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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COMMISSION FILE NUMBER 1-8456
THE CERPLEX GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 75-1539534
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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1382 BELL AVENUE, TUSTIN, CALIFORNIA 92780
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(714) 258-5300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.03 PAR VALUE PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by a check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on December 15, 1998, based on the average of the bid and ask
price per share of the Common Stock as quoted on the Nasdaq OTC Bulletin Board
on such date was approximately $2,649,096.
Indicated below is the number of shares outstanding of each class of the
registrant's Common Stock, as of December 15, 1998.
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TITLE OF EACH CLASS OF COMMON STOCK NUMBER OF OUTSTANDING
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Common Stock, $.03 par value 7,367,518
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DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates information by reference from the
registrant's definitive Proxy Statement for the Annual Meeting of Stockholders,
to be filed within 120 days after the registrant's fiscal year ended September
30, 1998.
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THE CERPLEX GROUP, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
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PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 9
Item 4. Submission of Matters to a Vote of Security Holders......... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 9
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 19
Item 8. Financial Statements and Supplementary Data................. 19
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 19
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 20
Item 11. Executive Compensation...................................... 20
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 20
Item 13. Certain Relationships and Related Transactions.............. 20
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 21
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PART I
ITEM 1. BUSINESS
OVERVIEW
The Cerplex Group, Inc., a Delaware corporation ("Cerplex" or the
"Company"), formerly known as Aurora Electronics, Inc., provides repair and
logistics services, and spare parts sourcing and service management for
manufacturers of computer, communications and electronic office equipment. In
the computer marketplace, the Company primarily services display terminals,
printed circuit boards, laptops, networking equipment and workstations. In the
telecommunications marketplace, the Company primarily services switching
systems, payphones, video conferencing products, multiplexers, mobile
communications, transmission equipment, hubs and modems. In the office
automation marketplace, the Company services printers, scanners, fax machines
and high value products such as copiers, automatic teller machines (ATMs) and
other paper-handling equipment. The Company operates through its two principal
subsidiaries, Cerplex, Inc. and Aurora Electronics Group, Inc., and their
subsidiaries. Based in Tustin, California, the Company has locations across the
United States, in France and in the United Kingdom.
The Company entered the computer and electronics industry in 1992, and has
expanded its operations through the acquisition of companies that supply,
refurbish and recycle electronic parts and equipment. The Company's most recent
acquisition was completed on April 30, 1998, when the Company, then known as
Aurora Electronics, Inc., acquired The Cerplex Group, Inc., a publicly-held,
Tustin, California, based provider of electronic parts repair, spare parts sales
and service management ("Old Cerplex"). The acquisition was completed through a
merger of a wholly-owned subsidiary of the Company into Old Cerplex, in which
each share of Old Cerplex's Common Stock was converted into 1.070167 shares of
the Company's Common Stock (or .1070167 shares, after giving effect to the
Company's recent one-for-ten reverse stock split, discussed elsewhere herein).
As a result of the merger, Old Cerplex became a wholly-owned subsidiary of the
Company. The Company then changed its name to The Cerplex Group, Inc., and Old
Cerplex changed its name to Cerplex, Inc. Following the merger, the Company's
headquarters were relocated from San Diego, California, to the Tustin,
California, headquarters of Old Cerplex.
In connection with the merger with Old Cerplex, the Company obtained a new
bank line of credit, consisting of a $36.0 million term loan and a revolving
line of credit with available borrowings of up to $10.0 million, and sold $15.0
million of newly issued 10% Series A and Series B Senior Subordinated Notes and
$21.55 million of newly issued 7% Senior Cumulative Convertible Preferred Stock,
primarily to its principal stockholder, an investment fund managed by the
investment firm of Welsh, Carson, Anderson & Stowe ("WCAS"). Funds from the new
bank line of credit and the sale of the 10% Series A and Series B Senior
Subordinated Notes and the 7% Senior Cumulative Convertible Preferred Stock were
used to repay bank loans to the Company and Old Cerplex, to repay certain other
indebtedness of the Company and Old Cerplex and to provide working capital to
the Company. WCAS has guaranteed $25.0 million of indebtedness under the new
line of credit. In addition, subsequent to the merger, WCAS has loaned an
additional $7.5 million to the Company. The terms of the merger, the related
financing from WCAS and new line of credit are described in greater detail in
Item 1 of this Annual Report under the heading "Merger with Old Cerplex, WCAS
Financing and New Senior Loan."
