Credit Agreement the parties' termination of the Merger
Agreement and the
46
<PAGE> 51
failure to take certain steps necessary to consummate the Merger by certain
deadlines prescribed by the Cerplex Senior Credit Agreement. In addition, under
the January 1998 amendment agreement Citibank agreed to waive compliance with
certain requirements of the Cerplex Senior Credit Agreement, including
permitting up to $10 million to be loaned by Aurora to Cerplex, permitting
execution of the Merger Agreement and consummation of the Merger and waiving
certain financial covenants for Cerplex's fiscal quarter ended December 31, 1997
and for the period from and including December 31, 1997 to and excluding April
30, 1998.
Subordinated Notes.
In November 1993, Cerplex sold $17.3 million in principal amount of its
Cerplex Subordinated Notes and $5.7 million in principal amount of its Series B
9.0% Senior Subordinated Notes with 920,000 detachable warrants to purchase
Cerplex Common Stock. The Series B 9.0% Senior Subordinated Notes were repaid
out of the proceeds of Cerplex's initial public offering in 1994. The detachable
warrants were issued at the option price of $.01 per share, resulting in an
original issue discount of $3.6 million on the Series B 9.0% Senior Subordinated
Notes. The Cerplex Subordinated Notes accrued interest at the rate of 9.5% per
annum, payable quarterly, with principal amount thereof payable in three
installments in November 1999, 2000 and 2001. Cerplex is subject to certain
financial and other covenants which include restrictions on the incurrence of
additional debt, payment of any dividends and certain other cash disbursements
as well as the maintenance of certain financial ratios.
During part of 1996, Cerplex was in default of various covenants under the
Subordinated Note Purchase Agreements, which resulted in an amendment in April
1996 and a subsequent amendment in November 1996. As consideration for the April
1996 amendment to the Subordinated Note Purchase Agreements, Cerplex was
required to provide the senior subordinated note holders 1,000,000 warrants to
purchase common stock at $6.00 per share. As compensation for the November 1996
amendment, Cerplex repriced the warrants issued in April 1996 from $6.00 per
share to $2.50 per share.
In 1997, Cerplex was again in default under the Subordinated Note Purchase
Agreements. In April 1997, the Subordinated Note Purchase Agreements were
amended and restated, revising certain covenants and making interest payable
semi-annually instead of quarterly. In consideration for the amendment, Cerplex
repriced the warrants issued in April 1996 to the April 4, 1997 market price of
$0.60 per share.
On June 30, 1997, Cerplex received waivers with respect to various
provisions of the Amended and Restated Subordinated Note Purchase Agreement. On
August 20, 1997, Cerplex completed negotiations with the subordinated note
holders to further amend the Amended and Restated Subordinated Note Purchase
Agreement resulting in the First Amendment Agreement to the Amended and Restated
Subordinated Note Purchase Agreement. The First Amendment Agreement increased
the interest rate to 15%. The interest payment of $819,375 that was due on
August 19, 1997 was added to the principal balance, which increased the
principal outstanding under the Amended and Restated Subordinated Note Purchase
Agreement to $18,069,375. Cerplex was also required to issue warrants for
500,096 of shares of Common Stock at $0.59 per share. The First Amendment
Agreement provides that beginning in March 1998 interest is payable monthly,
however, Cerplex may elect to add the portion of interest representing the
difference between 9.5% and 15% to the outstanding principal balance. In
addition, the covenants under the Amended and Restated Subordinated Note
Purchase Agreement as currently cast will be significantly more restrictive as
of June 1998. Therefore, Cerplex believes that it will be in default again under
such agreement at that time unless it is able to successfully renegotiate the
covenants. If Cerplex repays the balance outstanding under the Amended and
Restated Subordinated Note Purchase Agreement on or before August 19, 1998, the
portion of interest expense representing the difference between 9.5% and 15%
will be forgiven and the warrants for 500,096 shares will be canceled.
On January 30, 1998, WCAS VII and the holders of Cerplex Subordinated Notes
entered into the Note and Warrant Assignment and Transfer Agreement, pursuant to
which WCAS VII purchased the Cerplex Subordinated Notes and the Cerplex
Warrants, held by such holders. The Cerplex Subordinated Note holders retained
Cerplex Warrants to purchase an aggregate of 855,000 shares of Cerplex Common
Stock. WCAS VII agreed to defer the February 19, 1998 scheduled interest payment
and to add such amount to the outstanding
47
<PAGE> 52
principal balance of the Cerplex Subordinated Notes. WCAS VII agreed that the
Cerplex Warrants it acquired will be terminated and will not be considered
outstanding in determining the consideration to be received by the Cerplex
stockholders in the Merger. It is contemplated that WCAS will exchange the
Cerplex Subordinated Notes and the Cerplex Warrants it acquired for Aurora
Senior Subordinated Notes as partial payment for the WCAS Units to be purchased
by WCAS as part of the WCAS Financing at an exchange rate equal to the amount
paid by WCAS VII for such Cerplex securities. If the Merger is not consummated,
WCAS has granted Cerplex the Purchase Option for the Option Period to acquire
the Cerplex Subordinated Notes and the Cerplex Warrants from WCAS VII for an
amount equal to the purchase price paid by WCAS VII for such Cerplex securities.
Miscellaneous
Effective April 1, 1996, Cerplex sold its InCirT Division in Tustin,
California for $3.5 million in cash and restricted Cerplex Common Stock valued
at approximately $2.0 million at the time of the acquisition. Cerplex was
required to use $2.0 million of the proceeds from this sale to repay a portion
of the borrowings under the Cerplex Senior Credit Agreement.
In April 1996, Cerplex received a distribution from its earnings of
MODCOMP/Cerplex of $3.0 million, which was used to acquire the remaining 51% of
this partnership.
In May 1996, Cerplex acquired Rank Xerox Limited's subsidiary, Cerplex SAS,
for $6.1 million, including estimated taxes, registration fees, legal,
accounting, and other out-of-pocket expenses of $1.2 million. Under the terms of
the agreement, Cerplex has agreed to certain financial covenants over a
four-year period that limit the amount of dividends and payments in the nature
of corporate charges paid by Cerplex SAS to Cerplex; the maintenance of Cerplex
SAS' current ratio greater than one; and restrictions on guarantees with respect
to Cerplex and its subsidiaries (excluding Cerplex SAS). Accordingly, the cash
of Cerplex SAS of $14.6 million at December 31, 1997 is generally not available
to Cerplex for financing operations outside of Cerplex SAS.
In June 1996, Cerplex issued 8,000 shares of Series B Preferred Stock at
$1,000 per share in a private placement. As of December 31, 1997, all 8,000
shares of the Series B Preferred Stock had been converted into 22,887,823 shares
of Cerplex Common Stock.
On April 11, 1997, Cerplex sold PCS, for $14.5 million in cash and the
cancellation of $0.5 million of indebtedness. Of such amount, $8.3 million was
used to pay down bank debt, $0.5 million was placed into escrow, and
approximately $0.8 million was used to pay expenses associated with the
transaction.
On August 27, 1997, Cerplex sold MODCOMP/Cerplex for $8.5 million in cash.
Of such amount, approximately $6.1 million was used to pay down bank debt and
approximately $0.6 million was used to pay expenses associated with the
transaction. The loss on the sale of MODCOMP/Cerplex was $0.4 million.
Cerplex and its subsidiaries are required to pay BT L1.8 million in 1999
(or earlier if certain sales volumes are reached) in connection with the
purchase of BT's plant in Enfield, England.
Cerplex acquired inventory consisting of used telephones from Lucent. At
December 31, 1996, Cerplex had $5.9 million of inventory, production cost
commitments and assets related to the telephones acquired from Lucent. In June
1996, Cerplex executed the Lucent Note reflecting a portion of the amount
invoiced to Cerplex by Lucent. Lucent invoiced Cerplex for an additional $0.6
million. Due to the quality of the inventory and the lack of availability of
spare parts to effect repairs, Cerplex believes it had claims against Lucent. On
October 7, 1996, Cerplex filed a lawsuit against Lucent in the Orange County
Superior Court seeking to have the Lucent Note declared invalid. On November 6,
1996, Lucent filed a cross-complaint seeking payment of the Lucent Note,
alleging damages for breach of contract and seeking a constructive trust on any
proceeds from the sale of the telephones. In October 1997, Cerplex executed a
settlement agreement, which had been substantially completed in September 1997.
The agreement provided for the payment to Lucent of $150,000 in cash and Lucent
also received the trade credits that Cerplex had received when it transferred
the telephones to a third party. Cerplex also agreed to pay Lucent an additional
$350,000 by April 10, 1998 or, if earlier, upon receipt of any proceeds from the
future sale of phones or proceeds from any insurance claims related to the phone
remarketing program.
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<PAGE> 53
Cerplex's European operations are largely dependent on existing
relationships with Rank Xerox and BT. Cerplex's contract with Rank Xerox calls
for sequentially declining unit volumes over the next four years. In addition,
unit volumes from BT have been declining and are expected to continue to decline
due to, among other things, product technical evolution. The future success of
these European operations are dependent upon replacing these declining volumes
with new revenue from either these or new customers. There can be no assurance
that Cerplex will be able to replace these declining volumes with sales to
either these or new customers.
On January 30 and February 24, 1998, Aurora provided Cerplex with unsecured
loans in the amount of $2 million and $1.5 million, respectively, each of which
bears interest at the rate of 10% and becomes due and payable on June 30, 1998.
Cerplex used the funds for working capital purposes.
If the Merger is not consummated, Cerplex does not believe it will have the
capital resources necessary to fulfill its existing obligations to creditors or
to maintain its existing operations. Cerplex does not believe it will be able to
restructure its obligations under the Cerplex Senior Credit Agreement and
Cerplex Subordinated Notes on acceptable terms without a significant capital
infusion. If the Merger and the WCAS Financing do not occur as anticipated,
Cerplex and its operations will be materially and adversely affected. Cerplex
also believes it will need additional funds to maintain its existing operations
prior to the consummation of the Merger. Citibank has agreed to permit Cerplex
to borrow up to an aggregate additional $6.5 million from Aurora. However,
Aurora is not obligated under the terms of the Merger Agreement or the existing
Aurora Loan to advance any additional funds to Cerplex. No assurance can be
given that additional funds will be available from Aurora or that the Merger and
related WCAS Financing will occur as anticipated. These matters raise
substantial doubt about Cerplex's ability to continue as a going concern. See
Note 20 to Cerplex's Consolidated Financial Statements incorporated into this
Prospectus by reference. If Cerplex is unsuccessful in completing the Merger, it
is possible that Cerplex's secured creditors will foreclose upon all of the
assets of Cerplex and pursue the dissolution of Cerplex.
49
<PAGE> 54
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AURORA ELECTRONICS, INC. -- AS OF DECEMBER 28, 1997 (AURORA),
THE CERPLEX GROUP, INC. -- AS OF DECEMBER 31, 1997 (CERPLEX)
(IN THOUSANDS)
The following pro forma financial information has been adjusted to give
effect to the Merger, the WCAS Financing and the Rights Offering. The following
unaudited pro forma consolidated balance sheet and statement of operations
should be read in conjunction with the consolidated financial statements of
Aurora and Cerplex for the relevant periods and the related notes thereto
incorporated into this Prospectus by reference.
<TABLE>
<CAPTION>
ADJUSTMENTS
ADJUSTMENT ------------------- PRO FORMA
CERPLEX AURORA REFERENCE DEBIT CREDIT CONSOLIDATED
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 16,184 $ 2,571 (C)(D)(E)(F) $ 41,400 $ 33,530 $ 26,625
Accounts receivable...................... 9,710 4,393 14,103
Inventories.............................. 5,522 2,989 8,511
Other current assets..................... 3,877 409 4,286
----------------------------------------------------------------------
Total current assets............... 35,293 10,362 41,400 33,530 53,525
Net property and equipment................. 22,974 2,406 25,380
Goodwill................................... (G) 40,844 40,844
Other assets............................... 971 1,811 2,782
-------- -------- -------------------- -------- -------- ---------
Total assets....................... $ 59,238 $ 14,579 $ 82,244 $ 33,530 $ 122,531
======== ======== ==================== ======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........ $ 45,998 $ 952 (C)(D) $ 48,014 $ 2,256 $ 1,192
Notes payable............................ 338 338
Accounts payable......................... 8,892 5,741 14,633
Accrued and other current liabilities.... 26,675 2,873 29,548
Current portion of reserve for
discontinued operations................ 702 702
Income taxes payable..................... 698 698
-------- -------- -------------------- -------- -------- ---------
Total current liabilities.......... 82,601 10,268 45,758 2,256 47,111
Long-term portion reserve for discontinued
operations............................... 1,817 1,817
Long-term debt............................. 2,960 39,640 (B)(C)(E) 13,565 33,111 62,146
Long term obligations...................... 6,214 6,214
Redeemable convertible preferred stock..... 52,033 (A)(B)(C) 50,238 21,300 23,095
Stockholders' equity (deficit)
Common stock............................. 36 348 (A)(G) 36 2,040 2,388
Preferred stock..........................
Additional paid-in capital............... 59,718 62,438 (A)(B)(C)(D)(F)(G) 63,753 73,322 131,725
Treasury stock, at cost.................. (16,639) (16,639)
Accumulated deficit...................... (90,901) (135,326) (G) 90,901 (135,326)
Cumulative translation adjustment........ (1,390) (G) 1,390 --
-------- -------- -------------------- -------- -------- ---------
Total stockholders' deficiency..... (32,537) (89,179) 63,789 167,653 (17,852)
-------- -------- -------------------- -------- -------- ---------
Total liabilities and stockholders'
deficiency....................... $ 59,238 $ 14,579 $173,350 $222,063 $ 122,531
======== ======== ==================== ======== ======== =========
</TABLE>
50
<PAGE> 55
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
AURORA ELECTRONICS, INC. -- YEAR ENDED SEPTEMBER 30, 1997 (AURORA),
THE CERPLEX GROUP, INC. -- YEAR ENDED DECEMBER 31, 1997 (CERPLEX)
<TABLE>
<CAPTION>
CERPLEX ADJUSTED PRO FORMA PRO FORMA
CERPLEX ADJUSTMENTS CERPLEX AURORA ADJUSTMENTS CONSOLIDATED
-------- ----------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Revenues................... $141,408 $(21,976) $119,432 $ 64,892 $184,324
Cost of sales.................. 120,875 (15,751) 105,124 51,906 157,030
-------- -------- -------- -------- ------- --------
Gross profit................... 20,533 (6,225) 14,308 12,986 27,294
Operating Expenses
Selling, general and
administrative............ 27,269 (4,523) 22,746 23,466 46,212
Restructuring charges........ 4,307 4,307 4,307
Write off of intangibles..... 29,602 29,602
Amortization of
intangibles............... 4,442 7,760 12,202
-------- -------- -------- -------- ------- --------
Operating loss................. (11,043) (1,702) (12,745) (44,524) (7,760) (65,029)
Net gain on sale of
subsidiaries.............. 6,213 (6,213) --
Interest expense............. (8,223) (718) (7,505) (4,050) 6,776 (4,779)
Other income (expense)....... (786) 658 (128) (498) -- (626)
-------- -------- -------- -------- ------- --------
Loss before provision for
income taxes................. (13,839) (6,539) (20,378) (49,072) (984) (70,434)
Provision for income taxes..... 2,648 (157) 2,491 533 -- 3,024
-------- -------- -------- -------- ------- --------
Net loss....................... $(16,487) $ (6,382) $(22,869) $(49,605) (984) $(73,458)
======== ======== ======== ======== ======= ========
Dividends on preferred stock... (2,822) 1,331 (1,491)
-------- -------- -------- -------- ------- --------
Net loss to common
stockholders................. $(16,487) (6,382) $(22,869) $(52,427) $ 347 $(74,949)
======== ======== ======== ======== ======= ========
Basic net loss per common share
outstanding.................. $ (0.56) $ (0.77) $ (7.86) $ (1.53)
======== ======== ======== ========
Average common shares
outstanding.................. 29,610 29,610 6,675 49,112
======== ======== ======== ========
RATIO OF EARNINGS TO FIXED
CHARGES AND PREFERRED STOCK
DIVIDENDS
Ratio (* = less than 1:1)...... *
Coverage deficiency............ $ 70,434
</TABLE>
51
<PAGE> 56
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
AURORA ELECTRONICS, INC. -- THREE MONTHS ENDED DECEMBER 28, 1997 (AURORA), AND
THE CERPLEX GROUP, INC. -- THREE MONTHS ENDED DECEMBER 31, 1997 (CERPLEX)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
CERPLEX AURORA ADJUSTMENTS CONSOLIDATED
------- ------- ----------- ------------
<S> <C> <C> <C> <C>
Net Revenues...................................... $29,231 $ 8,324 $ $37,555
Cost of sales..................................... 25,079 7,049 32,128
------- ------- -------
Gross profit...................................... 4,152 1,275 5,427
Operating expenses
Selling, general and administrative............. 4,019 5,122 9,141
--
Amortization of intangibles..................... -- 25 1,940 1,965
------- ------- ------ -------
Operating income (loss)........................... 133 (3,872) (1,940) (5,679)
Interest expense................................ (2,342) (1,036) 2,176 (1,202)
Other income (expense).......................... (237) (94) (331)
------- ------- ------ -------
Loss before provision for income taxes............ (2,446) (5,002) 236 (7,212)
Provision for income taxes........................ 710 -- --
------- ------- ------ -------
Net loss.......................................... $(3,156) $(5,002) 236 $(7,212)
======= ======= ====== =======
Dividends on preferred stock...................... (812) 439 (373)
------- ------- ------ -------
Net loss to common stockholders................... $(3,156) $(5,814) 439 $(7,585)
======= ======= ====== =======
------- ------- ------ -------
Basic and diluted net loss per common share
outstanding..................................... $ (0.09) $ (0.85) $ (0.15)
======= ======= =======
Average common shares outstanding................. 36,333 6,848 49,112
======= ======= =======
</TABLE>
52
<PAGE> 57
AURORA ELECTRONICS, INC.
AND
THE CERPLEX GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AND UNIT FIGURES)
1. BASIS OF PRESENTATION
On January 30, 1998, Aurora, WCAS and Cerplex entered into definitive
agreements that provide for (i) the Merger of Cerplex into a newly-formed,
wholly-owned subsidiary of Aurora and (ii) financing from WCAS.
Under the terms of the agreements, WCAS has agreed:
(a) to convert all of its Old Aurora Preferred Stock into Aurora
Common Stock,
(b) to purchase up to 15,000 WCAS Units consisting of $1,000 principal
amount of Aurora Series A Senior Subordinated Notes and 12 shares of New
Aurora Preferred Stock for a purchase price of $2,200 per unit. A portion
of the purchase price for the units will be paid by (i) exchanging $2.8
million principal amount of Aurora's Senior Subordinated Demand Notes, (ii)
surrendering for cancellation approximately $18 million of Cerplex
Subordinated Notes and Cerplex Warrants, which have been purchased by WCAS
for approximately $5.8 million and valued at the WCAS purchase price for
the purposes of exchange and (iii) surrendering the Aurora Bridge Notes,
valued at the aggregate principal amount of such notes surrendered plus
accrued interest thereon, and
(c) to exchange approximately $10,000 of outstanding Old Aurora
Subordinated Notes plus accrued interest for 33,000 shares of New Aurora
Preferred Stock.
Existing Aurora stockholders will be offered the right to purchase units
consisting of the New Aurora Preferred Stock and Aurora Senior Subordinated
Notes on a pro rata basis with the WCAS purchase of the WCAS Units. From the
proceeds of the WCAS Financing and a new $17 million New Senior Loan,
approximately $30,000 of outstanding senior bank debt of Cerplex will be repaid.
Each share of Cerplex Common Stock will be exchanged for 1.076368 shares of
Aurora Common Stock, subject to adjustment as described herein, which will
result in Cerplex stockholders receiving Aurora Common Stock equal to 25% of the
equity interest in Aurora on a fully-diluted basis after the Merger. Cerplex
Stock Options and Cerplex Stock Purchase Rights would convert to Aurora stock
options or stock purchase warrants at the same exchange ratio.
The Merger is to be accounted for by the "purchase" method of accounting
for business combinations with Aurora as the purchaser of Cerplex. The pro forma
Combined Statement of Operations is based on the reports for the most recent
audited fiscal year for each company, September 30, 1997 for Aurora and December
31, 1997 for Cerplex. The pro forma Combined Balance Sheet is based on the
unaudited December 28, 1997 Balance Sheet of Aurora and the December 31, 1997
Balance Sheet of Cerplex both of which are incorporated into this Prospectus by
reference.
2. NON-RECURRING ITEMS ATTRIBUTABLE TO THE TRANSACTION
Certain adjustments will be recorded subsequent to the Merger to accrue for
specific and identifiable costs related to the Merger. These adjustments are
expected to include direct transaction expenses such as investment banking,
legal, accounting, financial printing and related fees, severance costs and
costs associated with consolidating redundant facilities and equipment, and
other costs. These costs are estimated to be approximately $4,035. Because the
transaction has not been completed, this amount is a preliminary estimate and is
subject to revision as more information becomes available. Adjustments for these
costs have been included in the accompanying unaudited pro forma combined
Balance Sheet. No adjustments have been included in the accompanying unaudited
pro forma combined Statement of Operations as they are non-recurring.
53
<PAGE> 58
AURORA ELECTRONICS, INC.
AND
THE CERPLEX GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
Aurora expects to achieve cost savings primarily through the consolidation
of certain data processing, facilities and administrative functions. The cost
savings are expected to be achieved in varying amounts over varying periods of
time. No adjustments have been reflected in the unaudited pro forma combined
condensed Statements of Operations for these anticipated cost savings.
3. PRO FORMA ADJUSTMENTS TO COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DEBIT CREDIT
------ ------
<S> <C> <C> <C>
(A) To record the conversion of Aurora Convertible Preferred
Stock and series B, C & D Preferred Stock to Common Stock.
Aurora Redeemable Convertible Preferred Stock............... 50,238
Common Stock................................................ 794
Additional paid-capital..................................... 49,444
(B) To record the exchange of Old Aurora Subordinated Notes for
33,000 shares of New Aurora Preferred Stock.
Long-term debt (senior subordinated debt-WCAS).............. 10,765
Long-term debt (unamortized discount and issue costs)....... 1,111
Aurora Redeemable Convertible Preferred Stock............... 3,300
Additional paid-in capital.................................. 6,354
(C) To record the purchase of 15,000 units of Aurora Series A
Senior Subordinated Notes and New Aurora Preferred Stock by
WCAS.
Cash........................................................ 24,400
Long-term debt (Cerplex subordinated debt).................. 18,069
Long-term debt (Subordinated Demand Note -- WCAS)........... 2,800
Aurora Redeemable Convertible Preferred Stock............... 18,000
Long-term debt (new senior subordinated debt-WCAS).......... 15,000
Additional paid-in capital.................................. 10,013
Long-term debt (unamortized discount-Cerplex)............... 2,256
(D) To record payment of Cerplex bank debt at 98.5% of face
value.
Current portion of long-term debt-Cerplex................... 29,945
Cash........................................................ 29,495
Additional paid-in capital.................................. 450
(E) To record the proceeds of the new revolving line of credit.
Cash........................................................ 17,000
Long-term debt (new revolving line of credit)............... 17,000
(F) To record estimated transaction costs and expenses.
Additional paid-in capital.................................. 4,035
Cash........................................................ 4,035
</TABLE>
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AURORA ELECTRONICS, INC.
AND
THE CERPLEX GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEBIT CREDIT
------ ------
<S> <C> <C> <C>
(G) To record exchange of Aurora common shares for Cerplex
common shares.
Goodwill.................................................... 40,844
Cerplex Common Stock........................................ 36
Cerplex paid-in capital..................................... 59,718
Cerplex accumulated deficit................................. 90,901
Common Stock................................................ 1,246
Additional paid-in capital.................................. 7,061
Cumulative translation adjustment........................... 1,390
</TABLE>
Goodwill resulting from the Merger has been determined as the excess of (i)
the fair value of the Aurora shares issued to Cerplex stockholders over (ii) the
net fair value of the assets less the liabilities of Cerplex. Management
believes that recent public trading prices of the Aurora and Cerplex common
shares do not reflect a reasonable fair value of the shares to be issued.
Management believes that a fair value is approximately 80% of the negotiated
conversion price of the New Aurora Preferred Stock. Based upon a $0.25 per share
conversion price for the New Aurora Preferred Stock, management believes the
fair value of the Aurora Common Stock to be issued to Cerplex shareholders is
$0.20 per share.
Based upon the historical operating losses of Aurora and Cerplex,
management expects to amortize the resulting goodwill over not more than five
years. Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (FAS
121), requires that the carrying value of long-lived assets be reviewed for
impairment whenever circumstances indicate that the carrying amount may not be
recoverable based upon estimates of undiscounted future cash flows. If this
review indicates that the asset value is not likely to be recoverable from these
cash flows, the carrying value will be reduced to fair value. It is possible
that a subsequent FAS 121 review may require a reduction of the carrying value
of the goodwill resulting from the purchase accounting method for the Merger.
4. PRO FORMA ADJUSTMENTS TO COMBINED STATEMENT OF OPERATIONS
There were no material inter-company transactions between Aurora and
Cerplex during the periods presented. No adjustments for costs related to the
Merger have been included in the unaudited pro forma combined statements of
operations as they result directly from the transaction and are not expected to
be included in the combined net income beyond the twelve months succeeding the
transaction.
(1) The separate Statement of Operations of Cerplex for the year ended
December 31, 1997 has been adjusted to eliminate the revenues; cost of
sales, selling, general and administrative expenses, and tax provision
and net gain on sale relating to two operating subsidiaries sold in
1997. Interest expense has been adjusted as though the entire proceeds
from the sales were applied as reduction of long-term debt as of the
beginning of the year.
(2) The Pro Forma Combined Statement of Operations has been adjusted only
for the estimated effect on interest expense and preferred dividends
resulting from the new debt and capital structure of the combined
companies and the proforma amortization of goodwill over its estimated
useful life.
(3) No adjustments have been made for certain non-recurring charges. During
the pro forma year, Cerplex incurred $4,307 of expenses to restructure
its North American operations. During the pro forma year, Aurora wrote
off $29,602 of goodwill related to a 1994 acquisition and $3,390 of
computer system and software development costs.