SERVICES PROVIDED
Cerplex's lines of business include the following:
Repair Services. Through an infrastructure of transportation hubs and
specialized depot repair facilities, Cerplex provides original equipment
manufacturers ("OEMs") and service providers a complete process for product
repair, remanufacturing, refurbishment, conversion and upgrades. Large
manufacturers and multivendor service organizations ("MVSOs") historically have
maintained in-house repair centers dedicated to servicing specific proprietary
products or product lines. Frequently, these repair centers are cost centers
with dedicated resources. Cerplex provides an outsourced solution for some or
all of the repair requirements of an
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OEM. To support and complement its repairs services, Cerplex also provides a
variety of other ancillary services, including instant exchange of products to
be repaired, product assembly and contract manufacturing.
Logistics Services. Cerplex provides outsourced logistics services,
including inventory and shipping control, order fulfillment, and returns to
ensure its OEM customers have the necessary parts and products at the right
place at the right time. Logistics management is critical in ensuring the
availability of spare parts and repaired products to meet the OEM's customer
demands. This is especially true in the global marketplace as the inability of
an OEM to provide an international customer with timely repair services in that
market can adversely affect an OEM's sales efforts.
Spare Parts Business. Cerplex provides repaired, new and reclaimed parts to
OEMs and third-party maintainers ("TPMs") and other customers both as an
independent business and as a complement to its depot repair services. Cerplex
provides components, sub-systems and full systems for sale, lease or for use as
spares in repair programs. Cerplex provides full outsourcing solutions in this
area giving customers the benefit of reduced overhead and the ability to
reallocate internal resources toward their core capabilities. Cerplex has two
main spare parts programs:
Parts Sales. The parts sales program provides multivendor parts
sourcing on industry commodity items. Upon receiving an order from a
customer, Cerplex will access parts and provide for delivery through a
nationwide network of parts brokers.
Advanced Exchange. The advanced exchange program offers OEMs and TPMs
fixed rate or lease programs on swaps for new and refurbished parts.
Cerplex provides same or next day shipping on these products, which are
exchanged with field replaceable units that are processed in Cerplex's
depot repair programs for repair, remanufacturing, conversion or upgrade.
EUROPEAN OPERATIONS
Cerplex serves the European market through Cerplex Ltd., a United Kingdom
subsidiary, and through Cerplex SAS, a French subsidiary. Through Cerplex Ltd.
and Cerplex SAS, Cerplex offers its European customers an array of repair
services similar to those that it offers domestically. Cerplex's European
operations also offer calibration services supporting the telecommunications and
service industries in the United Kingdom and in Western Europe. Remanufacturing
and contract assembly are provided by Cerplex SAS.
CUSTOMERS, SALES AND MARKETING
Cerplex markets primarily to large manufacturers and service providers in
the computer and peripheral, office automation and telecommunications
industries. Cerplex's direct sales teams are geographically located in the
United States, United Kingdom and France. Cerplex's representative customers
include Rank Xerox, British Telecommunications plc ("BT"), Gateway 2000, Cisco
Systems, Inc., Compaq, Hewlett-Packard Company, IBM, Siemens and Unisys.
For the fiscal year ended September 30, 1998, Cerplex's two largest
customers were Rank Xerox and BT. For the fiscal year ended September 30, 1998,
the Rank Xerox and BT accounted for approximately 17% and 11% of Cerplex's
revenues, respectively. These revenues were almost entirely attributable to the
business of Old Cerplex.
COMPETITION
Cerplex competes with the in-house repair centers of OEMs and TPMs for
repair services. In certain instances, these entities compete directly with
Cerplex for the services of unrelated OEMs and TPMs. In addition to competing
with OEMs and TPMs, Cerplex also competes in the repair business with a small
number of independent organizations similar in size to Cerplex and a large
number of smaller companies. Cerplex believes that the key competitive factors
for the repair business include: (i) scope and quality of service; (ii) price;
and (iii) ability to offer rapid delivery and sophisticated logistics programs.