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<PAGE> 60
PRICE RANGE OF AURORA COMMON STOCK AND DIVIDENDS
COMPARATIVE MARKET PRICE DATA
Since December 15, 1997, Aurora Common Stock has been traded on the
Bulletin Board under the symbol "AURU"; prior to that date, it was traded on the
AMEX. The following table sets forth the range of high and low sales prices for
Aurora Common Stock for the periods from October 1, 1995 through December 12,
1997, as reported on AMEX, and thereafter as reported on the Bulletin Board. The
price quotations on AMEX reflect inter-dealer prices, without adjustment for
retail mark-up, mark-down, or commission, and may not necessarily represent
actual transactions.
Aurora
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30, 1998 HIGH LOW
------------------------------------ ----- -----
<S> <C> <C>
First quarter............................................... $1.25 $0.63
Second quarter (through February 20, 1998).................. 1.13 0.38
FISCAL YEAR ENDED SEPTEMBER 30, 1997 HIGH LOW
- ------------------------------------------------------------ ----- -----
First quarter............................................... $2.38 $1.50
Second quarter.............................................. 2.19 1.38
Third quarter............................................... 2.00 1.38
Fourth quarter.............................................. 2.13 0.75
FISCAL YEAR ENDED SEPTEMBER 30,1996 HIGH LOW
- ------------------------------------------------------------ ----- -----
First quarter............................................... $3.25 $1.75
Second quarter.............................................. 2.94 1.50
Third quarter............................................... 4.75 1.50
Fourth quarter.............................................. 3.38 1.94
</TABLE>
On January 30, 1998, the last trading day prior to the public announcement
of the Merger, the closing sale price per share of Aurora Common Stock as
reported by the Bulletin Board was $0.88. On February 20, 1998, there were 1,007
holders of record of Aurora Common Stock, and there were 6,847,583 shares of
Aurora Common Stock issued and outstanding.
Following the Merger, Aurora Common Stock will continue to be traded on the
Bulletin Board, and Aurora has agreed to use its best efforts to maintain the
listing of the Aurora Common Stock on the Bulletin Board for a minimum of three
years from the Effective Time.
Aurora has not paid any cash or stock dividends on Aurora Common Stock
since September 30, 1993. At present, Aurora's policy is to retain all earnings
for reinvestment into Aurora. Pursuant to the Chase Credit Agreement, AEG's
ability to pay dividends to Aurora is restricted, thus limiting Aurora's ability
to pay dividends to its stockholders. In addition, the terms of both the Old
Aurora Subordinated Notes and the Old Aurora Preferred Stock limit Aurora's
ability to pay dividends to its common stockholders. Any future determination to
pay dividends will be at the discretion of the Aurora Board and will be
dependent upon then existing conditions, including Aurora's financial condition,
results of operations, contractual restrictions, capital requirements, business
prospects and such other factors as the Aurora Board deems relevant. See
"Selected Financial Information -- Aurora Management's Discussion and Analysis
of Financial Condition and Results of Operation."
If the Merger is consummated, it is anticipated that Aurora will continue
its policy of not paying any cash dividends on Aurora Common Stock and retaining
all earnings for reinvestment in Aurora. Aurora expects that the New Senior Loan
will restrict Aurora's operating subsidiaries' ability to pay dividends to
Aurora and thus limit Aurora's ability to pay dividends to its common
stockholders. In addition, the terms of the Aurora Senior Subordinated Notes,
the Aurora Series A Senior Subordinated Notes and the New Aurora Preferred Stock
limit Aurora's ability to pay dividends to its common stockholders. Any future
determination to pay dividends will be at the discretion of the Aurora Board and
will be dependent upon then existing conditions, including Aurora's financial
condition, results of operations, contractual restrictions, capital
requirements, business prospects and such other factors as the Aurora Board
deems relevant.
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<PAGE> 61
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Aurora's capitalized stock currently consists of a total of 51,000,000
shares, including (i) 50,000,000 shares of Aurora Common Stock and (ii)
1,000,000 shares of Old Aurora Preferred Stock, of which 400,000 shares have
been designated Convertible Preferred Stock, 25,000 shares have been designated
Series B Convertible Preferred Stock, 25,000 shares have been designated Series
C Convertible Preferred Stock and 20,000 shares have been designated Series D
Convertible Preferred Stock. As of the Aurora Record Date, there were
outstanding [ ] shares of Aurora Common Stock and 470,000 shares of Old
Aurora Preferred Stock, options to purchase approximately [ ] shares of
Aurora Common Stock and warrants to purchase approximately 2.6 million shares of
Aurora Common Stock.
The Merger will require the issuance of approximately 41,600,000 shares of
Aurora Common Stock. In connection with the Merger, WCAS has agreed to convert
all of the issued and outstanding shares of Old Aurora Preferred Stock held by
it into approximately 27.2 million shares (as of February 20, 1998) of Aurora
Common Stock. In addition, at least 85.2 million shares of Aurora Common Stock
will be required to be reserved for issuance upon conversion of the New Aurora
Preferred Stock. The adoption by the stockholders of Aurora of the proposed
Aurora Charter Amendment would increase the number of shares of Aurora Common
Stock authorized for issuance from 50,000,000 shares to 300,000,000. After
giving effect to the filing of the proposed Certificate of Designations, 213,000
shares of Old Aurora Preferred Stock will be designated New Aurora Preferred
Stock.
AURORA COMMON STOCK
Holders of Aurora Common Stock have no preemptive rights to purchase or
subscribe for securities of Aurora, and the Aurora Common Stock is not
convertible into any other securities or subject to redemption by Aurora.
Subject to the rights of holders of New Aurora Preferred Stock (and, until
converted, Old Aurora Preferred Stock), who have a preference and priority over
the Aurora Common Stock, holders of Aurora Common Stock are entitled to
dividends in such amounts as may be declared by the Aurora Board from time to
time out of funds legally available for such payments and, in the event of a
liquidation, dissolution or winding up of Aurora to share ratably in any assets
of Aurora remaining after payment in full of all creditors and provision for any
liquidation preferences on any outstanding capital stock ranking senior to the
Aurora Common Stock.
The additional Aurora Common Stock to be authorized by adoption of the
proposed Aurora Charter Amendments would have rights identical to the currently
outstanding Aurora Common Stock.
American Stock Transfer & Trust Company serves as the registrar and
transfer agent for the Aurora Common Stock.
OLD AURORA PREFERRED STOCK
In connection with the Merger, WCAS has agreed to convert all of the issued
and outstanding shares of Old Aurora Preferred Stock held by it into shares of
Aurora Common Stock.
NEW AURORA PREFERRED STOCK
For a summary of the rights, preferences and powers of New Aurora Preferred
Stock, see "Description of the Units -- New Aurora Preferred Stock."
57
<PAGE> 62
FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain of the anticipated federal
income tax consequences to a Public Stockholder of the issuance, exercise or
lapse of the Rights and purchase and disposition of the Aurora Senior
Subordinated Notes and New Aurora Preferred Stock. The following discussion does
not consider federal income tax consequences of the Rights Offering to any
particular Public Stockholder, or federal income tax consequences of the Rights
Offering that may be relevant to particular classes of Public Stockholders, such
as banks, tax exempt organizations, insurance companies, dealers in securities,
foreign individuals and entities, and persons who will hold Aurora Senior
Subordinated Notes or New Aurora Preferred Stock as a position in a hedging
transaction, "straddle," or "conversion transaction" for tax purposes, or
persons deemed to sell Aurora Senior Subordinated Notes or New Aurora Preferred
Stock under the recently enacted constructive sales provisions of the Code. This
Tax Summary discusses the federal tax considerations applicable to initial
distributees of the Rights and to initial purchasers of the Aurora Senior
Subordinated Notes and New Aurora Preferred Stock who purchase upon exercise of
the Rights, and does not discuss the tax considerations applicable to subsequent
purchasers. This Tax Summary is not intended as tax advice and is based on
Aurora's understanding of federal income tax laws as currently interpreted. No
representation is made regarding the continuation of such laws or of such
interpretations, and no discussion is contained herein regarding the possible
effects of any applicable state, local or foreign tax laws, or taxes other than
federal income taxes.
EACH RIGHTS HOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH RIGHTS HOLDER OF THE ISSUANCE,
OWNERSHIP, LAPSE AND EXERCISE OF THE RIGHTS AND THE PURCHASE AND DISPOSITION OF
AURORA SENIOR SUBORDINATED NOTES AND NEW AURORA PREFERRED STOCK UNDER THE UNITED
STATES FEDERAL INCOME TAX LAWS AND ANY APPLICABLE STATE, LOCAL AND FOREIGN LAWS
AND APPLICABLE TREATIES.
RIGHTS ISSUANCE
Section 305(a) of the Code generally provides that gross income does not
include the amount of any distribution by a corporation to its stockholders of
stock or rights to acquire stock of that corporation. Sections 305(b) and (c) of
the Code and Treasury regulations thereunder set forth several exceptions to the
general rule of Section 305(a). If one of the exceptions were to apply to the
Rights issuance, (a) the value of the Rights would be treated as a dividend
(ordinary income) to the extent of Aurora's accumulated or current earnings and
profits, if any, and (b) any value of the Rights in excess of the earnings and
profits would be treated first as a tax free return of capital to the extent of
a holder's tax basis and then a gain from a sale or exchange of the stock.
Generally, the exceptions apply to distributions which are designed to have the
effect of distributing cash or property other than Aurora Common Stock to some
stockholders while increasing other stockholders' ownership of a company's
common equity. Because the distributions of Rights is being made to all Public
Stockholders and no holder of the Aurora Common Stock will receive a
distribution of money or property in lieu of receiving Rights or in exchange for
not exercising the Rights, it is unlikely that the distribution of Rights could
have such an effect. Accordingly, this discussion assumes that the general rule
of Section 305(a) applies to the distribution of Rights to the Public
Stockholders. It is noted that the applicable Treasury regulations provide that
a distribution of preferred stock convertible into Aurora Common Stock (or of
rights to acquire such preferred stock) is likely to result in a distribution
described in the exceptions to Section 305, if (i) the conversion rights must be
exercised within a short period of time and (ii) the terms (such as dividend
rate and marketability of the preferred stock) are such that it may be
anticipated that some stockholders exercise their conversion rights and others
will not. The regulations further provide that where the conversion right may be
exercised over a period of many years and the dividend rate is consistent with
market conditions at the time of distribution of the stock, there is no basis
for predicting at what time and the extent to which the stock is to be converted
and it is unlikely that a disproportionate distribution will result. Inasmuch as
(i) the conversion right may be exercised throughout the period the New Aurora
Preferred Stock is outstanding and (ii) the New Aurora Preferred Stock carries a
significant dividend, this regulatory provision
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<PAGE> 63
should not cause the distribution of the Rights to be deemed an exception to the
general rule of Section 305(a).
RIGHTS' TAX BASIS
Under Section 307 of the Code, the tax basis of the Rights in the hands of
a Public Stockholder to whom the Rights were issued will be zero and the tax
basis of the Aurora Common Stock held by such Public Stockholder with respect to
which the Rights were issued (the "Old Stock") will be unchanged unless the
Rights are exercised or sold. If the Rights are exercised their tax basis in the
hands of a Public Stockholder will be determined by allocating the tax basis of
the Old Stock and the Rights in proportion to their relative fair market values
on the date of distribution. However, if the fair market value of the Rights on
the date of distribution is less than 15% of the fair market value of the Old
Stock, the fair market value of the Rights will be deemed (and the tax basis of
the Rights will be) zero and the tax basis of the Old Stock will be unchanged
unless a Public Stockholder makes an irrevocable election to compute the basis
of all Rights received in the manner described in the preceding sentence. This
election is made by attaching a statement to such Public Stockholder's federal
income tax return filed for the taxable year in which the Rights are received by
a Public Stockholder in accordance with applicable Treasury Regulations. Aurora
has not obtained an independent appraisal of the valuation of the Old Stock or
the Rights and, therefore, each Public Stockholder individually must determine
how the rules of Section 307 of the Code will apply in that Public Stockholder's
particular situation. For federal income tax purposes, the fair market value of
property is the price at which the property would change hands between a willing
buyer and a willing seller, where neither party was under a compulsion to buy or
sell and both had reasonable knowledge of all the relevant facts.
EXERCISE OF RIGHTS
The Aurora Senior Subordinated Notes and New Aurora Preferred Stock
received upon the exercise of Rights will constitute an "investment unit." The
tax basis of the investment unit will be equal to the sum of (i) the basis, if
any, of the Rights exercised and (ii) the amount paid upon exercise of the
Rights. The basis of the investment unit must be allocated between the Aurora
Senior Subordinated Notes and New Aurora Preferred Stock in proportion to their
fair market values. The agreements between Aurora and WCAS allocate their $2,200
per WCAS Unit purchase price $1,000 to the $1,000 principal amount of Aurora
Series A Senior Subordinated Notes and $1,200 to the 12 shares of New Aurora
Preferred Stock. Although this allocation was arrived as part of the overall
negotiations between Aurora and WCAS it is not binding on the Internal Revenue
Service. The holding period of the Aurora Senior Subordinated Notes and New
Aurora Preferred Stock will commence upon the exercise of the Rights by the
holder thereof.
EXPIRATION OF THE RIGHTS
Public Stockholders who allow the Rights received by them on the date of
distribution to expire unexercised will not recognize any gain or loss, and no
adjustment will be made to the basis of their Aurora Common Stock.
AURORA SENIOR SUBORDINATED NOTES
Basis and Holding Period
The initial basis of each Aurora Senior Subordinated Note acquired upon the
exercise of the Rights will equal its pro rata (based on the relative values of
the Aurora Senior Subordinated Notes and New Aurora Preferred Stock) portion of
the sum of the Subscription Price and the basis, if any, in the Rights
exercised. The holding period for such Aurora Senior Subordinated Notes will
begin on the date the Rights are exercised.
Interest Payments
Interest on an Aurora Senior Subordinated Note generally will be includable
in the income of a holder as ordinary income at the time such interest is
received or accrued, in accordance with such holder's regular
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<PAGE> 64
method of accounting for United States federal income tax purposes. Aurora
intends to take the position that the Aurora Senior Subordinated Notes do not
have original issue discount.
Sale, Exchange or Redemption of an Aurora Senior Subordinated Note
Upon the sale, exchange or redemption of an Aurora Senior Subordinated
Note, a holder generally will recognize gain or loss equal to the difference
between (i) the amount of cash proceeds and the fair market value of any
property received on the sale, exchange or redemption (except to the extent such
amount is attributable to accrued interest income not previously included in
income, which is taxable as ordinary income) and (ii) such holder's adjusted tax
basis in the Aurora Senior Subordinated Note. A holder's adjusted tax basis in
an Aurora Senior Subordinated Note generally will equal the holder's initial
basis determined as set forth above, less any principal payments received by
such holder. Assuming the Aurora Senior Subordinated Note was held as a capital
asset, the resulting gain or loss will be a capital gain or loss. For certain
non-corporate taxpayers (including individuals), the rate of taxation of capital
gains will depend upon (i) the taxpayer's holding period in the capital asset
(with preferential rates available for capital assets held for more than 12
months or 18 months) and (ii) the taxpayer's marginal tax rate for ordinary
income. The deductibility of capital losses is subject to limitations. Holders
are urged to consult their own tax advisors with respect to the rate of taxation
of capital gains and the ability to deduct capital losses.
NEW AURORA PREFERRED STOCK
Basis and Holding Period
The basis of each share of New Aurora Preferred Stock acquired upon
exercise of Rights will equal its pro rata (based on the relative values of the
Aurora Senior Subordinated Notes and New Aurora Preferred Stock) portion of the
sum of the Subscription Price and the basis, if any, in the Rights exercised.
The holding period for such New Aurora Preferred Stock will begin on the date
the Rights are exercised.
Dividend Payments
A holder of New Aurora Preferred Stock who receives a distribution thereon
will be treated as having received, on the dividend payment date, a dividend
taxable as ordinary income to the extent of Aurora's current and accumulated
earnings and profits in the year in which such distribution is made. Corporate
holders will generally be eligible for the dividends received deduction as set
forth in Section 243 of the Code. The amount of any distribution described above
will be the amount of cash plus the fair market value of any property received.
To the extent that the amount of any distribution exceeds Aurora's allocable
current and accumulated earnings and profits, such excess will first be applied
against and reduce the recipient's adjusted tax basis in the shares with respect
to which such distribution is made and second, to the extent that such excess is
greater than the recipient's adjusted tax basis, will be treated as capital gain
(assuming the shares with respect to which such distribution is made are held as
a capital asset).
Corporate holders of New Aurora Preferred Stock otherwise entitled to the
dividends received deduction should consider the minimum holding period
requirements of Section 246(c) of the Code, the "debt-financed portfolio stock"
rules of Section 246A of the Code, and the "extraordinary dividend" provisions
of Section 1059 of the Code, the effects of which are to reduce or eliminate the
benefit of the dividends received deduction with respect to New Aurora Preferred
Stock subject to such rules. Corporate holders of New Aurora Preferred Stock
should also consider whether any dividends received deduction allowed for
dividends received on New Aurora Preferred Stock may either cause or increase
the holder's liability for the alternative minimum tax.
Sale or Exchange of New Aurora Preferred Stock
Upon the sale or taxable exchange of New Aurora Preferred Stock, the holder
will recognize gain or loss equal to the difference between the amount realized
and the holder's adjusted tax basis in the New Aurora Preferred Stock. Assuming
the shares are held as a capital asset, the resulting gain or loss will be a
capital gain or loss. For certain non-corporate taxpayers (including
individuals), the rate of taxation of capital gains will
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<PAGE> 65
depend upon (i) the taxpayer's holding period in the capital asset (with
preferential rates available for capital assets held for more than 12 months or
18 months) and (ii) the taxpayer's marginal tax rate for ordinary income. The
deductibility of capital losses is subject to limitations. Holders are urged to
consult their own tax advisors with respect to the rate of taxation of capital
gains and the ability to deduct capital losses.
Redemption of New Aurora Preferred Stock
A redemption of New Aurora Preferred Stock for cash will be a taxable
event. Generally, any redemption of the New Aurora Preferred Stock would result
in taxable gain or loss equal to the difference between the amount of cash
received (except to the extent of accumulated dividends on the New Aurora
Preferred Stock) and the holder's tax basis in the New Aurora Preferred Stock
redeemed if the redemption (a) results in a "complete redemption" of the
holder's stock interest in Aurora under Section 302(b)(3) of the Code, (b) is
"substantially disproportionate" with respect to the holder under Section
302(b)(2) of the Code, or (c) is "not essentially equivalent to a dividend" with
respect to the holder under Section 302(b)(4) of the Code. A redemption is
substantially disproportionate only if it reduces the redeemed holder's voting
percentage and ownership of Aurora voting stock by at least 20%. Whether a
redemption is not essentially equivalent to a dividend is more subjective, but
it does require some reduction in the holder's percentage interest of Aurora. In
determining whether any of these tests have been met, shares considered to be
owned by the holder by reason of the constructive ownership rules set forth in
Section 318(a) of the Code (pursuant to which a holder will be deemed to own
shares owned by certain related individuals and entities and shares that may be
acquired upon the exercise of an option, unless such constructive ownership can
be (and is) waived under Section 302(c) of the Code), as well as the shares
actually owned, would generally be taken into account. Such gain or loss would
be a capital gain or loss if the shares with respect to which such distribution
is made are held as a capital asset.
If the redemption does not satisfy any of the tests under Section 302(b) of
the Code, then the gross proceeds will be treated under Section 301 of the Code
as a distribution taxable as a dividend to the extent of Aurora's current and
accumulated earnings and profits (see "-- Dividend Payments" above), and any
excess will be treated first as a non-taxable return of capital and then as a
gain upon a sale or exchange of the New Aurora Preferred Stock, which gain will
be capital gain if the shares are held as a capital asset. A holder who is taxed
upon the proceeds of redemption as a dividend would transfer its tax basis in
the New Aurora Preferred Stock (reduced for any amounts treated as the non-taxed
portion of extraordinary dividends or as a return of capital) to the holder's
remaining stock interest in Aurora. If the holder does not retain any stock
interest in Aurora, the holder may lose such basis entirely. Any capital gain
recognized upon a redemption of New Aurora Preferred Stock will be taxed at
rates applicable to capital gains. For certain non-corporate taxpayers
(including individuals), the rate of taxation of capital gains will depend upon
(i) the taxpayer's holding period in the capital asset (with preferential rates
available for capital assets held for more than 12 months or 18 months) and (ii)
the taxpayer's marginal tax rate for ordinary income. The deductibility of
capital losses is subject to limitations. Holders are urged to consult their own
tax advisors with respect to the rate of taxation of capital gains and the
ability to deduct capital losses.
Redemption Premium
Under Section 305 of the Code and applicable Treasury regulations, if the
redemption price of the New Aurora Preferred Stock exceeds its issue price, such
excess may constitute a redemption premium which is deemed to be a taxable
distribution to the holder on an economic accrual basis over the period during
which the New Aurora Preferred Stock cannot be redeemed. Such distribution would
be treated as a dividend to the extent of Aurora's current and accumulated
earnings and profits, with any remaining distribution treated first as a
non-taxable return of capital and then as gain arising from a sale or exchange.
A determination by Aurora as to whether there is a redemption premium deemed to
be a taxable distribution will be binding on a holder, unless the holder
explicitly discloses to the IRS that its determination and treatment of
redemption premium differs from that of Aurora.
This rule requiring current inclusion of any redemption premium does not
apply if the redemption premium is less than one quarter of one percent
multiplied by the redemption price multiplied by the number
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of years until the likely redemption date. The issue price of the New Aurora
Preferred Stock would be the basis allocated to it upon exercise of the Rights.
Its redemption price is $100 per share. Accordingly, as long as the basis
allocated to the preferred stock is at least $98.13 a share, the redemption
premium would, subject to the possibility (discussed in the following paragraph)
that accrued but unpaid dividends would be treated as redemption premium, be de
minimis and its current inclusion in income would not be required.
The legislative history to 1990 amendments to Section 305 of the Code
states that the IRS may provide that disguised redemption premium exists where
cumulative preferred stock is issued without a discount but at the time of
issuance there is no intention for the dividends to be paid currently. The
preamble to the 1995 Treasury regulations implementing the 1990 amendments
states that, because of the complexity of the issue, the regulations do not
provide rules for such unpaid cumulative dividends, but that the IRS and
Treasury will continue to consider the issue. If dividends are not paid
currently on the New Aurora Preferred Stock, it is possible that the IRS would
attempt to treat the unpaid dividends as redemption premium; however, in the
absence of additional pronouncements from the IRS or Treasury, such a position
seems unlikely.
Conversion to Aurora Common Stock
No gain or loss will be recognized for federal income tax purposes upon the
conversion of the New Aurora Preferred Stock into Aurora Common Stock, except
with respect to any cash received in exchange for a fractional interest. The tax
basis for the Aurora Common Stock received upon conversion will be equal to the
tax basis of the New Aurora Preferred Stock reduced by the portion of such basis
allocable to any fractional interest exchanged for cash. Provided that the New
Aurora Preferred Stock was held as capital assets, the holding period of the
shares of Aurora Common Stock will include the holding period of the New Aurora
Preferred Stock converted. Income realized upon the receipt of cash paid in lieu
of fractional shares of Aurora Common Stock will be taxed immediately to the
holder of such fractional shares.
Adjustment to Conversion Price
Section 305 of the Code renders taxable certain actual or constructive
distributions of stock with respect to stock and convertible securities.
Regulations promulgated under Section 305 provide that an adjustment in the
conversion price of convertible preferred stock made pursuant to a bona fide,
reasonable formula which has the effect of preventing dilution of the interest
of the holders of such stock will not be considered to result in a taxable
dividend under Section 301 of the Code. Any adjustment in the conversion price
of the New Aurora Preferred Stock to reflect taxable distributions on the Aurora
Common Stock would be treated as a constructive distribution of stock to the
holders of New Aurora Preferred Stock and would be taxable as a dividend to the
extent of current or accumulated earnings and profits of Aurora. The amount of
the dividend to a holder of New Aurora Preferred Stock resulting from such an
adjustment would be measured by the fair market value of the additional Aurora
Common Stock (or fraction thereof) that would be obtainable as a result of
adjustment of the conversion price. There can be no assurance and none is hereby
given that an adjustment to the conversion price of the New Aurora Preferred
Stock will not result in a taxable dividend under Section 301.
GENERAL INFORMATION REPORTING AND BACKUP WITHHOLDING
In general, information reporting requirements will apply to payments of
interest, principal and sale proceeds on an Aurora Senior Subordinated Note and
to payments of dividends and sale or redemption proceeds on New Aurora Preferred
Stock and a 31% backup withholding tax may apply to such payments, if (a) the
payee fails to furnish a taxpayer identification number ("TIN") to the payor or
fails to certify under the penalty of perjury that such TIN is correct, (b) the
IRS notifies the payor that the TIN furnished by the payee is incorrect, (c)
there has been a notified payee under reporting with respect to interest,
dividends or original issue discount described in Section 3406(c) of the Code,
or (d) there has been a failure of the payee to certify under the penalty of
perjury that the payee is not subject to withholding under Section 3406(a)(1)(C)
of the Code. If any one of such events occurs with respect to a holder, the
payor will be required to withhold a tax equal to 31% from any such payment
unless an exemption applies under applicable law and is established in a manner
acceptable to the payor. Information Reports will be made annually or
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<PAGE> 67
otherwise as may be required to the IRS and to the holders of record that are
not excepted from such reporting requirements with respect to such payments.
Such reporting will be made on IRS Form 1099 or on such other form as may be
prescribed under the rules issued by the IRS.
LEGAL MATTERS
The validity of the Aurora Senior Subordinated Notes, New Aurora Preferred
Stock and underlying Aurora Common Stock offered hereby will be passed upon for
Aurora by Hughes & Luce.
EXPERTS
The consolidated financial statements of Aurora as of September 30, 1997
and 1996, and for the years ended September 30, 1997, 1996 and 1995,
incorporated by reference into this Prospectus and Registration Statement, have
been audited by Arthur Anderson LLP, independent public accountants, as
indicated in their report with respect thereto, and in reliance upon the
authority of said firm as experts in accounting and auditing in giving such
reports.
The consolidated financial statements and schedules of Cerplex as of
December 31, 1997 and 1996, and for each of the years in the three-year period
ended December 31, 1997, have been incorporated by reference into this
Prospectus and Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, also incorporated by
reference into this Prospectus and Registration Statement, and upon the
authority of said firm as experts in accounting and auditing. The report of KPMG
Peat Marwick LLP covering the December 31, 1997 financial statements contains an
explanatory paragraph that states that Cerplex has suffered recurring losses
from operations, has net stockholders' and working capital deficiencies and does
not have the necessary funds to pay its secured and unsecured debt obligations
which raise substantial doubt about Cerplex's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of that uncertainty.
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<PAGE> 68
INDEMNIFICATION OF DIRECTORS AND OFFICERS --
DISCLOSURE OF COMMISSION'S POSITION ON INDEMNIFICATION
Under the provisions of the Aurora Charter, any person made a party to any
lawsuit by reason of being a director or officer of Aurora, or any parent or
subsidiary thereof, may be indemnified by Aurora to the full extent authorized
by the DGCL.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Aurora pursuant
to the foregoing provisions, Aurora has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AURORA.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF AURORA SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
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GLOSSARY OF TERMS
The following is a glossary of defined terms used in this Prospectus.
Wherever the context may require, the singular form of each defined term
includes the plural and vice versa.
Acquisition Transaction.... Any merger, consolidation or other business
combination involving Cerplex or any of its
subsidiaries or the acquisition of all or any
significant assets or capital stock of Cerplex or
any of its subsidiaries taken as a whole.
Additional Conversion
Amount..................... Has the meaning given such term in "Description of
the Units -- New Aurora Preferred
Stock -- Conversion."
Additional Subscription
Privilege................ The right to subscribe for and purchase at the
Subscription Price Units that are not otherwise
purchased by Public Stockholders pursuant to the
exercise of the Basic Subscription Privilege. The
Additional Subscription Privilege may only be
exercised by a holder of Rights who exercises in
full such holder's Basic Subscription Privilege.
AEG........................ Aurora Electronics Group, Inc., a California
corporation and wholly-owned subsidiary of Aurora.
Amended and Restated Note
Purchase Agreement....... That certain amendment to the Cerplex Subordinated
Note Purchase Agreement dated as of April 9, 1997,
which amended and restated the Subordinated Note
Purchase Agreements.
AMEX....................... The American Stock Exchange.
Apex....................... Apex Computer Company, a Washington corporation and
subsidiary of Cerplex.
ARS........................ Aurora's Asset Recovery Services division.
Aurora..................... Aurora Electronics, Inc., a Delaware corporation.
Aurora Asset Sale.......... Has the meaning given such term in "Description of
the Units -- Aurora Senior Subordinated
Notes -- Mandatory Prepayment."
Aurora Board............... The Board of Directors of Aurora.
Aurora Bridge Notes........ The 10% Senior Subordinated Bridge Note or Notes
outstanding from time to time issued to WCAS
pursuant to the Purchase and Exchange Agreement.
Aurora Bylaws.............. The Amended and Restated Bylaws of Aurora, as
amended.
Aurora Charter............. The Amended and Restated Certificate of
Incorporation of Aurora.
Aurora Charter
Amendments................. The following two proposed amendments to the Aurora
Charter: (1) to increase the number of authorized
shares of Aurora Common Stock from 50,000,000 to
300,000,000 and (2) to change the name of Aurora to
"The Cerplex Group, Inc."
Aurora Common Stock........ Common Stock of Aurora, $.03 par value per share.
Aurora Loans............... The loans made by Aurora to Cerplex pursuant to the
Cerplex Note Purchase Agreements.
Aurora Record Date......... March 20, 1998.
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<PAGE> 70
Aurora Senior Subordinated
Notes.................... Aurora's 10% Series B Senior Subordinated Notes Due
December 31, 2004.
Aurora Stock Options....... Stock options granted pursuant to all stock option
plans of Aurora.
Aurora Series A Senior
Subordinated Notes....... Aurora's 10% Series A Senior Subordinated Notes Due
December 31, 2004.
Available Cash Proceeds.... Has the meaning given such term in "Description of
the Units -- Aurora Senior Subordinated
Notes -- Mandatory Redemption."
Bank Warrants.............. Warrant held by Citibank to purchase an aggregate
2,137,188 shares of Cerplex Common Stock.
Basic Subscription
Privilege.................. The right to subscribe for and purchase one Unit at
the Subscription Price for every 189 shares of
Aurora Common Stock owned by a Public Stockholder
as of the Aurora Record Date.
BT......................... British Telecom.
Bulletin Board............. The NASDAQ Over-The-Counter Bulletin Board.
Cerplex.................... The Cerplex Group, Inc., a Delaware corporation.
Cerplex Board.............. The Board of Directors of Cerplex.
Cerplex Common Stock....... Common Stock of Cerplex, par value $.001 per share.
Cerplex Note Purchase
Agreements............... The Cerplex Note Purchase Agreements dated as of
January 30, 1998, February 24, 1998, and ,
1998 between Cerplex and Aurora.
Cerplex Preferred Stock.... Preferred Stock of Cerplex, par value $.001 per
share.
Cerplex SAS................ Cerplex S.A.S., a French societe par actions
simplifee and subsidiary of Cerplex.
Cerplex Senior Credit
Agreement................ That certain Credit Agreement among Cerplex, Wells
Fargo and the Lenders listed therein, the rights of
Lenders and Wells Fargo under which have all been
assumed by or assigned to Citibank.
Cerplex Senior Credit
Facility................... The credit facility provided pursuant to the
Cerplex Senior Credit Agreement.
Cerplex Subordinated
Notes...................... The senior subordinated notes issued by Cerplex
pursuant to the Subordinated Note Purchase
Agreements, as amended.
Cerplex Warrants........... Cerplex warrants to purchase an aggregate of
1,500,096 shares of Cerplex Common Stock, which
warrants were purchased by Aurora pursuant to the
Note and Warrant Assignment and Transfer Agreement.
Certificate of
Designations............... The certificate of designation to be filed by
Aurora, which sets forth the rights and preferences
of New Aurora Preferred Stock.
Chase...................... The Chase Manhattan Bank, N.A.
Chase Credit Agreement..... That certain Credit Agreement dated March 29, 1996,
as amended among AEG, the Guarantor named therein,
the Lenders named therein and Chase (formerly known
as Chemical Bank), as Agent.
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<PAGE> 71
Citibank................... Citibank, N.A., Cerplex's senior lender.
Closing.................... The closing of the Merger.
Code....................... The Internal Revenue Code of 1986, as amended.
Commission................. The Securities and Exchange Commission.
Conversion Price........... Has the meaning given such term in "Description of
the Units -- New Aurora Preferred
Stock -- Conversion.
Convertible Securities..... Has the meaning given such term in "Description of
the Units -- New Aurora Preferred
Stock -- Conversion.
Department of Justice...... The United States Department of Justice.
Dissenting Shares.......... Shares of Cerplex Common Stock for which appraisal
rights have been perfected in accordance with
Section 262 of the DGCL.
DGCL....................... Delaware General Corporation Law.
EBIT....................... Earnings before interest and taxes.
EBITDA..................... Earnings before interest, taxes, depreciation and
amortization.
Effective Time............. The effective time of the Merger.
Eligible Guarantor
Institution................ Has the meaning given such term in "The Rights
Offering -- Exercise of Rights."
Enterprise Value........... Market value of common equity plus book value of
total debt less cash and cash equivalents based on
reported closing prices on January 20, 1998.
EPS........................ Earnings per share
Excess Cash Flow........... Has the meaning given such term in the Indenture
Excess Units............... Has the meaning given such term in "The Rights
Offering -- Subscription Privileges -- Additional
Subscription Privilege."
Exchange Act............... The Securities Exchange Act of 1934, as amended.
Exchange Ratio............. 1.076368, subject to adjustment as set forth in the
Merger Agreement.
Expiration Time............ The Effective Time of the Merger.
First Amendment
Agreement.................. That certain amendment dated August 20, 1997 to the
Amended and Restated Subordinated Note Purchase
Agreement.
Forbearance Agreement...... That certain Forbearance and Repayment Agreement
dated as of January 30, 1998 by and among Cerplex,
Aurora and Citibank.
FTC........................ The United States Federal Trade Commission.
Guaranteed Delivery
Procedures................. Has the meaning given such term in "The Rights
Offering -- Exercise of Rights."
HSR Act.................... The Hart-Scott-Rodino Antitrust Improvements Act of
1976.
Hughes & Luce.............. Hughes & Luce L.L.P., counsel to Aurora.
Indebtedness............... Has the meaning given such term in "Description of
the Units -- Aurora Senior Subordinated
Notes -- Affirmative Covenants and Restrictive
Covenants."
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Indenture.................. The Indenture, dated as of [ ], 1998,
between Aurora and U.S. Trust, as trustee.
Indenture Change of
Control.................... Has the meaning given such term in "Description of
the Units -- Aurora Senior Subordinated
Notes -- Change of Control Option."
Interim Management
Agreement.................. That certain Interim Management Agreement dated as
of January 30, 1998 between Cerplex and Aurora.
IRS........................ The Internal Revenue Service.
Junior Capital Stock....... Any capital stock of Aurora ranking junior to the
New Aurora Preferred Stock.
LTM........................ Latest 12 months.
Lucent..................... Lucent Technologies, Inc.
Lucent Note................ That certain promissory note executed by Cerplex in
favor of Lucent bearing interest at 9.75% in the
amount of $4.6 million payable on September 15,
1996.
Merger..................... The merger of Sub with and into Cerplex, whereby
Cerplex becomes a wholly-owned subsidiary of Aurora
pursuant to the terms of the Merger Agreement.
Merger Agreement........... That certain Agreement and Plan of Merger dated as
of January 30, 1998, among Aurora, Sub and Cerplex.
MODCOMP/Cerplex............ Modcomp/Cerplex, L.P., a Delaware limited
partnership and subsidiary of Cerplex.
MVSO....................... Multivendor service organization.
NASDAQ..................... National Association of Securities Dealers, Inc.
Automated Quotation System.
NASDAQ NMS................. The Nasdaq Stock Market, National Market System.
New Aurora Preferred
Stock...................... 7% Senior Cumulative Convertible Preferred Stock,
$.01 par value per share, of Aurora to be issued in
connection with the WCAS Financing and the Rights
Offering.
New Cerplex................ The combined businesses of Aurora and Cerplex after
giving effect to the Merger.
New Senior Loan............ The new loan to be obtained by Aurora in connection
with the Merger, which loan shall be in a minimum
principal amount of $17 million and shall be senior
to all other existing Aurora indebtedness.
NOL........................ Net operating losses.
Note and Warrant Assignment
and Transfer Agreement... That certain Note and Warrant Assignment and
Transfer Agreement dated as of January 30, 1998 by
and between WCAS VII and Cerplex's Subordinated
Note holders.
Notice of Guaranteed
Delivery................... Has the meaning given such term in "The Rights
Offering -- Exercise of Rights."
OEM........................ Original equipment manufacturers.
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<PAGE> 73
Old Aurora Preferred
Stock...................... Preferred Stock of Aurora, $.01 par value per
share, issued and outstanding as of January 30,
1998.
Old Aurora Subordinated
Notes...................... The aggregate of Aurora's 10% Senior Subordinated
Notes due September 30, 2001.
Options.................... Has the meaning given such term in "Description of
the Units -- New Aurora Preferred
Stock -- Conversion."
PCS........................ Peripheral Computer Support, Inc., a California
corporation and former subsidiary of Cerplex.
P/E........................ Price to earnings ratio.
Preferred Stock Change of
Control.................. Has the meaning given such term in "Description of
the Units -- New Aurora Preferred
Stock -- Redemption."
PSS........................ Aurora's Parts Services Supply division.
Public Stockholders........ Holders of Aurora Common Stock other than WCAS.
Purchase and Exchange
Agreement................ That certain Securities Purchase and Exchange
Agreement dated as of January 30, 1998, among
Aurora, the several purchasers named in Annex I
thereto and WCAS Capital Partners II, L.P.
Recapitalization........... The recapitalization of Aurora on March 29, 1996
whereby Aurora repurchased approximately 4,268,000
shares of Aurora Common Stock and issued 607,211
shares of Aurora Common Stock to WCAS and certain
other purchasers.
Redemption Price........... Has the meaning given such term in "Description of
the Units -- New Aurora Preferred
Stock -- Redemption."
Registration Statement..... The Registration Statement on Form S-3 filed by
Aurora under the Securities Act with respect to the
securities offered in the Rights Offering.
Reorganization............. Has the meaning given such term in "Description of
the Units -- New Aurora Preferred
Stock -- Conversion."
Repayment Amount........... The sum of (i) 98.5% of the outstanding principal
amount of the amounts outstanding of the Cerplex
Senior Credit Facility, plus (ii) all accrued and
unpaid interest thereon, plus (iii) all accrued and
unpaid fees, expenses and other amounts payable
under the Cerplex Senior Credit Agreement as of the
Closing Date.
Rights..................... The right to subscribe for and purchase Units
pursuant to the Rights Offering.
Rights Offering............ The offering by Aurora to the holders of Aurora
Common Stock (other than WCAS) of the right to
purchase Units.
Sale or Issuance
Transaction................ Has the meaning given such term in "Description of
the Units -- Aurora Senior Subordinated
Notes -- Mandatory Redemption."
Securities Act............. The Securities Act of 1933, as amended.
Senior Indebtedness........ Has the meaning given such term in "Description of
the Units -- Aurora Senior Subordinated
Notes -- Subordination."
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Seventh Amendment to Credit
Agreement................ That certain Seventh Amendment to Credit Agreement
and Limited Waiver dated as of January 30, 1998
among Cerplex, Citibank, as Administrative Agent,
and the financial institutions listed on the
signature page thereof.
SFAS....................... Statement of Financial Accounting Standards.
Sub........................ Holly Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Aurora.
Sub Common Stock........... Common Stock of Sub, par value $.01 per share.
Subordinated Note Purchase
Agreements............... Those certain note purchase agreements dated
November 19, 1993 between Cerplex and the
subordinated noteholders listed on the signature
pages thereof.
Subscription Agent......... American Stock Transfer & Trust Company
Subscription Certificate... The certificate to be completed and duly executed
by each Public Stockholder desiring to exercise a
Right.
Subscription Price......... $183.33 per Unit.
TIA........................ Trust Indenture Act of 1939, as amended
TPM........................ Third party maintenance organization.
Trustee.................... U.S. Trust in its capacity as trustee under the
Indenture.
Unit....................... The combination of (i) $83.33 principal amount of
Aurora Senior Subordinated Notes and (ii) one share
of New Aurora Preferred Stock.
U.S. Trust................. U.S. Trust Corporation
WCAS....................... WCAS VII and certain of its affiliates.
WCAS Unit.................. A unit to be purchased by WCAS pursuant to the
Purchase and Exchange Agreement, consisting of (i)
$1,000 principal amount of Aurora Senior
Subordinated A Notes and (ii) 12 shares of New
Aurora Preferred Stock.
WCAS VII................... Welsh, Carson, Anderson & Stowe VII, L.P., a
Delaware limited partnership.
WCAS Financing............. The purchase by WCAS pursuant to the Purchase and
Exchange Agreement, of (i) subject to the Rights
Offerings, up to an aggregate 15,000 WCAS Units for
an aggregate purchase price of $33 million in cash
and securities of Aurora and Cerplex currently held
by WCAS, and (ii) an aggregate 33,000 shares of New
Aurora Preferred Stock in exchange for the
cancellation of the Old Aurora Subordinated Notes
currently held by WCAS plus accrued interest
thereon.
Wells Fargo................ Wells Fargo Bank, N.A.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION....................................... ii
PROSPECTUS SUMMARY.......................................... 1
Aurora.................................................... 1
Cerplex................................................... 1
The Merger and Related Transactions....................... 2
The Rights Offering....................................... 3
Summary Aurora Historical Consolidated Financial Data..... 8
Summary Cerplex Historical Consolidated Financial Data.... 9
Selected Unaudited Pro Forma Consolidated Financial
Information............................................ 10
RISK FACTORS................................................ 11
Issuance of New Aurora Preferred Stock; Dilution.......... 11
Absence of Dividends...................................... 11
Risk of Decrease in Market Value of Subscribed-for
Units.................................................. 11
Absence of Trading Market for the Senior Preferred Stock
and the Aurora Senior Subordinated Notes............... 11
Limited Trading Market and Possible Volatility of Aurora
Common Stock Price..................................... 12
Shares Available for Future Sale.......................... 12
Implementation of Business Strategy....................... 12
New Management............................................ 12
High Degree of Leverage; Future Capital Requirements...... 13
Failure to Obtain New Senior Loan......................... 13
Control by WCAS........................................... 13
Aurora's Net Operating Loss Carryforwards and Possible
Future Acquisitions.................................... 14
Losses and Accumulated Deficit............................ 14
Dependence on the Electronics and Computer Industry....... 14
Inventory Obsolescence.................................... 14
Reliance on Short-Term Purchase Orders and Contracts...... 15
Dependence on Key Customers............................... 15
Competition............................................... 15
Discontinued Operations; Change in Strategy............... 15
Expansion of International Sales.......................... 16
Other Uncertainties....................................... 16
THE RIGHTS OFFERING......................................... 16
The Rights................................................ 16
Subscription Privileges................................... 16
Expiration Time........................................... 17
Determination of Subscription Price....................... 17
Exercise of Rights........................................ 17
No Revocation............................................. 20
State and Foreign Securities Laws......................... 20
Subscription Agent........................................ 20
Aurora Board Determination................................ 21
Condition to Closing...................................... 21
DESCRIPTION OF THE UNITS.................................... 21
Aurora Senior Subordinated Notes.......................... 21
New Aurora Preferred Stock................................ 26
Transferability........................................... 29
REASONS FOR THE RIGHTS OFFERING AND USE OF PROCEEDS......... 30
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE MERGER AND RELATED TRANSACTIONS......................... 30
Description of the Merger................................. 30
WCAS Financing............................................ 32
CAPITALIZATION.............................................. 33
SELECTED FINANCIAL INFORMATION.............................. 35
Selected Aurora Historical Financial Information.......... 35
Aurora Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 36
Selected Cerplex Historical Financial Information......... 40
Cerplex Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 41
Notes to Unaudited Pro Forma Combined Financial
Statements............................................. 53
PRICE RANGE OF AURORA COMMON STOCK AND DIVIDENDS............ 56
DESCRIPTION OF CAPITAL STOCK................................ 57
FEDERAL INCOME TAX CONSIDERATIONS........................... 58
Rights Issuance........................................... 58
Rights' Tax Basis......................................... 59
Exercise of Rights........................................ 59
Expiration of the Rights.................................. 59
Aurora Senior Subordinated Notes.......................... 59
New Aurora Preferred Stock................................ 60
LEGAL MATTERS............................................... 63
EXPERTS..................................................... 63
INDEMNIFICATION OF DIRECTORS AND OFFICERS -- DISCLOSURE OF
COMMISSION'S POSITION ON INDEMNIFICATION.................. 64
GLOSSARY OF TERMS........................................... 65
</TABLE>
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PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 1,785
Subscription Agent's fees and expenses...................... 25,000
Printing fees............................................... 50,000
Legal fees and expenses..................................... 25,000
Accounting fees and expenses................................ 5,000
Miscellaneous............................................... 10,000
--------
TOTAL............................................. $116,785
========
</TABLE>
The foregoing, except for the Securities and Exchange Commission
registration fee, are estimates.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL permits a Delaware corporation to indemnify any
officer or director who is a party (or is threatened to be made a party) to any
threatened, pending or completed action, suit or proceeding, by reason of the
fact that he or she is or was a director, officer or employee of the
corporation. Such indemnification must be approved by a majority vote of the
directors who were not parties to the action, suit or proceeding, whether or not
a quorum, and may be provided only if and to the extent the officer or director
to be indemnified acted in good faith and in a manner he or she reasonably
believed to be in (or not opposed) to the best interests of the corporation. The
Aurora Bylaws provide generally for the indemnification of officers and
directors permitted by Section 145.
ITEM 16. EXHIBITS
The Exhibits to this Registration Statement are listed on the Index to
Exhibits of this Registration Statement, which Index is incorporated herein by
reference.
ITEM 17. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) 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;
(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.
(2) 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 Rights Offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) 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 Rights Offering.
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B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plans' annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the Rights Offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
C. The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each employee to whom the prospectus is sent
or given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each employee to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
D. 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 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irvine, State of
California, on March 13, 1998.
AURORA ELECTRONICS, INC.
By: /s/ GEORGE L. MCTAVISH
----------------------------------
George L. McTavish,
Chief Executive Officer and
Chairman of the Board
By: /s/ F. WAYNE WITHERS
----------------------------------
F. Wayne Withers,
Senior Vice President, Chief
Financial Officer
and Chief Accounting Officer
Each person whose signature appears below hereby constitutes and appoints
George L. McTavish his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him or her and in his or her name,
place, and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) and supplements to this Registration
Statement, and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, and hereby
grants to such attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE L. MCTAVISH Chairman of the Board, and March 13, 1998
- ----------------------------------------------------- Chief Executive Officer
George L. McTavish
/s/ JIM C. COWART Vice Chairman of the Board March 13, 1998
- -----------------------------------------------------
Jim C. Cowart
/s/ HARVEY B. CASH Director March 13, 1998
- -----------------------------------------------------
Harvey B. Cash
/s/ DAVID A. LAHAR Director March 13, 1998
- -----------------------------------------------------
David A. Lahar
/s/ THOMAS E. MCINERNEY Director March 13, 1998
- -----------------------------------------------------
Thomas E. McInerney
/s/ RICHARD H. STOWE Director March 13, 1998
- -----------------------------------------------------
Richard H. Stowe
</TABLE>
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
4.1 The Restated Certificate of Incorporation of the Registrant,
as amended (incorporated by reference from Exhibit 3.1 to
the Registrant's Transition Report on Form 10-K for the
transition period from December 31, 1991 to September 30,
1992).
4.2 Bylaws of the Registrant, as amended (incorporated by
reference from Exhibit 4.2 to the Registrant's Registration
Statement on Form S-8 (Registration No. 33-79426)).
4.3 Form of Certificate of Designations, Preferences and Rights
of Senior Cumulative Convertible Preferred Stock of the
Registrant.
4.4 Preliminary draft of Indenture between the Registrant and
U.S. Trust Corporation.
4.5 Form of the Registrant's 10% Series B Senior Subordinated
Notes Due December 31, 2004 (included as Exhibit A to the
preliminary draft of Indenture filed as Exhibit 4.4).
*4.6 Form of Letter to Stockholders of the Registrant.
*4.7 Form of Subscription Certificate.
*4.8 Form of Instructions as to Use of Subscription Certificates.
*4.9 Form of Letter to Brokers.
*4.10 Form of Letter to Clients.
*4.11 Guidelines to Form W-9.
*5 Opinion of Hughes & Luce, L.L.P. concerning legality of
securities being registered.
12 Statement Regarding Computation of Ratio of Earnings to
Fixed Charges.
*23.1 Consent of Hughes & Luce, L.L.P. (included in Exhibit 5)
23.2 Consent of Arthur Andersen LLP
23.3 Consent of KPMG Peat Marwick LLP
24 Power of Attorney (incorporated by reference to signature
page of Form S-3)
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SENIOR CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
AURORA ELECTRONICS, INC.
(PURSUANT TO SECTION 151 OF THE
DELAWARE GENERAL CORPORATION LAW)
------------------------
AURORA ELECTRONICS, INC., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies that,
pursuant to authority vested in the Board of Directors of the Corporation by
Article Fourth of the Restated Certificate of Incorporation, as amended, of the
Corporation, the following resolution was adopted as of by the Board of
Directors of the Corporation pursuant to Section 141 of the Delaware General
Corporation Law:
"RESOLVED that, pursuant to authority vested in the Board of Directors of
the Corporation by Article Fourth of the Corporation's Restated Certificate of
Incorporation, as amended, of the total authorized number of 1,000,000 shares of
Preferred Stock, par value $.01 per share, of the Corporation, there shall be
designated a series of 213,000 shares which shall be issued in and constitute a
single series to be known as "7% Senior Cumulative Convertible Preferred Stock"
(hereinafter called the "Senior Preferred Stock"). The shares of Senior
Preferred Stock shall have the voting powers, designations, preferences and
other special rights, and qualifications, limitations and restrictions thereof
set forth below:
1. Dividends. (a) The holders of shares of Senior Preferred Stock shall be
entitled to receive, out of funds legally available for such purpose, cash
dividends at the rate of $7.00 per share per annum, and no more, payable as
provided herein. Such dividends shall be cumulative and shall accrue from and
after the date of issue whether or not declared and whether or not there are any
funds of the Corporation legally available for the payment of dividends. Accrued
but unpaid dividends shall not bear interest. The Board of Directors of the
Corporation may fix a record date for the determination of holders of Senior
Preferred Stock entitled to receive payment of a dividend declared thereon,
which record date shall be no more than 60 days prior to the date fixed for the
payment thereof.
(b) As long as any shares of Senior Preferred Stock shall remain
outstanding, in no event shall any dividend be declared or paid upon, nor shall
any distribution be made upon, any Junior Capital Stock (as defined herein),
other than a dividend or distribution payable solely in shares of common stock
of the Corporation, nor shall any shares of Junior Capital Stock be purchased or
redeemed by the Corporation, nor shall any moneys be paid to or made available
for a sinking fund for the purchase or redemption of shares of any Junior
Capital Stock, unless, in each such case, (i) full cumulative dividends on the
outstanding shares of Senior Preferred Stock shall have been declared and paid
and (ii) any arrears or defaults in any redemption of shares of Senior Preferred
Stock shall have been cured. The term "Junior Capital Stock" as used herein
means any shares of capital stock of the Corporation, including the
Corporation's Common Stock, par value $.03 per share (the "Common Stock"), and
the Corporation's Convertible Preferred Stock (including Series B, Series C and
Series D thereof), par value $.01 per share (the "Junior Preferred Stock"),
other than shares of the Corporation's capital stock permitted to rank on a
parity with or senior to the Senior Preferred Stock pursuant to paragraph 6
hereof.