The spare parts business is fragmented with widespread competition from a
variety of small independent suppliers. Cerplex believes that the key
competitive factors for the parts business include: (i) breadth of parts
distributed;
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(ii) ability to offer rapid delivery and sophisticated logistics programs; and
(iii) price. Many of the companies with which Cerplex competes for repair, parts
and logistics services have significantly greater financial resources than
Cerplex.
REGULATION
Cerplex's business is subject to various federal, state and local laws,
including antitrust laws, occupational health and safety laws and environmental
laws relating to the disposal of waste material, as well laws of this nature in
the European countries in which Cerplex operates. Because Cerplex's business
includes handling, recycling and disposing of electronic parts which contain
hazardous materials, Cerplex's compliance with environmental laws and
regulations relating to the disposal of waste material is particularly
important. Such environmental laws and regulations are complex and may change
from time to time in a manner that imposes more stringent requirements on
Cerplex and imposes greater liability on Cerplex for violating such laws and
regulations. Cerplex believes that it is currently in material compliance with
such laws and is not aware of any current situation or condition that could
reasonably be expected to have a material adverse affect on Cerplex's financial
condition or competitive position.
EMPLOYEES
As of November 22, 1998, Cerplex had a work force of approximately 1,350
employees, of which 860 are employees of Cerplex Ltd. and Cerplex SAS. The
approximately 860 employees of Cerplex Ltd. and Cerplex SAS are currently
covered by collective bargaining agreements. Almost all recruitment activity is
focused locally in the surrounding communities, representing all skill levels
and positions ranging from entry-level trainee to skilled professional and
senior-level management.
MERGER WITH OLD CERPLEX, WCAS FINANCING AND NEW SENIOR LOAN
On April 30, 1998, Holly Acquisition Corp. ("Merger Sub"), a wholly-owned
subsidiary of the Company, merged with and into Old Cerplex (the "Merger"). As a
result of the Merger, Old Cerplex became a wholly-owned subsidiary of the
Company. The Company changed its name to The Cerplex Group, Inc., and Old
Cerplex changed its name to Cerplex, Inc. The Company now conducts its
operations through two wholly-owned subsidiaries, Cerplex, Inc. and Aurora
Electronics Group, Inc., and their subsidiaries. Following the Merger, the
Company's headquarters were relocated from San Diego, California, to the Tustin,
California, headquarters of Old Cerplex.
The Merger occurred pursuant to an Agreement and Plan of Merger, dated as
of January 30, 1998 (the "Merger Agreement"), among the Company, Merger Sub and
Old Cerplex. As a result of the Merger, each share of Old Cerplex's Common Stock
was converted into the right to receive 1.070167 shares of the Company's Common
Stock (or .1070167 shares, after giving effect to the Company's recent
one-for-ten reverse stock split, discussed elsewhere herein). Old Cerplex
stockholders who otherwise were entitled to fractional shares of the Company's
Common Stock received cash in lieu thereof. Old Cerplex stockholders received in
the aggregate approximately 38.9 million shares of the Company's Common Stock as
a result of the Merger (or 3.89 million shares, after giving effect to the
Company's recent one-for-ten reverse stock split, discussed elsewhere herein).
The stock received by the Old Cerplex stockholders constituted approximately 25%
of the Company's Common Stock on a fully diluted basis after giving effect to
the Merger and related financings. The ratio used to exchange Old Cerplex Common
Stock for the Company's Common Stock was determined through negotiations between
Old Cerplex and the Company, and was approved by the respective Board of
Directors of the Company and Old Cerplex. The Merger was approved at a special
meeting of Old Cerplex's stockholders. An increase in the number of authorized
shares of the Company's Common Stock necessary to enable the Company to issue
stock in the Merger to the Old Cerplex stockholders, and the name change to The
Cerplex Group, Inc., was approved at a special meeting of the Company's
stockholders.