<PAGE> 2
2. Redemption. The shares of Senior Preferred Stock shall be redeemable as
follows:
(a) Mandatory Redemption. (1) Except as and to the extent expressly
prohibited by applicable law, the Corporation shall redeem (i) one half of the
outstanding shares of Senior Preferred Stock on December 31, 2006 and (ii) all
of the remaining shares of Senior Preferred Stock on December 31, 2007 (in the
manner and with the effect provided in subparagraphs 2(c) through 2(e) below).
(b) Redemption at the Option of the Holder. Upon the occurrence of any of
the following (each a "Change of Control"):
(i) the sale, lease or transfer, whether direct or indirect, of all or
substantially all the assets of the Corporation and its subsidiaries, taken
as a whole, in one transaction or a series of related transactions, to any
person or group other than the WCAS Group (as hereinafter defined), or
(ii) the acquisition of beneficial ownership by any person or group
other than the WCAS Group, of voting stock of the Corporation representing
more than 50% of the voting power of all outstanding shares of such voting
stock, whether by way of merger or consolidation or otherwise,
then each holder of any share or shares of Senior Preferred Stock shall have the
right, at such holder's option, to require the Corporation to redeem (a
"Redemption at the Option of the Holder"), any or all of such holder's shares of
Senior Preferred Stock (any such redemption of less than all a holder's shares
to be in integral multiples of 1,000 shares) on or prior to the effective date
of such Change of Control, at a redemption price of $100 plus all accrued but
unpaid dividends to which the holders of the Senior Preferred Stock are then
entitled pursuant to paragraph 1 above as of such date. Such option shall be
exercised by written notice to the Corporation given within fifteen days of the
date of receipt of the Redemption Notice (as defined herein) to be delivered
pursuant to paragraph 2(c) below.
For purposes of this Certificate of Designations: (i) the terms "person"
and "group" shall have the meaning set forth in paragraph 13(d)(3) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not
applicable, (ii) the term "beneficial owner" shall have the meaning set forth in
Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable, except
that a 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 or upon the occurrence of certain
events, (iii) any "person" or "group" will be deemed to beneficially own any
voting stock of the Corporation so long as such person or group beneficially
owns, directly or indirectly, in the aggregate a majority of the voting stock of
a registered holder of the voting stock of the Corporation, and (iv) the term
"WCAS Group" shall mean Welsh, Carson, Anderson & Stowe VII, L.P., a Delaware
limited partnership ("WCAS VII"), WCAS Capital Partners II, L.P., a Delaware
limited partnership ("WCAS CP II"), any general partners thereof and any other
investment limited partnerships or other investment entities under common
control therewith.
Any date on which any shares of Senior Preferred Stock are to be redeemed
as provided in this paragraph 2 is hereinafter called a "Senior Preferred
Redemption Date." The price at which any shares of Senior Preferred Stock are to
be redeemed as herein provided is hereinafter called the "Senior Preferred
Redemption Price."
(c) Notice of Redemption. At least 20 days (and not more than 60 days)
prior to any Senior Preferred Redemption Date (which in the case of any
Redemption at the Option of the Holder shall be prior to the effective date of
any Change of Control), written notice thereof (a "Senior Preferred Redemption
Notice") shall be mailed, by first class or registered mail, postage prepaid, to
each holder of record of Senior Preferred Stock, at his, her or its address last
shown on the records of the transfer agent of the Senior Preferred Stock (or the
records of the Corporation, if it serves as its own transfer agent). The Senior
Preferred Redemption Notice shall set forth (i) the Senior Preferred Redemption
Date, (ii) the Senior Preferred Redemption Price, (iii) in the case of a
Mandatory Redemption, the total number of shares to be redeemed from all holders
and the number of shares to be redeemed from such holder, and (iv) in the case
of a Redemption at the Option of the Holder, a description of the events which
will, upon the occurrence thereof, constitute a Change of Control, including a
summary description of the terms thereof, and such holder's right to exercise
its option to
2
<PAGE> 3
require a redemption under paragraph 2(b) hereof. In the case of a Mandatory
Redemption, the Senior Preferred Redemption Notice shall call upon such holder
to surrender to the Corporation, in the manner and at the place designated, his,
her or its certificate or certificates representing any shares of Senior
Preferred Stock to be redeemed.
(d) Redeemed or Otherwise Acquired Shares to be Retired. On or prior to a
Senior Preferred Redemption Date, all holders of shares of Senior Preferred
Stock to be redeemed shall surrender their certificates representing such shares
to the Corporation, in the manner and at the place designated in the Senior
Preferred Redemption Notice, and against such surrender the Senior Preferred
Redemption Price of such shares shall be paid to the order of the person whose
name appears on each such certificate as the owner thereof. Each surrendered
certificate shall be canceled. From and after the Senior Preferred Redemption
Date, unless there shall have been a default in payment of the Senior Preferred
Redemption Price, all rights of the holders of the shares of redeemed Senior
Preferred Stock as holders of such shares of Senior Preferred Stock (except the
right to receive the Senior Preferred Redemption Price without interest against
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Corporation (or its transfer agent, if any) or be deemed to be outstanding for
any purpose whatsoever.
(e) Shares to be Redeemed or Purchased. If the funds of the Corporation
legally available for redemption of Senior Preferred Stock on any Senior
Preferred Redemption Date are insufficient, after redemption of any other shares
ranking senior thereto, to redeem the full number of shares of Senior Preferred
Stock to be redeemed on such date, those funds which are legally available shall
be used to redeem the maximum possible number of such shares of Senior Preferred
Stock ratably from each holder whose shares are otherwise required to be
redeemed. At any time thereafter when additional funds of the Corporation become
legally available for the redemption of Senior Preferred Stock, such funds will
be used, at the end of the next succeeding fiscal quarter, to redeem the balance
of the shares which the Corporation was theretofore obligated to redeem, ratably
on the basis set forth in the preceding sentence.
3. Liquidation, Dissolution or Winding Up. (a) In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of Senior Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, before any payment shall be made to the
holders of any shares of Junior Capital Stock by reason of their ownership
thereof, an amount equal to $100 per share of Senior Preferred Stock, plus all
accrued but unpaid dividends to which the holders of the Senior Preferred Stock
are then entitled pursuant to paragraph 1 above as of such date, and no more. If
upon any such liquidation, dissolution or winding up of the Corporation the
remaining assets of the Corporation available for distribution to its
stockholders (after making all distributions to which holders of capital stock
ranking senior to the Senior Preferred Stock shall be entitled) shall be
insufficient to pay the holders of shares of Senior Preferred Stock the full
amount to which they shall be entitled pursuant to this paragraph 3(a), the
holders of shares of Senior Preferred Stock, and any other shares ranking on a
parity therewith, shall share ratably in any distribution of the remaining
assets and funds of the Corporation in proportion to the respective amounts
which would otherwise be payable in respect of the shares of Senior Preferred
Stock held by them upon such distribution if all amounts payable on or with
respect to such shares were paid in full.
(b) After the payment of all amounts required to be paid pursuant to
paragraph 3(a) to the holders of shares of Senior Preferred Stock, and any other
shares ranking on a parity therewith, upon the dissolution, liquidation or
winding up of the Corporation, the holders of shares of Junior Capital Stock
then outstanding shall share in any distribution of the remaining assets and
funds of the Corporation in the manner provided by law, in the Restated
Certificate of Incorporation of the Corporation, as amended, or as provided in
any pertinent Certificate of Designations of the Corporation, as the case may
be.
(c) No Change of Control shall be deemed to be a liquidation, dissolution
or winding up of the Corporation for purposes of this paragraph 3.
3
<PAGE> 4
4. Conversion. The shares of Senior Preferred Stock shall be convertible as
follows:
(a) Right to Convert. Subject to the terms and conditions of this paragraph
4, the holder of any share or shares of Senior Preferred Stock shall have the
right, at his, her or its option, at any time, to convert any such shares of
Senior Preferred Stock (except that upon any liquidation of the Corporation the
right of conversion shall terminate as to all shares at the close of business 15
days after notice thereof has been given to the holders of Senior Preferred
Stock as provided in paragraph 4(h) hereof) into such number of fully paid and
nonassessable whole shares of Common Stock as is obtained by (i) multiplying the
number of shares of Senior Preferred Stock so to be converted by $100, (ii)
adding the Additional Conversion Amount (as defined in paragraph 4(c) herein),
if any, and (iii) dividing the result by the conversion price of $0.25 or, if
there has been an adjustment of the conversion price, by the conversion price as
last adjusted and in effect at the date any share or shares of Senior Preferred
Stock are surrendered for conversion (such price, or such price as last
adjusted, being referred to herein as the "Senior Preferred Conversion Price").
Such right of conversion shall be exercised by the holder thereof by giving
written notice that the holder elects to convert a stated number of shares of
Senior Preferred Stock into Common Stock and by surrender of a certificate or
certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holder or holders of the
Senior Preferred Stock) at any time during its usual business hours on the date
set forth in such notice, together with a statement of the name or names (with
address), subject to compliance with applicable laws to the extent such
designation shall involve a transfer, in which the certificate or certificates
for shares of Common Stock shall be issued.
(b) Issuance of Certificates; Time Conversion Effected. Promptly after the
receipt by the Corporation of the written notice referred to in paragraph 4(a)
above and surrender of the certificate or certificates for the share or shares
of the Senior Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, subject to compliance with applicable
laws to the extent such designation shall involve a transfer, a certificate or
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such share or shares of Senior Preferred Stock. To the extent
permitted by law, such conversion shall be deemed to have been effected and the
Senior Preferred Conversion Price shall be determined as of the close of
business on the date on which such written notice shall have been received by
the Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of the
holder of such share or shares of Senior Preferred Stock shall cease, and the
person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby.
(c) Fractional Shares; Dividends; Partial Conversion.
(i) No fractional shares shall be issued upon conversion of the Senior
Preferred Stock into Common Stock and the number of shares of Common Stock
to be issued shall be rounded to the nearest whole share. If any fractional
interest in a share of Common Stock would, except for the provisions of
this paragraph 4(c), be deliverable upon any such conversion, the
Corporation, in lieu of delivering the fractional share thereof, shall pay
to the holder surrendering the Senior Preferred Stock for conversion an
amount in cash equal to the current fair market value of such fractional
interest as determined in good faith by the Board of Directors of the
Corporation.
(ii) Upon the conversion of any shares of Senior Preferred Stock, the
Corporation will pay the holder thereof, out of funds legally available for
such purpose, any accrued but unpaid dividends thereon to the date of such
conversion. In the event that the Corporation is for any reason unable to
pay some or all of such accrued but unpaid dividends, any amount not so
paid shall (for purposes of paragraph 4(a) hereof) constitute the
"Additional Conversion Amount." No other payment or adjustment shall be
made upon any conversion on account of the Senior Preferred Stock so
converted or the Common Stock issued upon such conversion.
(iii) In case the number of shares of Senior Preferred Stock
represented by the certificate or certificates surrendered pursuant to
paragraph 4(a) exceeds the number of shares converted, the
4
<PAGE> 5
Corporation shall, upon such conversion, execute and deliver to the holder
thereof, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Senior Preferred Stock represented
by the certificate or certificates surrendered which are not to be
converted.
(d) Adjustment of Price Upon Issuance of Common Shares. Except as provided
in paragraph 4(e) hereof, if and whenever (after the date the shares of Senior
Preferred Stock shall have been issued and be outstanding) the Corporation shall
issue or sell, or is, in accordance with subparagraphs (d)(i) through (d)(vii),
deemed to have issued or sold, any shares of its Common Stock without
consideration or for a consideration per share less than the Senior Preferred
Conversion Price in effect immediately prior to the time of such issue or sale,
then, forthwith upon such issue or sale, the Senior Preferred Conversion Price
shall be adjusted to the price (calculated to the nearest cent) determined by
dividing (x) an amount equal to the sum of (A) the number of shares of Common
Stock outstanding immediately prior to such issue or sale (including as
outstanding all shares of Common Stock issuable upon conversion of outstanding
Senior Preferred Stock or upon conversion of outstanding Convertible Securities
(as defined in subparagraph (i) below)) multiplied by the then existing Senior
Preferred Conversion Price, and (B) the consideration, if any, received by the
Corporation upon such issue or sale, by (y) the total number of shares of Common
Stock outstanding immediately after such issue or sale (including as outstanding
all shares of Common Stock issuable upon conversion of outstanding Senior
Preferred Stock or outstanding Convertible Securities, in each case without
giving effect to any adjustment in the number of shares so issuable by reason of
such issue and sale).
No adjustment of the Senior Preferred Conversion Price, however, shall be
made in an amount less than $.01 per share, and any such lesser adjustment shall
be carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to $.01 per share or more.
For purposes of this paragraph 4(d), the following subparagraphs (i)
through (vii) shall also be applicable:
(i) Issuance of Rights or Options. Subject to paragraph 4(e) hereof,
in case at any time the Corporation shall in any manner grant (whether
directly or by assumption in a merger or otherwise) any rights to subscribe
for or to purchase, or any options for the purchase of, Common Stock or any
stock (other than shares of Senior Preferred Stock) or securities
convertible into or exchangeable for Common Stock (such rights or options
being herein called "Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities") whether or not
such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (A) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the
Corporation upon the exercise of all such Options, plus, in the case of
such Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or sale
of such Convertible Securities and upon the conversion or exchange thereof,
by (B) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be
less than the Senior Preferred Conversion Price in effect immediately prior
to the time of the granting of such Options, then the total maximum number
of shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to
have been issued for such price per share as of the date of granting of
such Options and thereafter shall be deemed to be outstanding. Except as
otherwise provided in subparagraph (iii) below, no adjustment of the Senior
Preferred Conversion Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise of such
Options or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. Subject to paragraph 4(e)
hereof, in case the Corporation shall in any manner issue (whether directly
or by assumption in a merger or otherwise) or sell any
5
<PAGE> 6
Convertible Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per share for which
Common Stock is issuable upon such conversion or exchange (determined by
dividing (A) the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable
to the Corporation upon the conversion or exchange thereof, by (B) the
total maximum number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities) shall be less than the
Senior Preferred Conversion Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per share as
of the date of the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding, provided that (x) except as
otherwise provided in subparagraph (iii) below, no adjustment of the Senior
Preferred Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities,
and (y) if any such issue or sale of such Convertible Securities is made
upon exercise of any Option to purchase any such Convertible Securities for
which adjustments of the Senior Preferred Conversion Price have been or are
to be made pursuant to other provisions of this paragraph 4(d), no further
adjustment of the Senior Preferred Conversion Price shall be made by reason
of such issue or sale.
(iii) Change in Option Price or Conversion Rate. Upon the happening of
any of the following events, namely, if the purchase price provided for in
any Option referred to in subparagraph (i), the additional consideration,
if any, payable upon the conversion or exchange of any Convertible
Securities referred to in subparagraph (i) or (ii), or the rate at which
any Convertible Securities referred to in subparagraph (i) or (ii) are
convertible into or exchangeable for Common Stock shall change at any time
(in each case other than under or by reason of provisions designed to
protect against dilution), the Senior Preferred Conversion Price in effect
at the time of such event shall forthwith be readjusted to the Senior
Preferred Conversion Price which would have been in effect at such time had
such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as the
case may be, at the time initially granted, issued or sold; and on the
expiration of any such Option or the termination of any such right to
convert or exchange such Convertible Securities, the Senior Preferred
Conversion Price then in effect hereunder shall forthwith be increased to
the Senior Preferred Conversion Price which would have been in effect at
the time of such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such expiration
or termination, never been issued, and the Common Stock issuable thereunder
shall no longer be deemed to be outstanding. If the purchase price provided
for in any such Option referred to in subparagraph (i) or the rate at which
any Convertible Securities referred to in subparagraph (i) or (ii) are
convertible into or exchangeable for Common Stock shall be reduced at any
time under or by reason of provisions with respect thereto designed to
protect against dilution, then, in case of the delivery of Common Stock
upon the exercise of any such Option or upon conversion or exchange of any
such Convertible Securities, the Senior Preferred Conversion Price then in
effect hereunder shall forthwith be adjusted to such respective amount as
would have been obtained had such Option or Convertible Securities never
been issued as to such Common Stock and had adjustments been made upon the
issuance of the shares of Common Stock delivered as aforesaid, but only if
as a result of such adjustment the Senior Preferred Conversion Price then
in effect hereunder is thereby reduced.
(iv) Stock Dividends. In case the Corporation shall declare a dividend
or make any other distribution upon the Common Stock of the Corporation
payable in Common Stock, Options or Convertible Securities, the Senior
Preferred Conversion Price shall be reduced as if the Corporation had
subdivided its outstanding shares of Common Stock into a greater number of
shares, as provided in subparagraph 4(d)(v) hereof.
(v) Subdivision or Combination of Stock. In case the Corporation shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Senior Preferred Conversion Price in effect
immediately prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding shares of Common Stock of the
Corporation shall be combined into a smaller
6
<PAGE> 7
number of shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
(vi) Consideration for Stock. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received
by the Corporation therefor, without deduction therefrom of any expenses
incurred or any underwriting commissions or concessions paid or allowed by
the Corporation in connection therewith. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration other than
cash received by the Corporation shall be deemed to be the fair value of
such consideration as determined in good faith by the Board of Directors of
the Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Corporation
in connection therewith. The amount of consideration deemed to be received
by the Corporation pursuant to the foregoing provisions of this
subparagraph (vi) upon any issuance and/or sale of shares of Common Stock,
Options or Convertible Securities, pursuant to an established compensation
plan of the Corporation, to directors, officers or employees of the
Corporation in connection with their employment shall be increased by the
amount of any tax benefit realized by the Corporation as a result of such
issuance and/or sale, the amount of such tax benefit being the amount by
which the Federal and/or state income or other tax liability of the
Corporation shall be reduced by reason of any deduction or credit in
respect of such issuance and/or sale. In case any Options shall be issued
in connection with the issue and sale of other securities of the
Corporation, together comprising one integral transaction in which no
specific consideration is allocated to such Options by the parties thereto,
such Options shall be deemed to have been issued without consideration.
(vii) Record Date. In case the Corporation shall take a record of the
holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock, Options
or Convertible Securities, or (B) to subscribe for or purchase Common
Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the granting of such
right of subscription or purchase, as the case may be.
(e) Certain Issues of Stock Excepted. Anything herein to the contrary
notwithstanding, the Corporation shall not make any adjustment of the Senior
Preferred Conversion Price in the case of (i) the issuance of shares of Common
Stock upon conversion of Senior Preferred Stock; (ii) the issuance of Options or
shares of Common Stock to employees of the Corporation or its subsidiaries,
either directly or pursuant to Options, pursuant to plans or arrangements
approved by the Board of Directors of the Corporation; (iii) the issuance of
shares of Common Stock in respect of any Convertible Securities or Options
issued by the Corporation prior to the date of this Certificate of Designations;
(iv) the issuance of Common Stock or Options or Convertible Securities as
consideration in the acquisition by assumption or otherwise by the Corporation
of substantially all of the assets of any other entity or more than 50% of the
voting power of any other entity, including by way of merger or consolidation;
or (v) the issuance of Options or Convertible Securities (or the shares of
Common Stock issuable upon conversion or exercise thereof) to banks or other
lenders as consideration for providing debt financing to the Corporation.
(f) Reorganization or Reclassification. If any capital reorganization or
reclassification of the capital stock of the Corporation (a "Reorganization")
shall be effected in such a way (including, without limitation, by way of
consolidation or merger) that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such Reorganization, lawful and adequate
provision (in form satisfactory to the holders of a majority of the then
outstanding shares of Senior Preferred Stock) shall be made whereby each holder
of a share or shares of Senior Preferred Stock shall thereafter have the right
to receive, upon the basis and upon the terms and conditions specified herein
and in lieu of the shares of Common Stock of the Corporation immediately
theretofore receivable upon the conversion of such share or shares of the Senior
Preferred Stock, such shares of stock, securities or assets as
7
<PAGE> 8
may be issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore so receivable had such Reorganization not taken
place, and in any such case appropriate provision shall be made with respect to
the rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Senior Preferred
Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights (including an immediate adjustment,
by reason of such Reorganization, of the Senior Preferred Conversion Price to
the value for the Common Stock reflected by the terms of such Reorganization if
the value so reflected is less than the Senior Preferred Conversion Price in
effect immediately prior to such Reorganization). In the event of a merger or
consolidation of the Corporation as a result of which a greater or lesser number
of shares of common stock (or other equity interests, of the case may be) of the
surviving corporation or business entity are issuable to holders of Common Stock
of the Corporation outstanding immediately prior to such merger or
consolidation, the Senior Preferred Conversion Price in effect immediately prior
to such merger or consolidation shall be adjusted in the same manner as though
there were a subdivision or combination of the outstanding shares of Common
Stock of the Corporation. The Corporation will not effect any Change of Control
unless prior to the consummation thereof the acquiring corporation or other
business entity, or successor corporation or other business entity (if other
than the Corporation) resulting from such Change of Control, as the case may be,
shall assume by written instrument (in form reasonably satisfactory to the
holders of a majority of the shares of Senior Preferred Stock at the time
outstanding) executed and mailed or delivered to each holder of a share or
shares of Senior Preferred Stock at the last address of such holder appearing on
the books of the Corporation (or its transfer agent, if any), the obligation to
deliver to such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
receive.
(g) Notice of Adjustment. Upon any adjustment of the Senior Preferred
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, addressed to each holder
of shares of Senior Preferred Stock at the address of such holder as shown on
the books of the Corporation (or its transfer agent, if any), which notice shall
state the Senior Preferred Conversion Price resulting from such adjustment,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
(h) Other Notices. In case at any time:
(i) the Corporation shall declare any dividend upon its Common Stock
payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(ii) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights;
(iii) there shall be any Reorganization or Change of Control or the
Corporation shall become aware of any event or events that could reasonably
be expected to result in a Reorganization or Change of Control; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, addressed to each holder of any shares of Senior
Preferred Stock at the address of such holder as shown on the books of the
Corporation (or its transfer agent, if any), (A) at least 15 days' prior written
notice of the date on which the books of the Corporation (or its transfer agent)
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
Reorganization or Change of Control, and (B) in the case of any such
Reorganization or Change of Control, at least 15 days' prior written notice of
the date when the same shall take place. Such notice in accordance with the
foregoing clause (A) shall also specify, in the case of any such dividend,
distribution or subscription rights, the date on which the holders of Common
Stock shall be entitled thereto, and such notice in accordance with the
foregoing clause (B) shall also specify the date on which the holders of Common
Stock
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shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such Reorganization or Change of Control, as the case
may be.
(i) Conversion at Corporation's Option. All outstanding shares of Senior
Preferred Stock shall, on or after June 30, 1999, at the option of the
Corporation, be automatically converted into Common Stock if at any time (i) the
Corporation shall effect a firm commitment public offering of Common Stock or
Convertible Securities registered pursuant to the Securities Act of 1933, as
amended, resulting in proceeds to the Corporation and/or selling stockholders of
not less than $20,000,000, after deduction of underwriting discounts and
commissions but before deduction of other expenses of issuance, and in which the
offering price to the public (or, in the case of a sale of Convertible
Securities, the price per share of Common Stock payable upon conversion thereof)
is greater than the Senior Preferred Conversion Price or (ii) the average
closing sales price of Common Stock on one or more national securities exchanges
on which the Common Stock is listed or quoted by NASDAQ or the OTC Bulletin
Board over any period of twenty consecutive trading days equals or exceeds 300%
of the Senior Preferred Conversion Price and the average daily trading volume
for the Common Stock over such period equals or exceeds 10,000,000 shares per
week (as adjusted for stock splits, stock dividends and other recapitalizations
after the date of the first issuance of Senior Preferred Stock). Such conversion
shall be effected at the time of and subject to the closing of the sale of such
shares of Common Stock or on the first trading day succeeding such trading
period, as the case may be.
(j) Stock to be Reserved. The Corporation will at all times reserve and
keep available out of its authorized but unissued Common Stock, solely for the
purpose of issuance upon the conversion of the Senior Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Senior Preferred Stock. All shares
of Common Stock which shall be so issued shall be duly and validly issued and
fully paid and nonassessable and free from all taxes, liens and charges arising
out of or by reason of the issue thereof, and, without limiting the generality
of the foregoing, the Corporation covenants that it will from time to time take
all such action as may be requisite to assure that the par value per share of
the Common Stock is at all times equal to or less than the effective Senior
Preferred Conversion Price. The Corporation will take all such action within its
control as may be necessary on its part to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirements of any national securities exchange upon which the Common
Stock of the Corporation may be listed. The Corporation will not take any action
which results in any adjustment of the Senior Preferred Conversion Price if
after such action the total number of shares of Common Stock issued and
outstanding and thereafter issuable upon exercise of all options and conversion
of Convertible Securities, including upon conversion of the Senior Preferred
Stock, would exceed the total number of shares of Common Stock then authorized
by the Corporation's Restated Certificate of Incorporation.
(k) No Reissuance of Senior Preferred Stock. Shares of Senior Preferred
Stock that are converted into shares of Common Stock as provided herein shall
not be reissued.
(l) Issue Tax. The issuance of certificates for shares of Common Stock upon
conversion of the Senior Preferred Stock shall be made without charge to the
holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Senior Preferred Stock which is being
converted.
(m) Closing of Books. The Corporation will at no time close its transfer
books against the transfer of any Senior Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any shares of Senior
Preferred Stock in any manner which interferes with the timely conversion of
such Senior Preferred Stock.
(n) Definition of Common Stock. As used in this paragraph 4, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
par value $.03 per share, as constituted on the date of filing of this
Certificate of Designations and shall also include any capital stock of any
class of the Corporation thereafter authorized that shall not be limited to a
fixed sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided, however, that such term,
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when used to describe the securities receivable upon conversion of shares of the
Senior Preferred Stock of the Corporation, shall include only shares designated
as Common Stock of the Corporation on the date of filing of this Certificate of
Designations, any shares resulting from any combination or subdivision thereof
referred to in subparagraph (v) of paragraph 4(d), or in case of any
reorganization or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in paragraph 4(f).
5. Voting. Except as otherwise provided by law or in paragraph 6 below, the
holders of Senior Preferred Stock shall vote together with the holders of Common
Stock on all matters to be voted on by the stockholders of the Corporation, and
each holder of Senior Preferred Stock shall be entitled to one vote for each
share of Common Stock that would be issuable to such holder upon the conversion
of all the shares of Senior Preferred Stock held by such holder on the record
date for the determination of stockholders entitled to vote.
6. Restrictions. So long as any shares of Senior Preferred Stock are
outstanding (except, with respect to clause (i) below, so long as at least
25,000 shares of Senior Preferred Stock are outstanding), without the consent of
the holders of a majority of the Senior Preferred Stock at the time outstanding
given in person or by proxy, either in writing or at a special meeting called
for that purpose at which the holders of the Senior Preferred Stock shall vote
separately as a class, the Corporation may not (i) effect, validate or permit a
Change of Control; (ii) effect or validate the amendment, alteration or repeal
of any provision hereof which would amend or repeal the dividend, voting,
conversion, redemption or liquidation rights of the Senior Preferred Stock set
forth herein; (iii) effect or validate the amendment, alteration or repeal of
any provision of the Restated Certificate of Incorporation or the By-laws of the
Corporation; or (iv) (A) create or authorize any additional class or series of
stock ranking senior to or on a parity with the Senior Preferred Stock as to
dividends or as to rights upon redemption, liquidation, dissolution or winding
up, or (B) increase the authorized number of shares of the Senior Preferred
Stock or of any other class or series of capital stock of the Corporation
ranking senior to or on a parity with the Senior Preferred Stock as to dividends
or as to rights upon redemption, liquidation, dissolution or winding up, whether
any such creation or authorization or increase shall be by means of amendment
hereof, amendment of the Restated Certificate of Incorporation of the
Corporation, Certificate of Designations or amendment thereof, merger,
consolidation or otherwise.
7. Reacquired Shares. Any shares of Senior Preferred Stock, which are
redeemed or otherwise acquired by the Corporation in any manner whatsoever shall
be retired and canceled promptly after the acquisition thereof and the number of
authorized shares of Senior Preferred Stock shall be reduced accordingly.
IN WITNESS WHEREOF, this Certificate of Designations has been executed by
the Corporation by its Chairman and Chief Executive Officer this day of
, 1998.
AURORA ELECTRONICS, INC.
By:
----------------------------------------
Chairman and Chief
Executive Officer
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EXHIBIT 4.4
PRELIMINARY DRAFT OF INDENTURE BETWEEN
THE REGISTRANT AND U.S. TRUST CORPORATION
AURORA ELECTRONICS, INC.
AND
U.S. TRUST CORPORATION
Trustee
------------------------
Indenture
Dated as of [ ], 1998
------------------------
10% Series B Senior Subordinated Notes Due 2004
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 2
THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.02. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.05. Noteholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.06. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.07. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.08. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.09. Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.10. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 3
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3.01. Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3.02. Election to Redeem; Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
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SECTION 3.03. Mandatory Redemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3.04. Selection of Notes to be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3.05. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3.06. Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3.07. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3.08. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 3.09. Payment of Notes Called for Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 4
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.01. Payment of Principal and Interest on the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.02. SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.03. Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.04. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.05. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.06. Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.07. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.08. Keeping of Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.09. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.10. Notice of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.11. Limitation on Indebtedness and Disqualified Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.12. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.13. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 4.14. Repurchase of Notes Upon a Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 5
SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 5.01. When Company May Merge, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
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SECTION 5.02. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 6
DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.05. Waiver of Stay, Extension and Usury Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.06. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.07. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.08. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.09. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.10. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.11. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.12. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.13. Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 6.14. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 7
TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.05. Notice of Defaults or Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.06. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
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SECTION 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.09. Successor Trustee by Merger, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 7.11. Preferential Collection of Claims
Against Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 8.01. Termination of Company's Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 8.02. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 8.03. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 8.04. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 9.01. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 9.02. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 9.03. Revocation and Effect of Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 9.04. Notation on or Exchange of Notes
SECTION 9.05. Trustee to Sign Amendments, Etc.
SECTION 9.06. Conformity with Trust Indenture Act
ARTICLE 10
SUBORDINATION OF NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10.01. Notes Subordinate to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
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SECTION 10.02. Payment Permitted if No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10.03. Subrogation to Rights of Holders of
Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10.04. Provisions Solely to Define Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10.05. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustees' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10.06. No Waiver of Subordination Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10.07. Trustee to Effectuate Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10.08. Notice to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10.09. Reliance on Judicial Order or Certificate of
Liquidation Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10.10. Trustee Not Fiduciary for Holders of Senior
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10.11. Rights of Trustee as Holder of Senior Indebtedness;
Preservation of Trustee's Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 10.12. Article Applicable to Paying Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ARTICLE 11
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.03. Communications by Holders With
Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.05. Record Date for Vote or Consent of
Noteholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.07. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.08. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.09. No Adverse Interpretation of
Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C>
SECTION 11.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.12. Multiple Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.13. Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SECTION 11.14. Table of Contents, Headings, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>
___________________
Note: This Table of Contents shall not, for any purpose, be
deemed to be a part of this Indenture.
7
<PAGE> 8
INDENTURE dated as of [ ], 1998 between AURORA
ELECTRONICS, Inc., a Delaware corporation (the "Company"), and U.S. TRUST
CORPORATION, as Trustee (the "Trustee").
Both parties agree as follows for the benefit of the other and
for the equal and ratable benefit of the Holders of the Company's 10% Series B
Senior Subordinated Notes due 2004.
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. DEFINITIONS
"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.
"Agent" means any Registrar or Paying Agent.
"Available Cash Proceeds" means the gross cash proceeds
received by the Company from any Sale or Issuance Transaction, less all fees
and expenses incurred in connection therewith, including, without limitation,
legal expenses, customary commissions, and all federal, state, local and
foreign taxes assessed in connection therewith.
"Blockage Notice" means a written notice from the holders of
said Senior Indebtedness (or, in the case of the Credit Agreement, the Agent)
of a Nonmonetary Default pursuant to Section 10.02 of this Indenture.
"Blockage Period" means a period of time commencing on the
earlier of the date of receipt of a Blockage Notice or the date of the
acceleration of the Notes and ending 179 days thereafter, provided that not
more than one Blockage Period may be commenced with respect during any period
of 360 consecutive days.
"Board of Directors" means the Board of Directors of the
Company or any authorized committee of the Board of Directors.
"Business Day" means a day that is not a Legal Holiday.
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<PAGE> 9
"Change of Control" means (i) the sale, lease or transfer, whether
direct or indirect, of all or substantially all of the assets of the Company
and its subsidiaries, taken as a whole, in one transaction or a series of
related transactions, to any "person" or "group" (other than the WCAS Group),
(ii) the liquidation or dissolution of the Company or the adoption of a plan of
liquidation or dissolution of the Company, (iii) the acquisition of "beneficial
ownership" by any "person" or "group" (other than the WCAS Group) of voting
stock of the Company representing more than 50% of the voting power of all
outstanding shares of such voting stock, whether by way of merger or
consolidation or otherwise, or (iv) during any period of two consecutive years,
the failure of those individuals who at the beginning of such period
constituted the Company's Board of Directors (together with any new directors
whose election or appointment by such Board or whose nomination for election or
appointment by the shareholders of the Company was approved by a vote of a
majority of the directors 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) to constitute a majority of the Company's Board of
Directors then in office; provided, however, that in no event shall a
foreclosure on any collateral pledged by the Company in respect of obligations
arising under or in connection with the Credit Agreement constitute a Change of
Control. For purposes of this definition, the terms "person" and "group" shall
have the meaning set forth in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), whether or not applicable, (ii) the
term "beneficial owner" shall have the meaning set forth in Rules 13d-3 and
13d-5 under the Exchange Act, whether or not applicable, except that a 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 or upon the occurrence of certain events and
(iii) any "person" or "group" will be deemed to beneficially own any voting
stock of the Company so long as such person or group beneficially owns,
directly or indirectly, in the aggregate a majority of the voting stock of a
registered holder of the voting stock of the Company.
"Company" means the party named as such in this Indenture
until a successor replaces it pursuant to this Indenture and thereafter means
the successor.
"Convertible Preferred Stock" means the 7% Senior Cumulative
Convertible Preferred Stock, $.01 par value, of the Company.
"Credit Agreement" means, collectively, (i) the Credit
Agreement, dated as of March 29, 1996, as amended or otherwise modified, among
the Company and other Guarantors named therein, the Lenders named therein and
The Chase Manhattan Bank N.A., as
2
<PAGE> 10
Agent and (ii) the senior credit facility contemplated by Section 4.01(c) of
the Purchase Agreement, together with any agreement entered into in connection
with the restatement, renewal, extension, restructuring, refunding or
refinancing of the obligations under such credit agreements.
"default" means any event which is, or after notice or passage
of time, or both, would be, an Event of Default.
"Excess Cash Flow" means, for any fiscal period of the
Company, an amount, computed in accordance with GAAP, which is equal to the sum
of (i) the excess of (I) the sum (without duplication) of (A) net income for
such fiscal period; (B) expenses for such fiscal period for depreciation,
amortization and other similar non-cash charges, to the extent that the same
are deducted from net revenues in determining net income for such fiscal
period; (C) the difference between (1) the amount of taxes imposed on the
Company deducted from net revenues to determine net income for such fiscal
period and (2) the amount of taxes actually paid by the Company during such
fiscal period; and (D) the difference between (1) any extraordinary or
non-recurring items of expense deducted from net revenues to determine net
income for such fiscal period and (2) the aggregate amount of all cash payments
made by the Company during such period on account of extraordinary or
non-recurring items of expense, whether or not accrued in such period; over
(II) the sum (without duplication) of (A) the aggregate amount during such
fiscal period of scheduled payments of principal on (x) the Notes and the WCAS
VII Notes, (y) the indebtedness under the Credit Agreement and (z) any
indebtedness permitted under the Credit Agreement; (B) the amount of actual
payments by the Company in cash during such fiscal period for capital
expenditures; and (C) the difference between (1) any extraordinary or
non-recurring items of income added to net revenues to determine net income and
(2) the aggregate amount of all cash receipts received by the Company during
such period on account of extraordinary or non-recurring items of income,
whether or not accrued in such period; and (ii) plus (in the case of a
decrease) or minus (in the case of an increase) the change in the amount of
working capital as at the end of such fiscal period as compared with the amount
of working capital as at the end of the immediately preceding fiscal period.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"GAAP means generally accepted accounting principles in the
United States of America as in effect as of the Closing Date, including,
without limitation, 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 are
approved by
3
<PAGE> 11
a significant segment of the accounting profession. All computations contained
or referred to in this Indenture shall be computed in conformity with GAAP
applied on a consistent basis.
"Holder" or "Noteholder" means the person in whose name a Note
is registered on the Registrar's books.
"indebtedness" means indebtedness for money borrowed.
"Indenture" means this Indenture as amended or supplemented
from time to time.
"Lien" means any pledge, charge, security interest or
encumbrance.
"Notes" means the 10% Series B Senior Subordinated Notes due
2004, or any of them, as amended or supplemented from time to time, that are
issued under this Indenture.
"Offer to Purchase" means an offer, made pursuant to a writing
(an "Offer Document") sent by the Company by first class mail, postage prepaid,
to each Holder at his address appearing in the register of Holders of Notes
maintained by the Registrar on the date of the Offer Document, to purchase up
to the principal amount of Notes specified in such Offer Document at the
purchase price specified in such Offer Document (as determined pursuant to this
Indenture). The Offer Document shall specify an expiration date (the
"Expiration Date") of the Offer to Purchase which shall be, subject to any
contrary requirements of applicable law, not less than 20 days or more than 60
days after the date of such Offer Document and a settlement date (the "Purchase
Date") for purchase of Securities within five Business Days after the
Expiration Date. The Company shall notify the Trustee at least 15 Business
Days (or such shorter period as is acceptable o the Trustee) prior to the
mailing of the Offer Document of the Company's obligation to make an Offer to
Purchase, and the Offer Document shall be mailed by the Company or, at the
Company's request, by the Trustee in the name and at the expense of the
Company. The Offer Document shall contain information concerning the business
of the Company and its Subsidiaries which the Company in good faith believes
will enable such Holders to make an informed decision with respect to the Offer
to Purchase (which at a minimum will include (i) the most recent annual and
quarterly financial statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the documents
required to be filed with the Trustee pursuant to Section 4.02 (which
requirements may be satisfied by delivery of such documents together with the
Offer Document), (ii) a description of material developments in the Company's
business subsequent to the date of the latest of financial statements referred
to in clause (i) (including a description of the events requiring the Company
to make the Offer to Purchase), (iii) if applicable,
4
<PAGE> 12
appropriate pro forma financial information concerning the Offer to Purchase
and the events requiring the Company to make the Offer to Purchase and (iv) any
other information required by applicable law to be included therein. The Offer
Document shall contain all instructions and materials necessary to enable such
Holder to tender Securities pursuant to the Offer to Purchase. The Offer
Document shall also state:
(1) the Section of this Indenture pursuant to which the
Offer to Purchase us being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding
Notes offered to be purchased by the Company pursuant to the Offer to Purchase
(including, if less than 100%, the manner by which such has been determined
pursuant to the Section hereof requiring the Offer to Purchase) (the "Purchase
Amount");
(4) the purchase price to be paid by the Company for each
$83.33 aggregate principal amount of Notes accepted for payment (as specified
pursuant to this Indenture);
(5) that the Holder may tender all or any portion of the
Notes registered in the name of such Holder and that any portion of a Note
tendered must be tendered in the integral multiple of $83.33 of principal
amount;
(6) the place or places where Notes are to be surrendered
for tender pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered
but not purchased by the Company pursuant to the Offer to Purchase will
continue to accrue;
(8) that on the Purchase Date the purchase price will
become due and payable upon each Note accepted for payment pursuant to the
Offer to Purchase and that interest therein shall cease to accrue on and after
the Purchase Date;
(9) that each Holder electing to tender a Note pursuant
to the Offer to Purchase will be required to surrender such Note at the place
or places specified in the Offer Document prior to the close of business on the
Expiration Date (such Note being, if the Company or the Trustee so requires,
duly endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing);
(10) that Holders will be entitled to withdraw all or any
portion of the Notes tendered if the Company (or its Paying Agent) receives,
not later than the close of business on the
5
<PAGE> 13
Expiration Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder tendered, the amount of the Notes the Holder
tendered, the certificate numbers of the Notes the Holder tendered and a
statement that such Holder is withdrawing all or a portion of his tender;
(11) that (a) if Notes in an aggregate amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant to
the Offer to Purchase, the Company shall purchase all such Notes and (b) if
Notes in an aggregate principal amount in excess of the Purchase Amount are
tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall
purchase Notes having and aggregate principal amount equal to the Purchase
Amount on a pro rata basis (which such adjustments as may be deemed appropriate
so that only Notes in denominations of $83.33 or integral multiples thereof
shall be purchased); and
(12) that in case of any Holder whose Note is purchased
only in part, the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such Note without service charge, 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 unpurchased portion of the
Notes so tendered.
Any Offer to Purchase shall be governed by and effected in
accordance with the Offer Document for such Offer to Purchase.
"Officer" means the Chairman of the Board, the President, any
Vice President, the Chief Financial Officer, the Treasurer or the Secretary of
the Company.
"Officer's Certificate" means a certificate signed by any
Officer of the Company. One of the officers signing an Officers' Certificate
pursuant to Section 11.04 shall be the principal executive, financial or
accounting officer of the Company.
"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.
"person" means any individual, corporation, partnership, joint
venture, limited liability entity, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"principal" of a debt security, including the Notes and the
WCAS VII Notes, means the principal of the security plus, when appropriate, the
premium, if any, on the security.
6
<PAGE> 14
"Purchase Agreement" means the Securities Purchase and
Exchange Agreement dated as of January 30, 1998, among the Company, WCAS VII,
WCAS CP II and the several purchasers named on Schedule I thereto.
"redemption date," when used with respect to any Note to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"redemption price," when used with respect to any Note to be
redeemed, means the price fixed for such redemption by or pursuant to this
Indenture.
"Sale or Issuance Transaction" means (i) any sale, transfer,
lease, sale and leaseback or other disposition by the Company to any person of
all or any part of its property or assets, in any case in a single transaction
or a series of related transactions (other than any of the foregoing for fair
value of property that (x) is of inventory in the ordinary course of business
or (y) is of worn-out or obsolete assets); or (ii) the issuance (other than
by dividend) of any capital stock or other ownership interest of the Company
pursuant to an offering or offerings registered under the Securities Act.
"SEC" means the Notes and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Indebtedness" means the principal of, premium, if any,
and 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) on, and all reasonable fees, reimbursement and indemnity
obligations, and all other obligations arising in connection with, any
indebtedness for borrowed money of the Company, contingent or otherwise, now
outstanding or created, incurred, issued, assumed or guaran- teed in the
future, for which, in the case of any particular indebtedness, the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such indebtedness shall not be subordinate in right of
payment to any other indebtedness of the Company, including without limitation,
all "Obligations" (as such term is defined in the Credit Agreement) under the
Credit Agreement. Notwithstanding the foregoing, Senior Indebtedness shall
include only such Obligations (as defined in the Credit Agreement) until such
time as the same are paid in full in cash and all obligations to provide
financial accommodations under the Credit Agreement have terminated.
7
<PAGE> 15
"Subsidiary" means, with respect to any person, any
corporation, association or other business entity (a) of which more than 50% of
the voting power of the outstanding capital stock is owned, directly or
indirectly, by such person or by such person and one or more other Subsidiaries
of such person or (b) which is consolidated in such person's consolidated
financial statements in accordance with GAAP.
"TIA" means the Trust Indenture Act of 1939, as amended by the
Trust Indenture Reform Act of 1990 and as in effect on the date of this
Indenture, except as provided in Section 9.03 hereof.
"Trustee" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture and thereafter means the successor.
"Trust Officer" means any Account Manager or officer within
the Corporate Trust Services Department (or any successor group) of the
Trustee, including without limitation any Vice President, Assistant Vice
President, any trust officer, any Assistant Secretary or any other officer
customarily performing functions similar to those performed by any of the
above-designated officers who shall, in any case, be responsible for the
administration of this Indenture or have familiarity with it, and also means,
with respect to a particular corporate matter, any other officer of the Trustee
to whom corporate trust matters are referred because of his knowledge of and
familiarity with the particular subject.
"WCAS VII" means Welsh, Carson, Anderson & Stowe VII, L.P., a
Delaware limited partnership.
"WCAS CP II" means WCAS Capital Partners II, L.P., a Delaware
limited partnership.
"WCAS Group" means WCAS VII, WCAS CP II, any general partners
thereof and any other investment limited partnerships or other investment
entities under common control therewith.
"WCAS VII Notes" means the 10% Series A Senior Subordinated
Notes due 2004, or any of them, as amended or supplemented from time to time,
that have been acquired by WCAS VII pursuant to the Purchase Agreement.
8
<PAGE> 16
SECTION 1.02. OTHER DEFINITIONS
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
<S> <C>
"Bankruptcy Law"...................................... 6.01
"Custodian"........................................... 6.01
"Event of Default".................................... 6.01
"Legal Holiday"....................................... 11.07
"Nonmonetary Default"................................. 10.02
"Paying Agent"......................................... 2.03
"Registrar"............................................ 2.03
"U.S. Government Obligations".......................... 8.01
</TABLE>
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company or any
other obligor on the Notes.
All other terms used in this Indenture that are defined in the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.04. RULES OF CONSTRUCTION
Unless the context otherwise requires:
9
<PAGE> 17
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally accepted
accounting principles in effect on the date hereof, and any
other reference in this Indenture to "generally accepted
accounting principles" refers to generally accepted accounting
principles in effect on the date hereof;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words
in the plural include the singular;
(5) provisions apply to successive events and
transactions; and
(6) "herein", "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
(7) all computations based on GAAP contained in this
Indenture shall be computed in accordance with the definition
of GAAP set forth in Section 1.01.
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING
The Notes and the Trustee's certificate of authentication
shall be substantially in the form of Exhibit A, which are incorporated in and
made part of this Indenture. The Notes may have notations, legends or
endorsements required by law, stock exchange rules or agreements to which the
Company is subject or by usage. The Company shall approve the form of the
Notes and any notation, legend or endorsement on them. Each Note shall be
dated the date of its authentication.
The Notes shall be issued only in denominations of $83.33 and
integral multiples thereof. The face of the Notes shall be and the reverse of
the Notes shall contain terms and provisions substantially in the form set
forth in Exhibit A hereof. The Company and the Trustee, by their execution and
delivery of this Indenture, expressly agree to such terms and provisions and to
be bound thereby.
10
<PAGE> 18
SECTION 2.02. EXECUTION AND AUTHENTICATION
Two Officers shall sign the Notes for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Notes.
If an Officer whose signature is on a Note no longer holds
that office at the time the Trustee authenticates the Note, the Note shall be
valid nevertheless.
A Note shall not be valid until the Trustee manually signs the
certificate of authentication on the Note. The signature shall be conclusive
evidence that the Note has been authenticated under this Indenture.
The Trustee shall authenticate Notes for original issue in the
aggregate principal amount of up to $2,747,890, upon a written order or orders
of the Company signed by an Officer of the Company. The order shall specify
the amount of Notes to be authenticated and the date on which the original
issue of Notes is to be authenticated. The aggregate principal amount of Notes
outstanding at any time may not exceed $2,747,890, except as provided in
Section 2.07.
The Trustee shall act as the initial authenticating agent.
Thereafter, the Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. 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 an Agent to deal with the Company
or an Affiliate of the Company.
Each Note shall be dated the date of its authentication. The
Notes shall be issuable only in registered form, without coupons.
SECTION 2.03. REGISTRAR AND PAYING AGENT
The Company shall maintain an office or agency at the office
of the Trustee [in __________________] where Notes may be presented for
registration of transfer or for exchange ("Registrar"), where Notes may be
presented for payment ("Paying Agent"), and an where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. The
Registrar shall keep a register of the Notes and of their transfer and
exchange. The Company may have one or more co-Registrars and one or more
additional Paying Agents. The term "Registrar" includes any co-Registrar and
the term "Paying Agent" includes any additional Paying Agent. Except for
purposes of Article 8, the Company or any Affiliate of the Company may act as
Paying Agent.
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<PAGE> 19
The Company shall enter into an appropriate agency agreement
with any Agent who is not a party to this Indenture. The agreement shall
implement the provisions of this Indenture that relate to such Agent. The
Company shall notify the Trustee of the name and address of any Agent not a
party to this Indenture. If the Company fails to maintain a Registrar, Paying
Agent, or agent for service of notices and demands, or fails to give the
foregoing notice, the Trustee shall act as such.
The Company initially appoints the Trustee as Registrar,
Paying Agent, and agent for service of notices and demands. The Company may
remove any Agent upon written notice to such Agent and the Trustee; provided
that no such removal shall become effective until (i) the acceptance of an
appointment by a successor Agent to such Agent as evidenced by an appropriate
agency agreement entered into by the Company and such successor Agent and
delivered to the Trustee or (ii) notification to the Trustee that the Trustee
shall serve as such agent until the appointment of a successor Agent in
accordance with clause (i) of this proviso.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST
On or prior to each due date of the principal of or interest
on any Notes, the Company shall deposit with the Paying Agent a sum sufficient
to pay such principal or interest so becoming due. The Paying Agent shall hold
in trust for the benefit of Noteholders or the Trustee all money held by the
Paying Agent for the payment of principal of or interest on the Notes, and
shall notify the Trustee of any default by the Company (or any other obligor on
the Notes) in making any such payment. If the Company or an Affiliate of the
Company acts as Paying Agent, it shall on or before each due date of the
principal of or interest on any Notes segregate the money and hold it as a
separate trust fund. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee and the Trustee may at any time during the
continuance of any default, upon written request to a Paying Agent, require
such Paying Agent to forthwith pay to the Trustee all sums so held in trust by
such Paying Agent. Upon doing so, the Paying Agent (other than the Company)
shall have no further liability for the money.
SECTION 2.05. NOTEHOLDER LISTS
The Trustee shall preserve in as current a form as is
reasonably practicable the most recent list available to it of the names and
addresses of Noteholders. If the Trustee is not the Registrar, the Company
shall furnish to the Trustee on or before each interest payment date and at
such other times as the Trustee may request in writing a list in such form and
as of such date as the Trustee may reasonably require of the names and
addresses of Noteholders.
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SECTION 2.06. TRANSFER AND EXCHANGE
When a Note is presented to the Registrar with a request to
register a transfer thereof, the Registrar shall register the transfer as
requested and when Notes are presented to the Registrar with a request to
exchange them for an equal principal amount of Notes of other authorized
denominations, the Registrar shall make the exchange as requested; provided
that every Note presented or surrendered for registration of transfer or
exchange shall be duly endorsed or be accompanied by a written instrument of
transfer in form satisfactory to the Company and the Registrar duly executed by
the Holder thereof or his attorney duly authorized in writing. To permit
registration of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Notes at the Registrar's request. Any exchange or
transfer shall be without charge, except that the Company may require payment
of a sum sufficient to cover any tax or other governmental charge that may be
imposed in relation thereto, but this provision shall not apply to any exchange
pursuant to Section 2.10, 3.06 or 9.04.
SECTION 2.07. REPLACEMENT NOTES
If a mutilated Note is surrendered to the Trustee, or if the
Holder of a Note claims that the Note has been lost, destroyed or wrongfully
taken, and neither the Company nor the Trustee has received notice that such
Note has been acquired by a bona fide purchaser, the Company shall issue and
the Trustee shall authenticate a replacement Note if the requirements of
Section 8-405 of the New York Uniform Commercial Code, as in effect on the date
of this Indenture, are met, and there shall have been delivered to the Company
and the Trustee evidence to their satisfaction of the loss, destruction or
theft of any Note if such is the case. An indemnity bond may be required that
is sufficient in the judgment of the Company and the Trustee to protect the
Company, the Trustee or any Agent from any loss which any of them may suffer if
a Note is replaced. The Company may charge for its expenses in replacing a
Note. Every replacement Note is an additional obligation of the Company.