In connection with the Merger, the Company received a line of credit from
Greyrock Business Credit ("Greyrock"), a division of NationsCredit Commercial
Corporation (the "Greyrock Line of Credit"). The Greyrock Line of Credit
consists of a $36.0 million term loan, the proceeds of which were advanced to
the Company in full at the closing of the Merger, and a revolving line of credit
with available borrowings of up to $10.0 million depending on certain financial
conditions of the Company. WCAS has guaranteed the repayment
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of $25.0 million of the principal amount owing by the Company at any time under
the Greyrock Line of Credit. In addition, in connection with the Merger, the
Company sold an aggregate of $15.0 million of newly issued 10% Series A Senior
Subordinated Notes and 10% Series B Senior Subordinated Notes (collectively, the
"10% Senior Subordinated Notes") and $21.55 million of newly issued 7% Senior
Cumulative Convertible Preferred Stock (the "7% Convertible Preferred Stock")
primarily to its principal stockholder, WCAS (the "WCAS Financing"). The
aggregate consideration paid by WCAS and other purchasers for the 10% Senior
Subordinated Notes and the 7% Convertible Preferred Stock consisted of
approximately $12.0 million in cash, the cancellation of $21.0 million of
combined indebtedness of Old Cerplex and the Company to WCAS, and the surrender
of warrants held by WCAS to purchase capital stock of Old Cerplex. The cash
proceeds from the WCAS Financing (approximately $12.0 million) and from
borrowings under the Greyrock Line of Credit upon the closing of the Merger
(approximately $38.5 million) totaled approximately $50.5 million. The $50.5
million was used in full to repay $30.0 million of indebtedness of Old Cerplex
under a line of credit from Citibank, N.A., to repay $16.5 million of the
Company's indebtedness under a line of credit with The Chase Manhattan Bank,
N.A., and the balance to pay investment banking and other transactional fees in
connection with the Merger. In addition, subsequent to the Merger, WCAS loaned
the Company an additional $7.5 million, and the Company borrowed an additional
$7.0 million under the Greyrock Line of Credit, both for working capital.
The terms of the 10% Senior Subordinated Notes, the 7% Convertible
Preferred Stock, the Greyrock Line of Credit and other Company debt are
described in greater detail in Item 7 of this Annual Report under, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
REVERSE STOCK SPLIT, CONVERSION OF PREFERRED STOCK, AND CURRENT CAPITALIZATION
On October 5, 1998, a majority of the outstanding capital stock of the
Company entitled to vote, voted at a Special Meeting of Stockholders to effect a
one-for-ten reverse stock split (the "One-for-Ten Reverse Split"), in which each
ten shares of the Company's Common Stock were converted into one share of the
Company's Common Stock. Stockholders who would have received fractional shares
of Common Stock as a result of the One-for-Ten Reverse Split, were paid, in lieu
of receiving fractional shares, cash in an amount equal to $0.104 per share.
Unless otherwise stated, figures as to the number of shares outstanding,
earnings per share, exercise price to convert the 7% Convertible Preferred Stock
and other per share figures stated in this Annual Report and in the Financial
Statements included herein, reflect the One-for-Ten Reverse Split. Immediately
following the One-for-Ten Reverse Split, the outstanding capital stock of the
Company consisted of 215,500 shares of 7% Convertible Preferred Stock, 44,000
shares of Series A Convertible Preferred Stock and 7,118,285 shares of Common
Stock. Subsequent to the One-for-Ten Reverse Split, on November 19, 1998,
249,233 shares of the Company's Common Stock were issued as a result of the
conversion of 44,000 shares of Preferred Stock of the Company that had been
issued to WCAS and other stockholders prior to the Merger. A majority of such
Preferred Stock was held by WCAS. As a majority holder of such Preferred Stock,
WCAS elected to cause all of the shares of such Preferred Stock to be converted
to the Common Stock of the Company. As of December 15, 1998, there were
7,367,518 shares of the Company's Common Stock outstanding.
RISK FACTORS
This Annual Report contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended. The words
"expect," "estimate," "anticipate," "believe" and similar words constitute
forward-looking statements. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ significantly from those
projected in the forward-looking statements. Risks and uncertainties that may
have a significant detrimental impact on the Company's performance include, but
are not limited to, the following:
Inability to Repay Greyrock Line of Credit; Threat to Status as a Going
Concern. As of December 15, 1998, the Company had outstanding $36.0 million in
term debt and $9.5 million in revolving debt under the Greyrock Line of Credit.