SECTION 2.08. OUTSTANDING NOTES
Notes outstanding at any time are all Notes authenticated by
the Trustee, except for those canceled by it, those delivered to it for
cancellation and those described in this Section 2.08 as not outstanding.
If a Note is replaced pursuant to Section 2.07, it ceases to
be outstanding until the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
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If the Paying Agent (other than the Company or an Affiliate of
the Company) holds on a redemption date or maturity date money sufficient to
pay the principal of and accrued interest on Notes payable on that date, then
on and after that date such Notes cease to be outstanding and interest on them
ceases to accrue.
A Note does not cease to be outstanding because the Company or
an Affiliate of the Company holds the Note.
SECTION 2.09. TREASURY NOTES
In determining whether the Holders of the required principal
amount of Notes have concurred in any notice, direction, waiver or consent,
Notes owned by the Company or any other obligor on the Notes or by any
Affiliate of the Company or of such other obligor shall be disregarded, except
that for purposes of determining whether the Trustee shall be protected in
relying on any such notice, direction, waiver or consent, only Notes which the
Trustee knows are so owned shall be so disregarded. Notes so owned which have
been pledged in good faith shall not be disregarded if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act with respect
to the Notes and that the pledgee is not the Company or any other obligor upon
the Notes or any Affiliate of the Company or of such other obligor.
SECTION 2.10. TEMPORARY NOTES.
Until definitive Notes are ready for delivery, the Company may
prepare and, upon the order of the Company, the Trustee shall authenticate
temporary Notes. Temporary Notes shall be substantially in the form of
definitive Notes but may have variations that the Company considers appropriate
for temporary Notes. Without unreasonable delay, the Company shall prepare and
the Trustee shall authenticate definitive Notes in exchange for temporary
Notes.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for transfer, exchange, or payment. The Trustee and
no one else shall cancel all Notes surrendered for transfer, exchange, payment
(including redemption), or cancellation and shall dispose of cancelled Notes as
the Company shall direct. The Company may not issue new Notes to replace Notes
it has paid or delivered to the Trustee for cancellation.
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SECTION 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Notes,
it shall pay the defaulted interest to the persons who are Note holders on a
subsequent special record date, and such term as used in this Section 2.12 with
respect to the payment of any defaulted interest, shall mean the fifteenth day
next preceding the special payment date fixed by the Company, whether or not
such day is a Business Day. At least 15 days before the special record date,
the Company shall mail to each Noteholder and the Trustee a notice that states
the special record date, the special payment date and the amount of defaulted
interest to be paid.
ARTICLE 3
REDEMPTION
SECTION 3.01. OPTIONAL REDEMPTION.
The Notes may be redeemed, at the Company's option, in whole
or in part at any time and from time to time at the principal amount thereof,
together with accrued interest to the date fixed for redemption Date.
SECTION 3.02. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Notes pursuant to
Section 3.01 shall be evidenced by a resolution of the Board of Directors of
the Company. In case of a redemption at the election of the Company of less
than all the Notes, the Company shall, net less than 20 nor more than 60 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 the principal amount of the Notes to be redeemed.
SECTION 3.03. MANDATORY REDEMPTIONS.
Subject to the terms of the Senior Indebtedness, within 105
days after the end of each fiscal year of the Company, the Company shall apply
100% of the Excess Cash Flow of the Company to the redemption of the Notes and
the WCAS Notes; and (b) within five (5) days after the consummation of any Sale
or Issuance Transaction by the Company, the Company shall apply 100% of its
Available Cash Proceeds of such Sale or Issuance Transaction to the redemption
of the Notes and the WCAS Notes. To the extent that any redemption pursuant to
this Section 3.03 is of less than all of the Notes and WCAS VII Notes then
outstanding, such redemption shall be made on a pro rata basis with respect to
the Notes and the WCAS VII Notes, based on the aggregate principal amount of
Notes and the WCAS VII Notes then outstanding.
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SECTION 3.04. SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time,
the Trustee shall select the Notes to be redeemed from the outstanding Notes
not previously called for redemption on a pro rata basis, by lot or by such
other method as the Trustee in its sole discretion shall deem fair and
appropriate and which may provide for the selection for redemption of portions
equal to $83.33 in principal amount or any integral multiple thereof.
The Trustee shall promptly notify the Company and each
Security Registrar in writing of the Securities 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 the redemption of the Notes,
shall relate, in the case of any Notes redeemed or to be redeemed only in part,
to the portion of the principal amount of such Notes which has been or is to be
redeemed.
SECTION 3.05. NOTICE OF REDEMPTION
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 20 nor more than 60 days prior to the
Redemption Date, to each Holder of Notes to be redeemed, at his address
appearing in the Register of Notes.
The notice shall identify the Notes to be redeemed and shall
state:
(i) the redemption date;
(ii) the redemption price;
(iii) the name and address of the Paying Agent;
(iv) that Notes called for complete redemption must be
surrendered to the Paying Agent in order to collect the redemption price;
(v) if any Note is being redeemed in part, the portion of
the principal amount of such Note to be redeemed (equal to $83.33 in principal
amount or any integral multiple thereof) and that, on and after the redemption
date, upon surrender of such Note, a new Note or Notes in principal amount
equal to the unredeemed portion thereof will be reissued and authenticated at
no expense to the Holder;
(vi) that, unless the Company defaults in making the
redemption payment, interest on Notes (or any portion thereof) called for
redemption ceases to accrue on and after the redemption
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date and the only remaining right of the Holders with respect to such Notes (or
the portion thereof called for redemp- tion) is to receive payment of the
redemption price plus accrued and unpaid interest to the redemption date upon
surrender thereof to the Paying Agent; and
(vii) the aggregate principal amount of Notes being redeemed.
SECTION 3.06. NOTES REDEEMED IN PART.
If any Note is being redeemed in part, upon surrender of such
Note, the Company shall execute and issue and the Trustee shall authenticate
and deliver to the Holder of such Note, without service charge, a new Note or
Notes, in principal amount equal to the unredeemed portion thereof.
SECTION 3.07. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption has been made, Notes called for
redemption become due and payable on the redemption date and at the redemption
price. Upon surrender of any Notes to the Paying Agent, such Notes shall be
paid at the redemption price, plus accrued and unpaid interest to the
redemption date. In any event, failure to give notice, or any defect therein,
shall not affect the validity of the proceedings for the redemption of Notes
held by Holders to whom such notice was properly given.
SECTION 3.08. DEPOSIT OF REDEMPTION PRICE.
On or prior to 10:00 a.m., local time on any redemption date,
the Company shall deposit with the Paying Agent money in immediately available
funds sufficient to pay the redemption price of and accrued and unpaid interest
on all Notes to be redeemed on that date other than Notes or portions thereof
called for redemption on that date that have been delivered by the Company to
the Trustee for cancellation.
SECTION 3.09. PAYMENT OF NOTES CALLED FOR REDEMPTION.
If notice of redemption has been given in the manner provided
above, the Notes or portion of Notes specified in such notice to be redeemed
shall become due and payable on the redemption date at the redemption price
stated therein, together with accrued and unpaid interest to such redemption
date, and on and after such date (unless the Company shall default in the
payment of such Notes at the redemption price and accrued and unpaid interest
to the redemption date, in which case the principal, until paid, shall bear
interest from the Redemption Date at the rate prescribed in the Notes), such
Notes shall cease to accrue interest. Upon surrender of any Note for redemption
in accordance with a notice of redemption, such Note shall be paid and redeemed
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by the Company at the redemption price, together with accrued and unpaid
interest to the redemption date; provided that installments of interest whose
record date is prior to the redemption date shall be payable to the Holders
registered as such at the close of business such record date, if any.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF PRINCIPAL AND INTEREST ON THE NOTES.
The Company will use its best efforts, subject to the
provisions of applicable credit arrangements (including the Credit Agreement),
contractual obligations of the Company and/or its subsidiaries and any
applicable law restricting the same, to provide funds from its Subsidiaries to
the Company, by dividend, advance or otherwise, sufficient to permit payment by
the Company of the principal of and interest on this Note in accordance with
its terms. Subject to any applicable provisions in the Credit Agreement and
documents executed and delivered in connection therewith, the Company will not,
and will not permit any Subsidiary to, directly or indirectly create or
otherwise cause to exist any encumbrance or restriction on the ability of any
subsidiary to pay dividends or make any other distributions to the Company or
any wholly-owned Subsidiary of the Company in respect of its capital stock.
SECTION 4.02. SEC REPORTS.
Whether or not the Company is then required to file reports
with the SEC, the Company shall file all reports and other information and
documents which it is required to file with the SEC pursuant to Section 13 or
15(d) of the Exchange Act as if it were subject thereto, and within 15 days
after it files them with the SEC, the Company shall file copies of all such
reports, information and other documents with the Trustee. The Company will
cause copies of such reports and other information to be mailed to the Holders
of the Notes.
SECTION 4.03. COMPLIANCE CERTIFICATES.
The Company shall deliver to the Trustee, within 45 days after
the end of each fiscal quarter (90 days after the end of the last fiscal
quarter of each year), an Officers' Certificate stating whether or not the
signers know of any Default or Event of Default that occurred during such
fiscal quarter. In the case of the Officers' Certificate delivered within 90
days of the end of the Company's fiscal year, such certificate shall contain a
certification from the principal executive officer, principal financial officer
or principal accounting officer of the Company that a review has been conducted
of the activities of the Company
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and its Subsidiaries and the Company's and its Subsidiaries' performance under
this Indenture and that the Company has complied with all conditions and
covenants under this Indenture. For purposes of this Section 4.03, such
compliance shall be determined without regard to any period of grace or
requirement of notice provided under this Indenture. If any of the signers of
the Officers' Certificate have knowledge of such a Default or Event of Default,
the certificate shall describe any such Default or Event of Default and its
status. The first certificate to be delivered pursuant to this Section 4.03
shall be for the first fiscal quarter beginning after the execution of this
Indenture.
(b) The Company shall deliver to the Trustee, within 90 days after
the end of the Company's fiscal year, a certificate signed by the Company's
independent certified public accountants stating (i) that their audit
examination has included a review of the terms of this Indenture and the Notes
as they relate to accounting matters, (ii) that they have read the most recent
Officers' Certificate delivered to the Trustee pursuant to paragraph (a) of
this Section 4.03 and (iii) whether, in connection with their audit
examination, anything came to their attention that caused them to believe that
the Company was not in compliance with any of the terms, covenants, provisions
or conditions of Article Four and Section 5.01 of this Indenture as they
pertain to accounting matters and, if any Default or Event of Default has come
to their attention, specifying the nature and period of existence thereof;
provided that such independent certified public accountants shall not be liable
in respect of such statement by reason of any failure to obtain knowledge of
any such Default or Event of Default that would not be disclosed in the course
of an audit examination conducted in accordance with generally accepted
auditing standards in effect at the date of such examination.
The Company shall, so long as any of the Notes are outstanding,
deliver to the Trustee, forthwith upon any Officer becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default
or Event of Default and what action the Company is taking or proposes to take
with respect thereto.
SECTION 4.04. PAYMENT OF TAXES.
The Company will promptly pay and discharge or cause to be
paid and discharged, before the same shall become in default, all material
lawful taxes and assessments imposed upon the Company or any of its
Subsidiaries or upon the income and profits of the Company or any of its
Subsidiaries, or upon any property, real, personal or mixed, belonging to the
Company or any of its Subsidiaries, or upon any part thereof by the United
States or any State thereof, as well as all material lawful claims for labor,
materials and supplies which, if unpaid, would become a
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lien or charge upon such property or any part thereof; provided, however, that
neither the Company nor any of its Subsidiaries shall be required to pay and
discharge or to cause to be paid and discharged any such tax, assessment,
charge, levy or claim so long as both (x) the Company has established adequate
reserves for such tax, assessment, charge, levy or claim and (y)(i) the Company
or a Subsidiary shall be contesting the validity thereof in good faith by
appropriate proceedings or (ii) the Company shall, in its good faith judgment,
deem the validity thereof to be questionable and the party to whom such tax,
assessment, charge, levy or claim is allegedly owed shall not have made written
demand for the payment thereof.
SECTION 4.05. CORPORATE EXISTENCE.
Subject to Article 5, the Company will do or cause to be done
all things necessary and lawful to preserve and keep in full force and effect
(i) its corporate existence and the corporate existence of each of its
Subsidiaries and (ii) the material rights and franchises of the Company and
each of its Subsidiaries under the laws of the United States or any state
thereof, or, in the case of Subsidiaries organized and existing outside the
United States, under the laws of the applicable jurisdiction; provided,
however, that nothing in this Section 4.05 shall prevent the abandonment or
termination of any rights or franchises of the Company, or the liquidation or
dissolution of, or a sale, transfer or disposition (whether through merger,
consolidation, sale or otherwise) of all or any substantial part of the
property and assets of, any Subsidiary or the abandonment or termination of the
corporate existence, rights and franchises of any Subsidiary if such
abandonment, termination, liquidation, dissolution, sale, transfer or
disposition is, in the good faith business judgment of the Company, in the best
interests of the Company and not disadvantageous to the holders of the Notes.
SECTION 4.06. MAINTENANCE OF PROPERTY.
The Company will at all times maintain and keep, or cause to
be maintained and kept, in good repair, working order and condition (reasonable
wear and tear excepted) all significant properties of the Company and its
Subsidiaries used in the conduct of the business of the Company and its
Subsidiaries, and will from time to time make or cause to be made all needful
and proper repairs, renewals, replacements, betterments and improvements
thereto, so that the business of the Company and its Subsidiaries may be
conducted at all times in the ordinary course consistent with past practice.
SECTION 4.07. INSURANCE.
The Company will, and will cause each of its Subsidiaries to,
(i) keep adequately insured, by financially sound and
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reputable insurers, all property of a character usually insured by corporations
engaged in the same or a similar business similarly situated against loss or
damage of the kinds customarily insured against by such corporations and (ii)
carry, with financially sound and reputable insurers, such other insurance
(including without limitation liability insurance) in such amounts as are
available at reasonable expense and to the extent believed advisable in the
good faith business judgment of the Company.
SECTION 4.08. KEEPING OF BOOKS.
The Company will at all times keep, and cause each of its
Subsidiaries to keep, proper books of record and account in which proper
entries will be made of its transactions in accordance with generally accepted
accounting principles consistently applied.
SECTION 4.09. TRANSACTIONS WITH AFFILIATES.
The Company shall not enter into, or permit any of its
Subsidiaries to enter into, any transaction with any of its or any Subsidiary's
officers, directors, employees or any person related by blood or marriage to
any such person or any entity in which any such person owns any beneficial
interest, except for (i) normal employment arrangements, benefit programs and
employee incentive option programs on reasonable terms, (ii) any transaction
approved by the Board of Directors of the Company in accordance with the
provisions of Section 144 of the Delaware General Corporation Law, or otherwise
permitted by such Section, (iii) customer transactions in the ordinary course
of business and on arm's length terms and (iv) the transactions contemplated by
the Purchase Agreement.
SECTION 4.10. NOTICE OF CERTAIN EVENTS.
The Company shall, immediately after it becomes aware of the
occurrence of (i) any Event of Default (as hereinafter defined) or any event
which, upon notice or lapse of time or both, would constitute such an Event of
Default, or (ii) any action, suit or proceeding at law or in equity or by or
before any governmental instrumentality or agency which, if adversely
determined, would materially impair the right of the Company to carry on its
business substantially as now or then conducted, or would have a material
adverse effect on the properties, assets, financial condition, prospects,
operating results or business of the Company and its subsidiaries taken as a
whole, give notice to the holder of this Note, specifying the nature of such
event.
SECTION 4.11. LIMITATION ON INDEBTEDNESS AND DISQUALIFIED STOCK.
The Company will not, and will not permit any of its
Subsidiaries to, (i) incur or permit to remain outstanding any
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indebtedness, except (A) Senior Indebtedness, (B) indebtedness existing on the
date of original issuance of the Notes, (C) indebtedness permitted to be
incurred under the Credit Agreement as in effect from time to time after the
original issuance of the Notes (other than indebtedness that is subordinate or
junior in right of payment (to any extent) to any Senior Indebtedness and
senior or pari passu in right of payment (to any extent) to the Notes and the
WCAS VII Notes), or (D) in the event that the Credit Agreement has terminated,
indebtedness permitted to be incurred under any successor credit agreement of
the Company with respect to Senior Indebtedness, or if there exists no such
credit agreement, such Indebtedness as may be mutually agreed upon by the
Company and the holders of a majority of the aggregate principal amount of the
Notes and the WCAS VII Notes then outstanding, or (ii) issue any capital stock
of the Company or any of its subsidiaries (other than the Convertible Preferred
Stock 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, matures, or is mandatorily redeemable, whether pursuant to a sinking
fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to December 31, 2005.
SECTION 4.12. RESTRICTED PAYMENTS.
The Company will not, and will not permit any of its
Subsidiaries to: (i) declare or pay any dividends on, or make any other
distribution or payment on account of, or redeem, retire, purchase or otherwise
acquire, directly or indirectly, any shares of any class of stock of the
Company, whether now or hereafter outstanding, or make any other distribution
in respect thereof, either directly or indirectly, whether in cash, property or
in obligations of the Company or any of its Subsidiaries, except for (X)
distributions of shares of the same class or of a different class of stock pro
rata to all holders of shares of a class of stock, (Y) the payment of cash
dividends on account of the Convertible Preferred Stock, or (Z) dividends,
distributions or payments by any Subsidiary to the Company or to any
wholly-owned subsidiary of the Company, or (ii), except as permitted under the
Credit Agreement, make any payments of principal of, or retire, redeem,
purchase or otherwise acquire any Indebtedness other than any Senior
Indebtedness or the Notes.
SECTION 4.13. LIMITATION ON LIENS.
The Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, create, incur, assume or otherwise
cause or suffer to exist any Liens on any asset now owned or hereafter
acquired, or on any income or profits therefrom or assign or convey any right
to receive income therefrom, except for (i) Liens permitted under the Credit
Agreement, (ii) liens for current taxes not yet due, (iii) landlord's liens,
(iv)
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purchase money liens and (v) workman's, materialman's, warehouseman's and
similar liens arising by law or statute.
SECTION 4.14. REPURCHASE OF NOTES UPON A CHANGE OF CONTROL.
(a) Subject to the terms of the Senior indebtedness, upon the
occurrence of any Change of Control, each Holder shall have the right to
require the repurchase of its Notes by the Company in cash pursuant to the
offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase. Subject only to the limitations of Article Ten, the Company
shall, within five (5) days following the date of the consummation of a
transaction resulting in a Change of Control, mail an Offer Document with
respect to an Offer to Purchase all outstanding Notes. Each Holder shall be
entitled to tender all or any portion of the Notes owned by such Holder
pursuant to the Offer to Purchase, subject to the requirement that any portion
of a Note tendered must be in an integral multiple of $83.33 principal amount.
(b) Prior to the time required for the mailing of an Offer
Document with respect to an Offer to Purchase pursuant to paragraph (a), the
Company will in good faith (i) seek to obtain any required consent of the
holders of Senior Indebtedness so as to permit the making of the Offer to
Purchase and the purchase of the Notes pursuant to this Section 4.14, or (ii)
repay all or a portion of the holders of Senior Indebtedness to the extent
necessary (including, if necessary, payment in full of such Senior Indebtedness
and payment of any prepayment premiums, fees, expenses or penalties) to permit
the making of the Offer to Purchase and the purchase of Notes pursuant to this
Section 4.18 without such consent. Following compliance by the Company with
the requirements of the foregoing sentence, the Company shall, within the time
required for the mailing of an Offer Document with respect to an Offer to
Purchase pursuant to paragraph (a), mail such Offer. Failure to comply with
such requirements shall not relieve the Company of its obligations under
paragraph Section 4(a) of this Section 4.14.
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(c) On the Payment Date of the Offer to Purchase, the Company
will (i) accept for payment the Notes or portions thereof validly tendered
pursuant to the offer to Purchase, (ii) promptly mail to the Holders of the
Notes so accepted for payment an amount equal to the purchase price of the
Notes (or portions thereof) accepted for payment and shall promptly mail or
deliver to such holders a new Note equal in principal amount of the portion of
the Notes surrendered. Any Notes not so accepted for payments will be promptly
mailed or delivered to the Holders.
ARTICLE 5
SUCCESSOR CORPORATION
SECTION 5.01. WHEN COMPANY MAY MERGE, ETC.
The Company will not consolidate or merge with or into, or sell or otherwise
dispose of all or substantially all of its property in one or more related
transactions to, any other corporation or other entity, unless:
(i) the Company is the surviving corporation or the
entity formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale or other disposition
shall have been made is a corporation organized or existing under the
laws of the United States of any state thereof or the District of
Columbia;
(ii) the surviving corporation or other entity (if other
than the Company) shall expressly and effectively assume in writing
the due and punctual payment of the principal of and interest on this
Note, according to its tenor, and the due and punctual performance and
observance of all the terms, covenants, agreements and conditions of
this Note to be performed or observed by the Company to the same
extent as if such surviving corporation had been the original maker of
this Note;
(iii) the Company or such other corporation or other entity
shall not otherwise be in default in the performance or observance of
any covenant, agreement or condition of this Note or the Purchase
Agreement; and
(iv) the holder of this Note shall have received, in
connection therewith, an opinion of counsel for the Company (or other
counsel satisfactory to the holder), in form and substance
satisfactory to the holder, to the effect that any such consolidation,
merger, sale or conveyance and any such assumption complies with the
provisions of this Section 5.01.
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Notwithstanding anything to the contrary herein, in no event shall a
foreclosure on any collateral pledged by the Company in respect of obligations
arising under or in connection with the Credit Agreement be deemed to
constitute a violation of the Company's obligations pursuant to this Section
5.01.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company in accordance with Section 5.01,
the successor corporation formed by such consolidation or into which the
Company is merged or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor corporation had been
named as the Company herein.
ARTICLE 6
DEFAULT AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
If any one or more of the following events, herein called
"Events of Default," shall occur (for any reason whatsoever, and whether such
occurrence shall, on the part of the Company or any of its Subsidiaries, be
voluntary or involuntary or come about or be effected by operation of law or
pursuant to or in compliance with any judgment, decree or order of a court of
competent jurisdiction or any order, rule or regulation of any administrative
or other governmental authority) and such Event of Default shall be continuing:
(i) default shall be made in the payment of the principal
of or premium, if any, on this Note when and as the same shall become
due and payable, whether at maturity or at a date fixed for redemption
or repurchase (including default of any payment in respect of Notes
that have been called for redemption pursuant to Section 3.01 or 3.03
and any default, on the applicable payment date, in the purchase of
Notes that are required to be purchased by the Company pursuant to an
Offer to Purchase as to which an Offer Document has been mailed to
Noteholders, as the case may be) or by acceleration or otherwise; or
(ii) default shall be made in the payment of any
installment of interest on this Note according to its terms when and
as the same shall become due and payable; or
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(iii) default shall be made in the due observance or
performance of any covenant, condition or agreement on the part of the
Company contained in Section 5.01; or
(iv) default shall be made in the due observance or
performance of any other covenant, condition or agreement on the part
of the Company to be observed or performed pursuant to the terms
hereof (other than a covenant or warranty a default in whose
performance is elsewhere in this Section specifically dealt with), and
such default shall continue for 20 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in principal
amount of the Notes outstanding a written notice specifying such
default or breach and requiring it to be remedied and stating that
such notice is a "Notice of Default" hereunder; or
(v) any representation or warranty made by or on behalf
of the Company herein shall prove to have been false or incorrect in
any material respect on the date on or as of which made; or
(vi) default in the Company's observance or performance of
any covenant, condition or agreement contained in the WCAS VII Note
and such default is not cured or waived within 20 days after notice
thereof is served by WCAS VII upon the Company; or
(vii) the entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Company or any
of its subsidiaries in any involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
applicable federal or state bankruptcy, insolvency or other similar
laws, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Company or any of
its subsidiaries for any substantial part of any of their property or
ordering the winding-up or liquidation of any of their affairs and the
continuance of any such decree or order unstayed and in effect for a
period of 30 consecutive days; or
(viii) the commencement by the Company or any of its
subsidiaries of a voluntary case under the federal bankruptcy laws, as
now constituted or hereafter amended, or any other applicable federal
or state bankruptcy, insolvency or other similar laws, or the consent
by any of them to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) of the Company or any of its subsidiaries for
any substantial part of any of their property, or the making by
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any of them of any general assignment for the benefit of creditors, or
the failure of the Company or of any of its subsidiaries generally to
pay its debts as such debts become due, or the taking of corporate
action by the Company or any of its subsidiaries in furtherance of or
which might reasonably be expected to result in any of the foregoing;
or
(ix) default or an event of default as defined in any
instrument evidencing or under which the Company or any of its
subsidiaries has outstanding at the time any Indebtedness in excess of
$500,000 in aggregate principal amount shall occur and as a result
thereof the maturity of any such Indebtedness shall have been
accelerated so that the same shall have become due and payable prior
to the date on which the same would otherwise have become due and
payable and such acceleration shall not have been rescinded or
annulled within 20 days; or
(x) final judgment (not reimbursed by insurance policies
of the Company or any of its subsidiaries) for the payment of money in
excess of $500,000 shall be rendered against the Company or any of its
subsidiaries and the same shall remain undischarged for a period of 30
days during which execution shall not be effectively stayed;
A default under clause (iv) is not an Event of Default until
the Trustee notifies the Company or the Holders of at least 25% in principal
amount of the Notes then outstanding notify the Company and the Trustee, of the
default, and the Company does not cure the default within 10 days after receipt
of such notice.
Without limiting the foregoing, the Company hereby waives any
right to trial by jury in any legal proceeding related in any way to this Note
and agrees that any such proceeding may, if the holder so elects, be brought
and enforced in the Supreme Court of the State of New York for New York County
or the United States District Court for the Southern District of New York and
the Company hereby waives any objection to jurisdiction or venue in any such
proceeding commenced in such court. The Company further agrees that any
process required to be served on it for purposes of any such proceeding may be
served on it, with the same effect as personal service on it within the State
of New York, by registered mail addressed to it at its office or agency set
forth in Section 11.02 for purposes of notices hereunder.