No additional borrowings are available under the Greyrock Line of Credit. WCAS
has guaranteed the repayment of $25.0 million of the principal amount owing by
the Company at any time
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under the Greyrock Line of Credit. All amounts owing under the Greyrock Line of
Credit are due to be repaid by April 30, 1999. The Company's cash flow from
operations is anticipated to be insufficient to repay the amounts due on the
Greyrock Line of Credit by April 30, 1999. If the Company does not repay the
loan, Greyrock has the ability to foreclose on the loan. The Company is
currently in discussions with Greyrock to extend the repayment date, however,
there is no assurance that the extension will be obtained, or, if obtained, that
the extension will give the Company sufficient time to obtain replacement
financing to repay Greyrock. If additional funds are not obtained, the Company
will experience severe liquidity problems. This matter raises substantial doubt
about the Company's ability to continue as a going concern. See Note A to the
Consolidated Financial Statements -- "Current Financial Condition."
High Degree of Leverage; Future Capital Requirements. As of December 15,
1998, the Company had approximately $82.2 million principal amount of
indebtedness outstanding, which consisted of: (i) $45.5 million indebtedness
under the Greyrock Line of Credit; (ii) $25.4 combined indebtedness under the
Company's 10% Senior Subordinated Notes and 7 3/4% Convertible Subordinated
Debentures; (iii) $7.5 million combined indebtedness under two loans from WCAS;
(iv) $3.1 million indebtedness under a promissory note to BT; and (v) $0.7
million of other indebtedness consisting primarily of equipment leases. In
addition, the Company also had as of December 15, 1998, $21.55 million
outstanding (excluding accrued dividends) of its mandatorily redeemable 7%
Convertible Preferred Stock. The payment terms of the debt and preferred stock
are described in Item 7 of this Annual Report under, "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." It is anticipated that the Company's cash from operations
will not be sufficient to enable it to meet its debt service and preferred stock
redemption requirements, and the Company will be required to obtain additional
funds through equity or debt financings in order not to default on its debt. In
many cases, if the Company defaults on a particular debt, the default will cause
other debts of the Company to be in default and come due early. The degree to
which the Company is leveraged could adversely affect its ability to obtain
additional financing and could make it more vulnerable to economic downturns and
competitive pressures. The terms of any equity financings have in the past been,
and may in the future be, dilutive to the Company's stockholders, and the terms
of any debt financings are likely to contain restrictive covenants which limit
the Company's ability to pursue certain courses of action. There can be no
assurance that additional funding will be available on acceptable terms, if at
all. If adequate funds are not available, the Company will experience severe
liquidity problems. This matter raises substantial doubt about the Company's
ability to continue as a going concern.
Losses and Accumulated Deficit. For the fiscal year ended September 30,
1998, the Company reported a net loss of $29.1 million and an operating loss of
$22.0 million. As of September 30, 1998, the Company had a stockholders' deficit
of $59.2 million. The Company is expecting to experience losses for the
foreseeable future, and will require additional funding and financial support.
Continued losses and/or the failure to obtain such additional funding and
financial support could materially and adversely affect the business and
financial condition of the Company and the value of, and the market for, the
Company's equity and debt securities.
Integration with Old Cerplex; New Management. The Company's success will
depend, to a large extent, upon whether the Company effectively integrates its
business with the business of Old Cerplex following the Merger with Old Cerplex
in April 1998. The Company is subject to the risks normally involved in 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 back
office operations. In addition, following the Merger, certain key executives
left the management team and others joined. As a result, the Company became
dependent upon a new management group, some members of which had not been
previously involved in managing the Company. While the Company's key executives
have business experience, they are still in the process of familiarizing
themselves with the specific operations of the Company. There can be no
assurance that the Company will be able to successfully integrate with Old
Cerplex in a manner that will result in the synergies intended as a result of
the Merger. These difficulties could have a material adverse impact on the
Company's financial condition and results of operations.
Control by WCAS. WCAS owns approximately 70% of the Company's voting
capital stock, which consists of WCAS's ownership of shares of the Company's
outstanding Common Stock, and shares of the
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Company's 7% Convertible Preferred Stock (which give the holders thereof the
right to vote on all matters on which the holders of Common Stock are entitled
to vote, as if the 7% Convertible Preferred Stock had been converted to Common
Stock). As a result, WCAS is able to control all matters requiring approval by
the Company's stockholders, including the election of directors. The Company's
Board of Directors has the authority to issue additional shares of preferred
stock in one or more series and fix the rights, preferences, privileges and
restrictions granted to or imposed upon any such shares of preferred stock. The
issuance of such preferred stock may adversely affect voting and dividend
rights, rights upon liquidation and other rights of holders of the Company's
Common Stock and may result in immediate and substantial dilution to the holders
of the Common Stock. The issuance of such preferred stock and the control by
WCAS of the Company may also have the effect of delaying, deferring or
preventing a change in control of the Company.
Dependence on Key Customers. For the fiscal year ended September 30, 1998,
Rank Xerox and BT accounted for approximately 17% and 11% of the Company's
revenues, respectively. These revenues were almost entirely attributable to the
business of Old Cerplex. There can be no assurance that such customers will not
terminate any or all of their arrangements with the Company, significantly
change, reduce or delay the amount of services ordered from the Company, or
significantly change the terms upon which the Company and these customers do
business. Any such termination, change, reduction, or delay could have a
material adverse effect on the Company's business. It is anticipated that the
Company's contract with Rank Xerox, which accounted for approximately 17% of the
Company's revenues for the 1998 fiscal year, will be phased out by June 2000. In
addition, unit volumes from BT have been declining and are expected to continue
to decline due to, among other things, product evolution. The future success of
the Company's European operations is dependent upon replacing these declining
volumes with new revenue from either these or new customers. There can be no
assurance that the Company will be able to replace these declining volumes with
sales to either these or new customers.
Competition. The Company competes 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 compete directly with the Company to provide services to third party
OEMs and TPMs. Moreover, the industry in which the Company operates is
fragmented, and the Company faces 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 the Company's competitors have greater revenue or larger
capitalizations than the Company. There can be no assurance that the Company
will be able to compete effectively in its target markets.
Reliance on International Sales. For the fiscal year ended September 30,
1998, approximately 42% of the Company's sales were outside of North America.
These revenues were almost entirely attributable to the business of Old Cerplex.
There can be no assurance that the Company will be able to successfully market,
sell, and deliver its products and services in these markets. Moreover, it is
anticipated that the Company's contract with Rank Xerox, which accounted for
approximately 17% of the Company's revenues for the 1998 fiscal year, will be
phased out by June 2000. In addition to the uncertainty as to the Company'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, severance and other costs associated with work force reductions,
fluctuations in currency exchange rates, and potentially adverse tax
consequences, any of which could adversely impact the success of the Company's
international operations. There can be no assurance that one or more of such
factors will not have a material adverse effect on the Company's international
operations and, consequently, on the Company's business, operating results and
financial condition.
Reliance on Short Term Purchase Orders and Contracts. The Company 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, the Company's repair 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.
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Dependence on the Electronics and Computer Industry. The Company's
businesses are dependent upon the growth, viability and financial stability of
its customers and potential customers in the electronics and the computer
industry. The electronics and computer industry have 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 the Company's OEM customers in particular, could have
an adverse effect on the Company's business. There can be no assurance that
existing customers or future customers will not experience financial difficulty,
which could have a material adverse effect on the Company's business.
Risks Associated with Intangible Assets. As of September 30, 1998,
approximately $37.7 million of the Company's total assets consisted of
intangible assets. The intangible assets consist primarily of goodwill resulting
from the Merger with Old Cerplex. The goodwill must be amortized over a number
of years and deducted from the Company's earnings, even though the goodwill may
not generate earnings to offset such deduction. There can be no assurance that
the value of the Company's intangible assets will ever be realized by the
Company, particularly in any sale or liquidation of the Company. Any significant
decrease in the value of such intangible assets or increase in the rate of
amortization thereof would adversely affect the Company's financial condition
and results of operations.