Subject to the provisions of Sections 7.01 and 7.02, the
Trustee shall not be charged with knowledge of any Event of Default unless
written notice thereof shall have been given to a Trust Officer at the
corporate trust office of the Trustee by the Company, the Paying Agent, any
Holder or an agent of any Holder.
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SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default
specified in Section 6.01(vii) or (viii)) occurs and is continuing, the Trustee
may, by notice to the Company, or the Holders of at least 25% in principal
amount of the Notes then outstanding may, by notice to the Company and the
Trustee, and the Trustee shall, upon the request of such Holders, declare all
unpaid principal of and accrued interest to the date of acceleration on the
Notes then outstanding (if not then due and payable) to be due and payable and
upon any such declaration, the same shall become and be immediately due and
payable. If an Event of Default specified in Section 6.01(vii) or (viii)
occurs, all unpaid principal and accrued interest on the Notes then outstanding
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Noteholder.
At any time after any declaration of acceleration has been
made as provided in this Section 6.02, and before a judgement or decree form
payment of money due has been obtained by the Trustee as hereinafter in this
Article provided, the holders of a majority in principal amount of the Notes
then outstanding may, by notice to the Company, rescind such declaration and
its consequences if
(1) the Company has paid or deposited with the Trustee a
sum sufficient to pay
(A) all overdue interest on all Notes,
(B) the principal of (and premium, if any, on) any
Notes which have become due otherwise than by such declaration
of acceleration (including any Notes required to have been
purchased on the Purchase Date pursuant to an Offer to
Purchase made by the Company) and, to the extent that payment
of such interest is lawful, interest thereon at the rate
provided by the Securities,
(C) to the extent that payment of such interest is
lawful, interest upon overdue interest at the rate provided by
the Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
and
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(2) all Events of Default, other than the non-payment of the
principal of Notes which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 6.04.
No such rescission shall extend to or affect any subsequent default or Event of
Default or impair any right consequent thereon.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee
may pursue any available remedy by proceeding at law or in equity to collect
the payment of the principal of or interest on the Notes or to enforce the
performance of any provision of the Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not
possess any of the Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Noteholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy
is exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
Subject to Sections 6.02, 6.07 and 9.02, the Holders of at
least a majority in aggregate principal amount at maturity of the outstanding
Notes, by notice to the Trustee, may waive an existing default or Event of
Default and its consequences, except a default in the payment of principal of,
premium, if any, or interest on any Note as specified in clause (i) or (ii) of
Section 6.01 or in respect of a covenant or provision of this Indenture which
cannot be modified or amended without the consent of the Holder of each
outstanding Note affected. 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 thereto.
SECTION 6.05. WAIVER OF STAY, EXTENSION AND USURY DEFENSE.
The Company covenants (to the extent it may lawfully do so)
that it will not at any time insist upon, or plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of, premium, if any, or interest on the
Notes as contemplated herein, wherever enacted, now or at any time hereafter
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in force, or that may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) the Company hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 6.06. CONTROL BY MAJORITY.
The Holders of at least a majority in aggregate principal
amount at maturity of the outstanding Notes, by notice to the Trustee, may
direct the time, method and place of conducting any proceeding for exercising
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee; provided that the Trustee may refuse to follow any direction
that conflicts with law or this Indenture, that may involve the Trustee in
personal liability, or that the Trustee determines in good faith may be unduly
prejudicial to the rights of Holders not joining in the giving of such
direction; and provided further that the Trustee may take any other action it
deems proper that is not inconsistent with any directions received from Holders
of Notes pursuant to this Section 6.06.
SECTION 6.07. LIMITATION ON SUITS.
A Holder may not institute any proceeding, judicial or
otherwise, with respect to this Indenture or the Notes for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless: (i) such Holder
has previously given to the Trustee written notice of a continuing Event of
Default; (ii) the Holders of at least 25% in aggregate principal amount at
maturity of outstanding Notes shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
Trustee hereunder; (iii) such Holder or Holders have offered to the Trustee
indemnity reasonably satisfactory to the Trustee against any costs, liabilities
or expenses to be incurred in compliance with such request; (iv) the Trustee
for 60 days after its receipt of such notice, request and offer of indemnity
has failed to institute any such proceeding; and (v) during such 60-day period,
the Holders of a majority in aggregate principal amount at maturity of the
outstanding Notes have not given the Trustee a direction that is inconsistent
with such written request. For purposes of Section 6.06 of this Indenture and
this Section 6.07, the Trustee shall comply with TIA Section 316(a) in making
any determination of whether the Holders of the required aggregate principal
amount at maturity of outstanding Notes have concurred in any request or
direction of the Trustee to pursue any remedy available to the Trustee or the
Holders with respect to this Indenture or the Notes or otherwise under the law.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over such other Holder.
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SECTION 6.08. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the
right of any Holder of a Note to receive payment of the principal of, premium,
if any, or interest on such Holder's Note on or after the respective due dates
expressed on such Note (including in a notice with respect to an Offer to
Purchase), or to bring suit for the enforcement of any such payment on or after
such respective dates, shall not be impaired or affected without the consent of
such Holder.
SECTION 6.09. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in the payment of principal or interest
specified in Section 6.01(i) or (ii) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Notes for the whole amount of principal and
accrued interest remaining unpaid, together with interest on overdue principal
and, to the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the rate per annum borne by the Notes
and such further amount as shall be sufficient to cover the costs and expenses
of collection, including the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel.
SECTION 6.10. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or
documents as may be 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 the
Noteholders allowed in any judicial proceedings relative to the Company (or any
other obligor on the Notes), its creditors or its property and shall be
entitled and empowered to collect and receive any monies 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
Noteholder 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
Noteholders, to pay to the Trustee any amount due to 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 7.07, and to
the extent that such payment for the reasonable compensation, expenses,
disbursements and advances in any such proceedings shall be denied for any
reason, payment of
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the same shall be secured by a lien on, and shall be paid out of, any and all
distributions, dividends, monies, securities and other property which the
Noteholders may be entitled to receive in such proceedings, whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
Nothing herein contained shall be deemed to authorize the Trustee to authorize
or consent to or the Trustee to authorize or accept or adopt on behalf of any
Noteholder 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 Noteholder in any such
proceeding.
SECTION 6.11. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6,
it shall pay out the money in the following order:
First: to the Trustee for amounts due under Section
7.07;
Second: to Noteholders for amounts due and unpaid on
the Notes for principal and interest, ratably, without
preference or priority of any kind, according to the amounts
due and payable on the Notes for principal and interest,
respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Noteholders pursuant to this Section 6.11.
SECTION 6.12. UNDERTAKING FOR COSTS.
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 or
omitted by it as Trustee, a court in its discretion may require the filing by
any party litigant in the suit of an undertaking to pay the costs of the suit,
and the court in its discretion may assess reasonable costs, including
reasonable attorneys' fees, against any party litigant in the suit, having due
regard to the merits and good faith of the claims or defense made by the party
litigant. This Section 6.12 does not apply to a suit made by the Trustee, a
suit by a Holder pursuant to Section 6.07, or a suit by Holders of more than
10% in principal amount of the Notes then outstanding.
SECTION 6.13. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or wrongfully taken Notes in Section
2.06, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is
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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 6.14. 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 Six 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.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES 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) Except during the continuance of an Event of
Default:
(1) the Trustee need perform only those
duties as are specifically set forth in this
Indenture and no others; and
(2) in the absence of bad faith 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. The Trustee, however, shall
examine the certificates and opinions to
determine whether or not they conform to the
requirements of this Indenture.
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(c) The Trustee may not be relieved from
liability for its own negligent action, its
own negligent failure to act, or its own
willful misconduct, except that:
(1) this paragraph does not limit the
effect of paragraph (b) of this
Section 7.01;
(2) the Trustee shall not be liable
for any error of judgment made in
good faith by a Trust Officer,
unless it is proved that the Trustee
was negligent in ascertaining the
pertinent facts; and
(3) the Trustee shall not be liable
with respect to any action it takes
or omits to take in good faith in
accordance with a direction received
by it pursuant to Section 6.05.
(d) The Trustee may refuse to perform
any duty or exercise any right or power
unless it receives indemnity satisfactory to
it against any loss, liability, expense or
fee.
(e) Every provision of this Indenture
that in any way relates to the Trustee is
subject to paragraphs (a), (b), (c) and (d)
of this Section 7.01.
(f) The Trustee shall not be liable for
interest on any money received by it except
as the Trustee may agree in writing with the
Company. Money held in trust by the Trustee
need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
Subject to Section 7.01:
(a) The Trustee may rely on any document
believed by it to be genuine and to have been
signed or presented by the proper person.
The Trustee need not investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains
from acting, it may require an Officer's
Certificate or an Opinion of Counsel, which
shall conform to Section 11.04(b). The
Trustee shall not be liable
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for any action it takes or omits to take in
good faith in reliance on such Certificate or
Opinion.
(c) The Trustee may act through its
agents and shall not be responsible for the
misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for
any action it takes or omits to take in good
faith which it believes to be authorized or
within its rights or powers.
(e) The Trustee may consult with counsel
and the advice or opinion of such counsel as
to matters of law shall be full and complete
authorization and protection in respect of
any action taken, omitted or suffered by it
hereunder in good faith and in accordance
with the advice or opinion of such counsel.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become
the owner or pledgee of Notes and may otherwise deal with the Company or an
affiliate of the Company with the same rights it would have if it were not
Trustee. Any Agent may do the same with like rights. However, the Trustee is
subject to Sections 7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Notes, it shall not be accountable for the
Company's use of the proceeds from the Notes, and it shall not be responsible
for any statement in the Notes other than its certificate of authentication.
SECTION 7.05. NOTICE OF DEFAULTS OR EVENTS OF DEFAULT.
If a default or an Event of Default occurs and is continuing
and if it is known to the Trustee, the Trustee shall mail to each Noteholder
notice of the default or Event of Default within 90 days after it occurs.
Except in the case of a default or an Event of Default in payment of the
principal of or interest on any Note, the Trustee may withhold the notice if
and so long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interest of Noteholders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after each [__________] beginning with the
[__________] following the date of this Indenture, the
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Trustee shall mail to each Noteholder a brief report dated as of such
[__________] that complies with TIA Section 313(a). The Trustee also shall
comply with TIA Section 313(b).
A copy of each report at the time of its mailing to
Noteholders shall be mailed to the Company and filed with the SEC and each
stock exchange, if any, on which the Notes are listed. The Company shall
notify the Trustee whenever the securities become listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time
reasonable compensation for its services (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust). The Company shall reimburse the Trustee upon request for
all reasonable disbursements, expenses and advances incurred or made by it.
Such expenses may include the reasonable compensation, disbursements and
expenses of Trustee's agents and counsel.
The Company shall indemnify the Trustee for, and hold it
harmless against, any loss, liability or expense incurred by it in connection
with its duties under this Indenture. The Trustee shall notify the Company
promptly of any claim asserted against the Trustee for which it may seek
indemnity. The Company shall defend the claim and the Trustee shall cooperate
in the defense. The Trustee may have separate counsel and the Company shall
pay the reasonable fees and expenses of such counsel. The Company need not pay
for any settlement made without its written consent.
The Company need not reimburse the Trustee for any expense or
indemnify it against any loss or liability incurred by it through its
negligence or bad faith.
To secure the Company's payment obligations in this Section,
the Trustee shall have a senior claim to which the Notes are hereby made
subordinate on all money or property held or collected by the Trustee, except
such money or property held in trust to pay the principal of and interest on
particular Notes. The obligations of the Company under this Section 7.07 to
compensate or indemnify the Trustee and to pay or reimburse the Trustee for
expenses, disbursements and advances shall be secured by a lien prior to that
of the Notes upon all property and funds held or collected by the Trustee as
such, except funds held in trust for the benefit of the Holders of particular
Notes. The obligation of the Company under this Section 7.07 shall survive the
satisfaction and discharge of this Indenture.
When the Trustee incurs expenses or renders services after an
Event of Default specified in Section 6.01(vii) and (viii)
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occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
The Trustee may resign by so notifying the Company. The
Holders of a majority in principal amount of the Notes then outstanding may
remove the Trustee by so notifying the Trustee and may appoint a successor
Trustee with the Company's written consent. The Company may remove the Trustee
if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of
the Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in
the office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee.
If a successor Trustee does not take office within 45 days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of 10% in principal amount of the Notes then outstanding
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Noteholder may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after
that, the retiring Trustee shall transfer all property held by it as Trustee to
the successor Trustee, the resignation or removal of the retiring Trustee shall
become effective, and the successor Trustee shall have all the rights, powers
and duties of the Trustee under this Indenture. A successor Trustee shall mail
notice of its succession to each Noteholder.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 hereof shall
continue for the benefit of the retiring Trustee.
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SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust assets to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee, provided such transferee
corporation shall qualify and be eligible under Section 7.10.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of paragraphs (1), (2) and (5) of TIA Section 310. If at any time
the Trustee shall cease to satisfy any such requirements, it shall resign
immediately in the manner and with the effect specified in this Article 7. The
Trustee shall be subject to the provisions of TIA Section 310(b). Nothing
herein shall prevent the Trustee from filing with the SEC the application
referred to in the penultimate paragraph of TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding
any creditor relationship listed in TIA Section 311(b). A trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated therein.
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. TERMINATION OF COMPANY'S OBLIGATIONS.
The Company may terminate all of its obligations under the
Notes and this Indenture (except those obligations referred to in the
immediately succeeding paragraph) if all Notes previously authenticated and
delivered (other than destroyed, lost or stolen Notes which have been replaced
or paid or Notes for whose payment money has theretofore been held in trust and
thereafter repaid to the Company, as provided in Section 8.03) have been
delivered to the Trustee for cancellation and the Company has paid all sums
payable by it hereunder, or if the Company irrevocably deposits in trust with
the Trustee money or U.S. Government Obligations maturing as to principal and
interest in such amounts and at such times as are sufficient, without
consideration of any reinvestment of such interest, to pay the principal of and
interest on the Notes then outstanding to maturity and to pay all other sums
payable by it hereunder.
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After such irrevocable deposit, the Trustee
upon request shall acknowledge in writing the discharge of the Company's
obligations under the Notes and this Indenture, except for those surviving
obligations specified above.
"U.S. Government Obligations" means direct non-callable
obligations of, or non-callable obligations guaranteed by, the United States of
America for the payment of which guarantee or obligation the full faith and
credit of the United States is pledged.
SECTION 8.02. APPLICATION OF TRUST MONEY.
The Trustee or Paying Agent shall hold in trust, for the
benefit of the Holders, money or U.S. Government Obligations deposited with it
pursuant to Section 8.01, and shall apply the deposited money and the money
from U.S. Government Obligations in accordance with this Indenture to the
payment of the principal of and interest on the Notes.
SECTION 8.03. REPAYMENT TO COMPANY.
Subject to Section 8.01, the Trustee and the Paying Agent
shall promptly pay to the Company upon request any excess money or U.S.
Government Obligations held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon
request any money held by them for the payment of principal or interest that
remains unclaimed for two years after a right to such money has matured;
provided, however, that the Trustee or such Paying Agent, before being required
to make any such payment, may at the expense of the Company cause to be
published once in a newspaper of general circulation in the City of New York or
mail to each Holder entitled to such money notice that such money remains
unclaimed and that after a date specified therein, which shall be at least 30
days from the date of such publication or mailing, any unclaimed balance of
such money then remaining will be repaid to the Company. After payment to the
Company, Noteholders entitled to money must look to the Company for payment as
general creditors unless otherwise prohibited by law.
SECTION 8.04. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any money or
U.S. Government Obligations in accordance with Section 8.01 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 obligations under this Indenture and the Notes shall
be revived and reinstated as though no deposit had occurred pursuant to Section
8.01 until such time as the Trustee or Paying Agent is
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permitted to apply all such money or U.S. Government Obligations in accordance
with Section 8.01; provided, however, that if the Company has made any payment
of the principal of 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 any such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend or supplement this
Indenture or the Notes without notice to or consent of any Noteholder:
(a) to comply with Sections 4.04 and 5.01;
(b) to provide for uncertificated Notes in addition to or
in place of certificated Notes;
(c) to cure any ambiguity, defect or
inconsistency, or to make any other change that does
not adversely affect the rights of any Noteholder; or
(d) to comply with the provisions of the TIA.
SECTION 9.02. WITH CONSENT OF HOLDERS.
Subject to Sections 6.04 and 6.07 and without prior notice to
the Holders, the Company, when authorized by its Board of Directors (as
evidenced by a Board Resolution), and the Trustee may amend this Indenture and
the Notes with the written consent of the Holders of not less than a majority
in principal amount at maturity of the Notes then outstanding, and the Holders
of not less than a majority in principal amount at maturity of the Notes then
outstanding by written notice to the Trustee may waive future compliance by the
Company with any provision of this Indenture or the Notes.
Notwithstanding the provisions of this Section 9.02, without
the consent of each Holder affected, an amendment or waiver, including a waiver
pursuant to Section 6.04, may not:
(i) change the Stated Maturity of the principal of, or any
installment of interest on, any Note;
(ii) reduce the principal amount of, or premium, if any, or
interest on, any Note;
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(iii) change the place or currency of payment of principal of, or
premium, if any, or interest on, any Note;
(iv) impair the right to institute suit for the enforcement of any
payment on a Note on or after the stated maturity thereof (or, in the case of a
redemption, on or after the redemption date) of any Note;
(v) reduce the above-stated percentage of outstanding Notes the
consent of whose Holders is necessary to modify or amend this Indenture;
(vi) waive a default in the payment of principal of, premium, if
any, or interest on the Notes;
(vii) reduce the percentage of aggregate principal amount at
maturity of outstanding Notes the consent of whose Holders is necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults; or
(viii) modify any of the provisions of this Section 9.02, except to
increase any such percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the Holder
of each outstanding Note affected thereby.
It shall not be necessary for the consent of the Holders under
this Section to approve the particular form of any proposed amendment,
supplement or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amendment, supplement or
waiver.
SECTION 9.03. REVOCATION AND EFFECT OF CONSENT.
Until an amendment or waiver becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the Note
of the consenting Holder, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder may revoke the consent as
to its Note or portion of its Note. Such revocation shall be effective only if
the Trustee receives the notice of revocation before the date the amendment,
supplement or waiver becomes effective. An amendment, supplement or waiver
shall become effective on receipt by the Trustee of written consents from the
Holders of
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the requisite percentage in principal amount at maturity of the outstanding
Notes.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver. If a record date is fixed, then,
notwithstanding the last two sentences of the immediately preceding paragraph,
those persons who were Holders at such record date (or their duly designated
proxies) and only those persons shall be entitled to consent to such amendment,
supplement or waiver or to revoke any consent previously given, whether or not
such persons continue to be Holders after such record date. No such consent
shall be valid or effective for more than 90 days after such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Holder unless it is of the type described in any of clauses
(i) through (v) of Section 9.02. In case of an amendment or waiver of the type
described in clauses (i) through (v) of Section 9.02, the amendment or waiver
shall bind each Holder who has consented to it and every subsequent Holder of a
Note that evidences the same indebtedness as the Note of the consenting Holder.
SECTION 9.04. NOTATION ON OR EXCHANGE OF NOTES.
If an amendment, supplement or waiver changes the terms of a Note,
the Trustee may require the Holder to deliver it to the Trustee. The Trustee
may place an appropriate notation on the Note about the changed terms and
return it to the Holder and the Trustee may place an appropriate notation on
any Note thereafter authenticated. Alternatively, if the Company or the
Trustee so determines, the Company in exchange for the Note shall issue and the
Trustee shall authenticate a new Note that reflects the changed terms. Failure
to make the appropriate notation or issue a new Note shall not affect the
validity and effect of such amendment, supplement or waiver.
SECTION 9.05. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Nine is
authorized or permitted by this Indenture. Subject to the preceding sentence,
the Trustee shall sign such amendment, supplement or waiver if the same does
not adversely affect the rights of the Trustee. The Trustee may, but shall not
be obligated to, execute any such amendment, supplement or waiver that affects
the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
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SECTION 9.06. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article
Nine shall conform to the requirements of the TIA as then in effect.
ARTICLE 10
SUBORDINATION OF NOTES
SECTION 10.01. NOTES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Company covenants and agrees, and each holder of a Note,
by his or her acceptance thereof, likewise covenants and agrees, that, anything
contained in this Indenture to the contrary notwithstanding, the payment of the
principal of, premium, if any, and interest on, each and all of the Notes are
hereby expressly made subordinate and junior in right of payment to the prior
payment in full of all Senior Indebtedness, to the extent hereinafter set
forth.
(A) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership proceedings in
connection therewith, relative to the Company or its creditors or its property,
and in the event of any proceedings for voluntary liquidation, dissolution or
other winding up of the Company, whether or not involving insolvency or
bankruptcy proceedings, then all Senior Indebtedness shall first be paid in
full in cash and all obligations to provide financial accommodations under the
Credit Agreement have terminated, before any payment, whether on account of
principal, interest or otherwise, is made upon the Notes.
(B) In any of the proceedings referred to in paragraph (A) above,
any payment or distribution of any kind or character, whether in cash,
property, stock or obligations which may be payable or deliverable in respect
of the Notes shall be paid or delivered directly to the holders of Senior
Indebtedness for application in payment thereof, unless and until all Senior
Indebtedness shall have been paid in full in cash and all obligations to
provide financial accommodations under the Credit Agreement have terminated.
(C) No payment shall be made, directly or indirectly, on account
of the Notes (i) upon maturity of any Senior Indebtedness obligation, by lapse
of time, acceleration (unless waived), or otherwise, unless and until all
principal thereof and interest thereon and all other obligations in respect
thereof shall first have been paid in full in cash and all obligations to
provide financial accommodations under the Credit Agreement have terminated, or
(ii) upon the happening of any default in payment of any principal of, premium,
if any, or interest on or any other amounts payable in respect of Senior
Indebtedness when the same becomes due and payable whether at maturity or at a
date fixed
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for prepayment or by declaration or otherwise, unless and until such shall have
been cured or waived or shall have ceased to exist.
(D) Upon the happening of an event of default (other than
described in clause (A), (B), or (C) above) with respect to any Senior
Indebtedness permitting (after notice or lapse of time or both) one or more
holders of such Senior Indebtedness (or, in the case of the Credit Agreement,
the Agent) to declare such Senior Indebtedness due and payable prior to the
date on which it is otherwise due and payable (a "Nonmonetary Default"), upon
the (i) receipt by the Noteholders of a Blockage Notice, or (ii) if such
Nonmonetary Default results from the acceleration of the Notes, the date of
such acceleration, then (x) the Company will not make, directly or indirectly,
to the holder of the Notes any payment of any kind of or on account of all or
any part of the Notes; (y) the Noteholders will not accept from the Company any
payment of any kind of or on account of all or any part of the Notes; and (z)
the Noteholders may not take, demand, receive, sue for, accelerate or commence
any remedial proceedings with respect to any amount payable under the Notes,
unless and until in each case described in clauses (x), (y) and (z), all such
Senior Indebtedness shall have been paid in full in cash and all obligations to
provide financial accommodations under the Credit Agreement have terminated;
except, following the termination of a Blockage Period, the Company will be
permitted to make and the Holders of the Notes will be permitted to accept
payments in respect of the indebtedness under the Notes if such payments may be
made in pursuant to the proviso to Section 14(a)(D) of the WCAS VII Notes, it
being understood that all such payments shall be made on a pro rata basis
between the Holders of the Notes and the holders of the WCAS VII Notes.
After payment in full of all amounts due or to become due on
all Senior Indebtedness, or provision is made for such payment in cash or cash
equivalents or otherwise in a manner satisfactory to the holders of Senior
Indebtedness, all Note Payments shall be applied to the payment of the
principal and premium, if any, and accrued interest on the Notes and the WCAS
VII Notes, pro rata based on the aggregate principal amount of Notes and the
WCAS VII Notes then outstanding.
If any payment or distribution of any character or any
security, whether in cash, securities or other property, shall be received by
any Noteholders in contravention of any of the terms hereof or before all the
Senior Indebtedness obligations have been paid in full in cash and all
obligations to provide financial accommodations under the Credit Agreement have
terminated, such payment or distribution or security shall be received in trust
for the benefit of, and shall be paid over or delivered and transferred to, the
holders of the Senior Indebtedness at the time outstanding in accordance with
the priorities then existing
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among such holders for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all such Senior Indebtedness
in full in cash. In the event of the failure of any such holder to endorse or
assign any such payment, distribution or security, each holder of any Senior
Indebtedness is hereby irrevocably authorized to endorse or assign the name.
SECTION 10.02. PAYMENT PERMITTED IF NO DEFAULT.
Nothing contained in this Article or elsewhere in this
Indenture or in any of the Notes shall prevent (a) the Company, at any time
except during the pendency of any Proceeding referred to or under the
conditions described in Section in Section 10.01(A)-(D), from making Notes
Payments, or (b) the application by the Trustee of any money deposited with it
hereunder to Notes Payments or the retention of such Notes Payment by the
Holders, if, at the time of such application by the Trustee, it did not have
knowledge that such Notes Payment would have been prohibited by the provisions
of this Article.
SECTION 10.03. SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS.
Subject to the payment in full in cash of all Senior
Indebtedness as aforesaid and the termination of all obligations to provide
financial accommodations under the Credit Agreement, the Noteholders shall be
subrogated to the rights of the holders of Senior Indebtedness to receive
payments or distributions of any kind or character, whether in cash, property,
stock or obligations, which may be payable or deliverable to the holders of
Senior Indebtedness, until the principal of, and interest on, the Notes shall
be paid in full in cash, and, as between the Company, its creditors other than
the holders of Senior Indebtedness, and the Noteholders, no such payment or
distribution made to the holders of Senior Indebtedness by virtue of this
Article 10 which otherwise would have been made to the holder of the Notes
shall be deemed a payment by the Company on account of the Senior Indebtedness,
it being understood that the provisions of this Article 10 are and are intended
solely for the purposes of defining the relative rights of the Noteholders, on
the one hand, and the holder of the Senior Indebtedness, on the other hand.