Limited Trading Market and Possible Volatility of Stock Price. The volume
of trading of the Company's Common Stock has been very limited and there can be
no assurance of an active trading market for the Common Stock in the future. In
addition, the trading price of the Company's Common Stock has been, and in the
future could be, subject to significant fluctuations in response to variations
in quarterly operating results of the Company, the depth and liquidity of the
market for the Company's Common Stock, investor perception of the Company and
the industry within which it competes, the gain or loss of significant
contracts, changes in management or new products or services offered by the
Company 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 the Company's 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 WCAS, will have on the market price of the Company's Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock
(including shares issued upon the exercise of stock options and the conversion
of preferred stock), or the perception that such sales could occur, may
adversely affect prevailing market prices for the Company's Common Stock.
Year 2000 Risks. The Year 2000 risk is the result of computer programs,
microprocessors and embedded date reliant systems using two digits rather than
four to define the applicable year. This may result in the incorrect processing
of dates prior to, during and after the Year 2000. Incorrect processing may
result in claims against the Company if it is unable to properly manage data
related to the Year 2000. In addition to Year 2000 errors on the part of the
Company, the Company is vulnerable to its key suppliers' failure to remedy their
own Year 2000 issues, which could delay shipments of essential components,
thereby disrupting or halting the Company's operations. The Company also relies,
both domestically and internationally, upon governmental agencies, utility
companies, telecommunication service companies and other service providers
outside of the Company's control. The Company is in the process of remediating
potential Year 2000 problems in its systems and has communicated with certain of
its significant suppliers to evaluate their Year 2000 readiness plans. There is
no assurance that the Company or parties with whom it deals will not suffer
business disruption caused by a Year 2000 issue. Such failures could have a
material adverse effect on the Company's financial condition and results of
operations. This is described in greater detail in Item 7 of this Annual Report
under, "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Year 2000 Compliance."
8
<PAGE> 10
ITEM 2. PROPERTIES
The Company leases certain office and warehouse facilities under operating
leases and subleases which expire at various dates during the next seven years.
The Company believes that its existing facilities are adequate for its current
business. The Company's executive offices are located at the Tustin, California,
facility listed below. A description of the facilities leased and subleased by
the Company as of December 15, 1998 is as follows:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE LEASE EXPIRATION
-------- ------- ----------------
<S> <C> <C>
Jeffersontown, Kentucky.......................... 77,000 December 2001
Tewksbury, Massachusetts......................... 250,180 May 2005
Livermore, California............................ 124,914 June 2003
Marina del Rey, California....................... 106,715 November 1999
Rancho Cucamonga, California..................... 68,900 June 2003
Tustin, California............................... 120,300 December 2001
Middleton, Leeds, England........................ 22,000 June 2000
</TABLE>
In addition, the Company's European subsidiaries own land and buildings in
Enfield, England, and Lille, France.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to legal proceedings relating to routine matters
incidental to its business. While the Company does not believe that any of these
proceedings, individually or in the aggregate, will have a material adverse
effect on its business or its results of operations, there can be no assurance
that such proceedings, individually or in the aggregate, will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year ended September 30, 1998, as
required to be reported herein. Subsequent to the fiscal year end, on October 5,
1998, holders of a majority of the capital stock of the Company entitled to vote
approved the following matters:
1. The amendment of the Company's Certificate of Incorporation to
effect the One-for-Ten Reverse Split whereby every ten shares of the
Company's Common Stock was converted into one share of the Company's Common
Stock;
2. The adoption of the Company's 1998 Stock Option and Restricted
Stock Purchase Plan, which provides for the grant to employees, directors,
and consultants of the Company of options and awards to purchase up to
2,835,500 shares (post-reverse split) of the Company's Common Stock; and
3. The approval of KPMG LLP as the Company's independent public
accountants and auditors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Until December 12, 1997, the Company's Common Stock was traded on the
American Stock Exchange ("AMEX") under the symbol "AUR." Commencing December 15,
1997, the Company's Common Stock was listed for quotation on the Nasdaq OTC
Bulletin Board (the "OTC Bulletin Board") under the symbol "AURU." Following the
Merger with Old Cerplex, the Company's Common Stock has been reported on the OTC
Bulletin Board under the symbol "CPLX." For the period during the last two
fiscal years in which the Common Stock was traded on the AMEX, the following
table sets forth the range of the high and low closing
9
<PAGE> 11
sales prices per share for the Common Stock on the AMEX. For the period during
the last two fiscal years in which the Common Stock was listed for quotation on
the OTC Bulletin Board, the following table sets forth the range of the high and
low bid quotations per share for the Common Stock as reported on the OTC
Bulletin Board. Figures for the OTC Bulletin Board reflect inter-dealer prices,
without mark-up, mark-down or commission, and may not necessarily represent
actual transactions.