Subject to the rights, if any, under this Article 10 of holders of Senior
Indebtedness to receive cash, property, stock or obligations otherwise payable
or deliverable to the Noteholders, nothing herein shall either impair, as
between the Company and the holder of the Notes, the obligation of the Company,
which is unconditional and absolute, to pay to the holder thereof the principal
thereof and interest thereon in accordance with its terms or prevent (except as
otherwise specified therein) the Noteholders from exercising all remedies
otherwise permitted by applicable law or hereunder upon default hereunder.
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SECTION 10.04. 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 among the Company, its creditors other than holders of Senior
Indebtedness and the Noteholders, the obligation of the Company which is
absolute and unconditional (and which, subject to :he rights under this Article
of the holders of Senior Indebtedness, is intended to rank equally with all
other general obligations of the Company), to pay to the Noteholders 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 Noteholders and creditors of the
Company other than the holders of Senior Indebtedness; or (c) prevent the
Trustee or the Holder of any Note 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 to
receive cash, property and securities otherwise payable or deliverable to the
Trustee or such Holder.
SECTION 10.05. RIGHTS OF TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS;
ESERVATION OF TRUSTEES' 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 7.07.
The rights under these subordination provisions of
the holders of any Senior Indebtedness as against any Noteholders shall remain
in full force and effect without regard to, and shall not be impaired or
affected by:
(1) any act or failure to act on the part of the
Company; or
(2) any extension or indulgence in respect of any
payment or prepayment of any Senior Indebtedness or any part thereof
or in respect of any other amount payable to any holder of any Senior
Indebtedness; or
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(3) any amendment, modification or waiver of, or
addition or supplement to, or deletion from, or compromise, release,
consent or other action in respect of, any of the terms of any Senior
Indebtedness or any other agreement which may be made relating to any
Senior Indebtedness; or
(4) any exercise or non-exercise by the holder of
any Senior Indebtedness of any right, power, privilege or remedy under
or in respect of such Senior Indebtedness or these subordination
provisions or any waiver of any such right, power, privilege or remedy
or of any default in respect of such Senior Indebtedness or these
subordination provisions or any receipt by the holder of any Senior
Indebtedness of any security, or any failure by such holder to perfect
a security interest in, or any release by such holder of, any security
for the payment of such Senior Indebtedness; or
(5) any merger or consolidation of the Company or
any of its subsidiaries into or with any other person, or any sale,
lease or transfer of any or all of the assets of the Company or any of
its subsidiaries to any other person; or
(6) absence of any notice to, or knowledge by, any
holder of any claim hereunder of the existence or occurrence of any of
the matters or events set forth in the foregoing clauses (i) through
(v); or
(7) any other circumstance.
The Noteholders unconditionally waive (i) notice of any of the
matters referred to in this Section 10.05; (ii) all notices which may be
required, whether by statute, rule of law or otherwise, to preserve intact any
rights of any holder of any Senior Indebtedness, including, without limitation,
any demand, presentment and protest, proof of notice of nonpayment under any
Senior Indebtedness or the Credit Agreement, and notice of any failure on the
part of the Company to perform and comply with any covenant, agreement, term or
condition of any Senior Indebtedness, (iii) any right to the enforcement,
assertion or exercise by any holder of any Senior Indebtedness of any right,
power, privilege or remedy conferred in such Senior Indebtedness or otherwise,
(iv) any requirements of diligence on the part of any holder of any of the
Senior Indebtedness, (v) any requirement on the part of any holder of any
Senior Indebtedness to mitigate damages resulting from any default under such
Senior Indebtedness and (vi) any notice of any sale, transfer or other
disposition of any Senior Indebtedness by any holder thereof.
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SECTION 10.06. NO WAIVER OF SUBORDINATION PROVISIONS.
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 noncompliance 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.
Without in any way limiting the generality of the foregoing
paragraph, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Noteholders,
without incurring responsibility to the Noteholders and without impairing or
releasing the subordination provided in this Article or the obligations
hereunder of the Noteholders to the holders of Senior Indebtedness, do any one
or more of the following: (i) change the manner, place or terms of payment or
extend the time of payment of, or renew or alter, Senior Indebtedness, or
otherwise amend or supplement in any manner Senior Indebtedness or any
instrument evidencing the same or any agreement under which Senior Indebtedness
is outstanding; (ii) permit the Company to borrow, repay and then reborrow any
or all of the Senior Indebtedness; (iii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iv) release any Person liable in any manner for the collection
of Senior Indebtedness; and (v) exercise or refrain from exercising any rights
against the Company and any other Person.
SECTION 10.07. TRUSTEE TO EFFECTUATE SUBORDINATION.
Each Holder of a Note by his acceptance thereof authorizes and
directs the Trustee on his 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.
SECTION 10.08. NOTICE TO TRUSTEE.
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 he
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
or a holder of Senior Indebtedness or from any trustee therefor or the Agent
Bank; and, prior to the receipt of any such written notice, the Trustee,
subject to the provisions of Section 7.01, shall be entitled in all respects to
assume that no such facts exist;
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provided, however, that if the Trustee shall not have received the notice
provided for in this Section at least two 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 two Business Days prior to such date. Any notice
required or permitted to be given to the Trustee by a holder of Senior
Indebtedness or by the Agent Bank shall be in writing and shall be sufficient
for every purpose hereunder if in writing and either (i) sent via facsimile to
the Trustee at (212) ____________ or at any other facsimile number furnished in
writing to such holder of Senior Indebtedness or the Agent Bank by the Trustee,
or (ii) mailed, first-class postage prepaid, or sent by overnight carrier, to
the Trustee addressed to it at the address of its principal office specified in
the first paragraph of this instrument or at any other address furnished in
writing to such holder of Senior Indebtedness by the Trustee.
Subject to the provisions of Section 7.01, 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 or
agent therefor) to establish that such notice has been given by a holder of
Senior Indebtedness (or a trustee 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 10.09. RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATION AGENT.
Upon any payment or distribution of assets of the Company
referred to in this Article, the Trustee, subject to the provisions of Section
7.01, and the Noteholders shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent
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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 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 facts pertinent thereto or to this Article.
SECTION 10.10. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR IN DEBTEDNESS.
The Trustee shall not be deemed to owe any fiduciary duty to
the holders of Senior Indebtedness and shall not be liable to any such holders
if it shall in good faith mistakenly pay over or distribute to Holders of Notes
or to the Company or to any other Person cash, property or securities to which
any holders of Senior Indebtedness shall be entitled by virtue of this Article
or otherwise.
SECTION 10.11. RIGHTS OF TRUSTEE AS 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.
SECTION 10.12. 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 10.12 shall not apply to the Company
or any Affiliate of the Company if it or such Affiliate acts as Paying Agent.
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
This Indenture is subject to the provisions of the TIA that
are required to be a part of this Indenture and shall, to the extent
applicable, be governed by such provisions.
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SECTION 11.02. NOTICES.
Any notice or communication shall be given in writing and
delivered in person or mailed by certified or registered mail, return receipt
requested, addressed as follows:
if to the Company:
Aurora Electronics, Inc.
9477 Waples Street, Suite 150
San Diego, California 92121
Attention: President
if to the Trustee:
U.S. Trust Corporation
114 W. 47th Street
New York, New York 10036
Attention: Corporate Trust
Administration
Such notices or communications shall be effective when received.
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent notices or
communications.
Any notice or communication mailed to a Noteholder shall be
mailed by first-class mail to him at his address shown on the register kept by
the Registrar.
Failure to mail a notice or communication to a Noteholder or
any defect in it shall not affect its sufficiency with respect to other
Noteholders. If a notice or communication to a Noteholder is mailed in the
manner provided above, it is duly given, whether or not the addressee receives
it.
SECTION 11.03. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Noteholders may communicate pursuant to TIA Section 312(b)
with other Noteholders with respect to their rights under this Indenture or the
Notes. The Company, the Trustee, the Registrar and any other person shall have
the protection of TIA Section 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
(a) Upon any request or application by the Company to the
Trustee to take any action under this Indenture,
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the Company shall furnish to the Trustee at the request of the
Trustee:
(1) an Officer's Certificate stating that, in the
opinion of the signer, all conditions precedent
(including any covenants compliance with which
constitutes a condition precedent), if any, provided
for in this Indenture relating to the proposed action
have been complied with; and
(2) an Opinion of Counsel stating that, in the
opinion of such counsel, all such conditions
precedent (including any covenants compliance with
which constitutes a condition precedent) have been
complied with.
(b) Each Officer's Certificate and Opinion of Counsel
with respect to compliance with a condition or covenant
provided for in this Indenture (other than annual certificates
provided pursuant to Section 4.05 hereof) shall include:
(1) a statement that the person making such
certificate or opinion has read such covenant or
condition;
(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 such
person, he has made such examination or investigation
as is necessary to enable him 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 or not, in the
opinion of such person, such condition or covenant
has been complied with; provided, however, that with
respect to matters of fact an Opinion of Counsel may
rely on an Officer's Certificate or certificates of
public officials.
SECTION 11.05. RECORD DATE FOR VOTE OR CONSENT OF NOTEHOLDERS.
The Company may set a record date for purposes of determining
the identity of Noteholders entitled to vote or consent to any action by vote
or consent authorized or permitted under this Indenture, which record date
shall be the later of 10 days prior to the first solicitation of such vote or
consent or
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the date of the most recent list of Noteholders furnished to the Trustee
pursuant to Section 2.05 hereof prior to such solicitation. If a record date
is fixed, those persons who were Holders of Notes at such record date (or their
duly designated proxies), and only those persons, shall be entitled to take
such action by vote or consent or to revoke any vote or consent previously
given, whether or not such persons continue to be Holders after such record
date.
SECTION 11.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The Trustee may make reasonable rules for action by or at a
meeting of Holders. The Registrar or Paying Agent may make reasonable rules
for its functions.
SECTION 11.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which
state or Federally chartered banking institutions in New York, New York are not
required to be open. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
SECTION 11.08. GOVERNING LAW.
The laws of the State of New York shall govern this Indenture
and the Notes without regard to principles of conflicts of law.
SECTION 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture,
loan or debt agreement of the Company. Any such indenture, loan or debt
agreement may not be used to interpret this Indenture.
SECTION 11.10. NO RECOURSE AGAINST OTHERS.
All liability described in paragraph 16 of the Notes of any
director, officer, employee or stockholder, as such, of the Company is waived
and released.
SECTION 11.11. SUCCESSORS.
All agreements of the Company in this Indenture and the Notes
shall bind its successor. All agreements of the Trustee in this Indenture
shall bind its successor.
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<PAGE> 61
SECTION 11.12. MULTIPLE COUNTERPARTS.
The parties may sign multiple counterparts of this Indenture.
Each signed counterpart shall be deemed an original, but all of them together
represent the same agreement.
SECTION 11.13. SEPARABILITY.
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 11.14. TABLE OF CONTENTS, HEADINGS, ETC.
The table of contents, cross-reference sheet and headings of
the Articles and Sections of this Indenture have been inserted for convenience
of reference only, are not to be considered a part hereof, and shall in no way
modify or restrict any of the terms or provisions hereof.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have hereunto set their
hands as of the __ day of ____________, 1998.
AURORA ELECTRONICS, INC.
By:
---------------------
Name:
Title:
[SEAL]
Attest:
-----------------
Secretary
U.S. TRUST CORPORATION
By:
----------------------
Name:
Title:
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<PAGE> 63
EXHIBIT A
[FACE OF NOTE]
Number
$
Aurora Electronics, Inc.
10% Series B Senior Subordinated Notes due 2004
Aurora Electronics, Inc., a Delaware corporation, promises to
pay to ______________ or registered assigns the on each of December 31, 2002,
2003 and 2004, the lesser of [ ] and the aggregate principal
amount hereof then outstanding.
Additional provisions of this Note are set forth on the other
side of this Note.
Dated:
Aurora Electronics, Inc.
By:
----------------------
By:
----------------------
(Seal)
Certificate of Authentication:
This is one of the Notes referred
to in the within mentioned Indenture.
U.S. Trust Corporation, as Trustee,
By:
--------------------
Authorized Signatory
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[REVERSE SIDE]
1. INTEREST.
Aurora Electronics, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this Note
outstanding at the rate per annum shown above, except that if the principal
amount hereof shall not be paid when due, whether at maturity or by
acceleration or otherwise, interest shall be paid at the rate of 12% per annum.
Interest shall be paid semi-annually in arrears on June 30 and December 31 of
each year (each said day being an "Interest Payment Date"), until the principal
amount hereof shall have become due and payable, whether at maturity or by
acceleration or otherwise. Interest on this Note will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of first issuance of the Notes under the Indenture (as defined
below); provided that, if there is no existing default in the payment of
interest, and if this Note is authenticated between a record date referred to
on the face hereof and the next succeeding interest payment date, interest
shall accrue from such interest payment date. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
2. METHOD OF PAYMENT.
The Company will pay interest on the Notes (except defaulted
interest) to the person who is the registered holder of this Note at the close
of business on the record payment date established by the Company. The holder
must surrender this Note to the Paying Agent to collect payment of principal.
The Company will pay principal and interest in money of the United States that
at the time of payment is legal tender for payment of public and private debts.
The Company, however, may pay principal and interest by its check payable in
such money. It may mail an interest check to the holder's registered address.
3. PAYING AGENT AND REGISTRAR.
Initially, U.S. Trust Corporation (the "Trustee") will act as
Paying Agent and Registrar. The Company may change any Paying Agent or
Registrar without notice to the Holders. The Company may act as Paying Agent or
Registrar.
4. INDENTURE, LIMITATIONS.
The Company issued this Note under an Indenture dated as of
______________, 1998 (the "Indenture"), between the Company and the Trustee.
The terms of this Note 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. 77aaa-77bbbb), as
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amended by the Trust Indenture Reform Act of 1990 and as in effect on the date
of the Indenture. This Note is subject to all such terms, and the holder of
this Note is referred to the Indenture and said Act for a statement of them.
The Notes are general unsecured obligations of the Company limited to up to
$2,747,890 aggregate principal amount.
5. OPTIONAL REDEMPTION.
The Notes may be redeemed, at the Company's option, in whole
or in part at any time and from time to time at the principal amount thereof,
together with accrued interest to the date fixed for redemption.
6. MANDATORY REDEMPTION
Subject to the terms of the Senior Indebtedness, within 105
days after the end of each fiscal year of the Company, the Company shall apply
100% of the Excess Cash Flow of the Company to the redemption of the Notes and
the WCAS Notes; and (b) within five (5) days after the consummation of any Sale
or Issuance Transaction by the Company, the Company shall apply 100% of its
Available Cash Proceeds of such Sale or Issuance Transaction to the redemption
of the Notes and the WCAS Notes. To the extent that any such redemption is of
less than all of the Notes and WCAS VII Notes then outstanding, such redemption
shall be made on a pro rata basis with respect to the Notes and the WCAS VII
Notes, based on the aggregate principal amount of Notes and the WCAS VII Notes
then outstanding.
Once notice of redemption has been made, Notes called for
redemption become due and payable on the redemption date and at the redemption
price. Upon surrender of any Notes to the Paying Agent, such Notes shall be
paid at the redemption price, plus accrued and unpaid interest to the
redemption date. In any event, failure to give notice, or any defect therein,
shall not affect the validity of the proceedings for the redemption of Notes
held by Holders to whom such notice was properly given.
7. NOTICE OF REDEMPTION.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 20 nor more than 60 days prior to the
Redemption Date, to each Holder of Notes to be redeemed, at his address
appearing in the Register of Notes.
8. REPURCHASE UPON CHANGE OF CONTROL.
Subject to the terms of the Senior indebtedness, upon the
occurrence of any Change of Control, each Holder shall have the right to
require the repurchase of its Notes by the Company in cash pursuant to the
offer described in the Indenture at a
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purchase price equal to 101% of the principal amount thereof plus accrued and
unpaid interest, if any, to the date of purchase. Subject to the limitations
of Article Ten of the Indenture, the Company shall, within five (5) days
following the date of the consummation of a transaction resulting in a Change
of Control, the Company will make an Offer to Purchase all of the outstanding
Notes and will mail an Offer Document with respect thereto to each Holder of
Notes. Each such Holder will be entitled to tender all or any portion of the
Notes owned by such Holder pursuant to the Offer to Purchase, subject to the
requirement that any portion of a Note tendered must be tendered in an integral
multiple of $83.33 principal amount. On and after the Payment Date pursuant to
such Offer to Purchase, interest will cease to accrue on Notes or portions of
Notes surrendered for purchase by the Company, except for Notes which the
Company has failed to purchase and pay for.
8. DENOMINATIONS, TRANSFER, EXCHANGE.
The Notes are in registered form without coupons. A holder
may register the transfer of or exchange Notes in accordance with the
Indenture. The Registrar may require a holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes or other
governmental charges that may be imposed by law or permitted by the Indenture.
The Notes are issued in denominations of $83.33 or integral multiples thereof.
9. PERSONS DEEMED OWNERS.
The registered holder of a Note may be treated as the owner of
it for all purposes.
10. UNCLAIMED MONEY.
If money for the payment of principal or interest on the Notes
remains unclaimed for two years, the Trustee or Paying Agent will pay the money
back to the Company at its request. After that, holders entitled to money must
look to the Company for payment.
11. AMENDMENT, SUPPLEMENT, WAIVER.
With certain exceptions specified in the Indenture, the
Company, and the Trustee may amend the Indenture and the Notes with the written
consent of the Holders of not less than a majority in principal amount of the
Notes then outstanding, and the Holders of not less than a majority in
principal amount at maturity of the Notes then outstanding by written notice to
the Trustee may waive future compliance by the Company with any provision of
this Indenture or the Notes.
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12. SUCCESSOR CORPORATION.
When a successor corporation assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor corporation
will be released from those obligations.
13. DEFAULTS AND REMEDIES.
An Event of Default shall occur if: (i) a default is made in
the payment of the principal of the Notes when and as the same shall become due
and payable, whether at maturity or at a date fixed for prepayment or
repurchase (including default in the payment of any amount required to be paid
in respect of redemptions or any Change of Control Payment) or by acceleration
or otherwise; or (ii) default is made in the payment of any installment of
interest on the Notes according to their terms when and as the same shall
become due and payable; (iii) default is made in the due observance or
performance of any covenant, condition or agreement on the part of the Company
contained in Section 5.01 of the Indenture; (iv) default shall be made in the
due observance or performance of any other covenant, condition or agreement on
the part of the Company to be observed or performed pursuant to the terms
hereof (other than a covenant or warranty a default in whose performance is
elsewhere in this Section specifically dealt with), and such default shall
continue for 20 days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and the Trustee by the
Holders of at least 25% in principal amount of the Notes outstanding a written
notice specifying such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder; (v) any
representation or warranty made by or on behalf of the Company herein shall
prove to have been false or incorrect in any material respect on the date on or
as of which made; (vi) default in the Company's observance or performance of
any covenant, condition or agreement contained in the WCAS VII Note and such
default is not cured or waived within 20 days after the occurrence or,
discovery thereof; (vii) the entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of the Company or any of its
subsidiaries in any involuntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar laws, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar official) of
the Company or any of its subsidiaries for any substantial part of any of their
property or ordering the winding-up or liquidation of any of their affairs and
the continuance of any such decree or order unstayed and in effect for a period
of 30 consecutive days; (vii) the commencement by the Company or any of its
subsidiaries of a voluntary case under the federal bankruptcy laws, as now
constituted or hereafter amended, or any other applicable federal or state
bankruptcy, insolvency or other similar laws, or the
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consent by any of them to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) of the Company or any of its subsidiaries for any substantial
part of any of their property, or the making by any of them of any general
assignment for the benefit of creditors, or the failure of the Company or of
any of its subsidiaries generally to pay its debts as such debts become due, or
the taking of corporate action by the Company or any of its subsidiaries in
furtherance of or which might reasonably be expected to result in any of the
foregoing; (viii) a default or an event of default as defined in any instrument
evidencing or under which the Company or any of its subsidiaries has
outstanding at the time any Indebtedness in excess of $500,000 in aggregate
principal amount shall occur and as a result thereof the maturity of any such
Indebtedness shall have been accelerated so that the same shall have become due
and payable prior to the date on which the same would otherwise have become due
and payable and such acceleration shall not have been rescinded or annulled
within 20 days; or (ix) final judgment (not reimbursed by insurance policies of
the Company or any of its subsidiaries) for the payment of money in excess of
$500,000 shall be rendered against the Company or any of its subsidiaries and
the same shall remain undischarged for a period of 30 days during which
execution shall not be effectively stayed.
If an Event of Default (other than as a result of certain
events of bankruptcy or insolvency), occurs and is continuing, the Trustee or
the holders of at least a majority in aggregate principal amount of the Notes
at the time outstanding may, at their option, by a notice in writing to the
Company declare the Notes to be, and this Note shall thereupon be and become
immediately due and payable together with interest accrued thereon, without
diligence, presentment, demand, protest or further notice of any kind, all of
which are expressly waived by the Company to the extent permitted by law, as
provided in the Indenture. If an Event of Default occurs as a result of
certain events of bankruptcy or insolvency, all unpaid principal of and accrued
interest on the Notes then outstanding shall become due and payable immediately
without any declaration or other act on the part of the Trustee or any Holder,
all as and to the extent provided in the Indenture.
Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Notes. Subject to certain
limitations, holders of at least two-thirds in principal amount of the Notes
then outstanding may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders notice of any continuing default (except
a default in payment of principal or interest) if it determines that
withholding notice is in their interests. The
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Company is required to file periodic reports with the Trustee as to the absence
of default.
14. SUBORDINATION. To the extent set forth in the Indenture, the payment
of the principal of, premium, if any, and interest on, each and all of the
Notes are subordinate and junior in right of payment to the prior payment in
full of all Senior Indebtedness of the Company. "Senior Indebtedness" is
defined in the Indenture as means the principal of, premium, if any, and
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) on, and all reasonable fees, reimbursement and indemnity
obligations, and all other obligations arising in connection with, any
indebtedness for borrowed money of the Company, contingent or otherwise, now
outstanding or created, incurred, issued, assumed or guaranteed in the future,
for which, in the case of any particular indebtedness, the instrument creating
or evidencing the same or pursuant to which the same is outstanding expressly
provides that such indebtedness shall not be subordinate in right of payment to
any other indebtedness of the Company.
15. TRUSTEE DEALINGS WITH THE COMPANY.
The Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or an Affiliate of the Company, and may otherwise deal with the
Company or an Affiliate of the Company, as if it were not Trustee.
16. NO RECOURSE AGAINST OTHERS.
A director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Notes or the Indenture or for any claim based on, in respect or by reason
of, such obligations or their creation. The holder of this Note by accepting
this Note waives and releases all such liability. The waiver and release are
part of the consideration for the issue of this Note.
17. DISCHARGE PRIOR TO MATURITY.
If the Company deposits with the Trustee or Paying Agent money
or U.S. Government Obligations sufficient to pay the principal of and interest
on the Notes to maturity, the Company will be discharged from the Indenture
except for certain Sections thereof.
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18. AUTHENTICATION.
This Note shall not be valid until the Trustee or an
authenticating agent signs the certificate of authentication on the other side
of this Note.
19. ABBREVIATIONS AND DEFINITIONS.
Customary abbreviations may be used in the name of a Holder or
an assignee, such as: TEN COM ( = tenants in common), TEN ENT ( = tenants by
the entireties), JT TEN ( = joint tenants with right of survivorship and not as
tenants in common), CUST ( = Custodian) and U/G/M/A ( = Uniform Gifts to Minors
Act).
All capitalized terms used in this Note and not specifically
defined herein are defined in the Indenture and are used herein as so defined.
20. INDENTURE TO CONTROL.
In the case of any conflict between the provisions of this
Note and the Indenture, the provisions of the Indenture shall control.
The Company will furnish to any Holder, upon written request
and without charge, a copy of the Indenture. Requests may be made to: Aurora
Electronics, Inc. 9477 Waples Street, Suite 150, San Diego, California 92121
Attention: Secretary.
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<PAGE> 1
EXHIBIT 12
AURORA ELECTRONICS, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 AND
DECEMBER 29,
1996 THE YEAR ENDED SEPTEMBER 30,
----------------- -------------------------------------------------
1997 1996 1997 1996 1995 1994 1993 PRO FORMA
------- ------- -------- -------- -------- ------- ------ ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
COMPUTATION OF RATIO OF EARNINGS TO FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS
Earnings (loss) from continuing operations
before taxes................................ $(5,002) $(2,316) $(49,072) $(27,047) $(13,710) $(4,118) $2,505 $(70,434)
Plus total fixed charges...................... 1,920 1,673 7,142 7,763 4,449 1,276 2,693
------- ------- -------- -------- -------- ------- ------ --------
Earnings plus fixed charges................... (3,082) (643) (41,930) (19,284) (13,710) 331 3,781 (67,741)
Fixed charges:
Interest expense.............................. 1,036 901 4,050 6,221 5,522 4,449 1,276 1,202
Amortization of debt issue costs.............. 26 26 102 51
Amortization of debt discount................. 46 46 168 91
Preferred stock dividend requirement.......... 812 700 2,822 1,400 1,491
Taxes related to dividend requirement......... -- -- -- --
------- ------- -------- -------- -------- ------- ------ --------
Total fixed charges and preferred stock
dividends................................... $ 1,920 $ 1,673 $ 7,142 $ 7,763 $ 5,522 $ 4,449 $1,276 $ 2,693
======= ======= ======== ======== ======== ======= ====== ========
Ratio (* = less than 1:1)..................... * * * * * * 2.96 *
Coverage deficiency........................... $ 5,002 $ 2,316 $ 49,072 $ 27,047 $ 19,232 $ 4,118 n/a $ 70,434
</TABLE>
11
<PAGE> 1
[ARTHUR ANDERSEN LOGO]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and all references to our Firm) including in or made a part of this
registration statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Orange County, California
March 12, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
The Cerplex Group, Inc.:
Our report dated February 23, 1998, contains an explanatory paragraph that
states that the Company has suffered recurring losses from operations, has net
stockholders' and working capital deficiencies as well as insufficient funds to
pay its secured and unsecured debt obligations which raise substantial doubt
about its ability to continue as a going concern. The consolidated financial
statements and financial statement schedules do not include any adjustments that
might result from the outcome of this uncertainty.
We consent to the use of our reports incorporated by reference herein and
to the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG PEAT MARWICK LLP
------------------------------------
Orange County, California
March 13, 1998