The per share prices set forth in the table below have been adjusted to
reflect the One-for-Ten Reverse Split for the Company's Common Stock that took
place following approval by the stockholders of the Company on October 5, 1998.
As a result of the One-for-Ten Reverse Split, each ten shares of the Company's
Common Stock was converted into one share of the Company's Common Stock.
<TABLE>
<CAPTION>
FISCAL YEAR 1998 FISCAL YEAR 1997
(OCTOBER 1, 1997 TO (OCTOBER 1, 1996 TO
SEPTEMBER 30, 1998) SEPTEMBER 30, 1997)
------------------- --------------------
HIGH LOW HIGH LOW
------- ------ ------- -------
<S> <C> <C> <C> <C>
First Quarter...................... $16.00 $7.50 $23.80 $15.00
Second Quarter..................... $11.10 $2.70 $21.90 $13.80
Third Quarter...................... $ 6.10 $2.50 $20.00 $13.80
Fourth Quarter..................... $ 4.20 $0.90 $21.30 $ 7.50
</TABLE>
On December 15, 1998, the closing bid price per share of the Common Stock
as reported on the OTC Bulletin Board was $0.59. As of December 15, 1998, the
Company had 955 holders of record of its Common Stock.
The Company has not paid any cash or stock dividends on its Common Stock
since September 30, 1993. At present, it is the policy of the Company to retain
all earnings for reinvestment into the Company. In addition, the Greyrock Line
of Credit prohibits payment of cash dividends.
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding the
Company's results of operations and financial position. This information should
be read in conjunction with Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and related Notes included elsewhere herein.
Information for the fiscal year ended September 30, 1998 reflects the
addition of the results of operations of Old Cerplex for the five months ended
September 30, 1998, subsequent to the Merger with Old Cerplex on April 30, 1998.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
FOR THE YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net revenues.......................... $ 66,423 $ 64,892 $ 98,019 $141,852 $120,386
-------- -------- -------- -------- --------
Gross profit.......................... 4,869 12,986 24,443 34,582 26,350
Selling, general and administrative
expenses............................ 23,145 23,466 25,943 28,170 17,573
Amortization of intangibles........... 3,701 34,044(1) 18,042(2) 9,073(3) 4,539(4)
Restructuring charge and other........ -- -- -- 5,643(5) 2,161
Litigation settlement................. -- -- -- -- 1,943
-------- -------- -------- -------- --------
Operating loss........................ (21,977) (44,524) (19,542) (8,304) 134
Interest expense...................... (5,465) (4,050) (6,221) (5,522) (4,449)
Other income (expense), net........... (1,653) (498) (1,284) 116 197
-------- -------- -------- -------- --------
Loss from continuing operations before
taxes............................... (29,095) (49,072) (27,047) (13,710) (4,118)
Net loss.............................. $(29,095) $(49,605) $(30,353) $(15,030) $ (6,518)
======== ======== ======== ======== ========
Loss from continuing operations per
share(6)............................ $ (7.57) $ (73.57) $ (37.78) $ (16.36) $ (5.50)
Net loss per share(6)................. $ (7.57) $ (74.37) $ (42.39) $ (17.94) $ ( 8.70)
Net loss applicable to common
shareholders(6)..................... $ (8.26) $ (78.60) $ (44.40) $ (17.94) $ (8.70)
Weighted average number of common
shares(6)........................... 3,843 667 716 838 749
</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 and $3,390 of computer systems and software
development costs were 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, the Company substantially completed a major corporate
reorganization into two core businesses operating through the integrated
circuits recycling and recovery division and the spare parts distribution
division.
(6) Per share figures and figures for the number of shares outstanding have been
adjusted to reflect the One-for-Ten Reverse Split that occurred on October
5, 1998.
11
<PAGE> 13
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
---------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital.............................. $(55,415) $ (3,113) $ 610 $ 196 $ 9,013
Total assets................................. 100,541 14,629 52,788 80,716 102,927
Long-term obligations (less current
maturities)................................ 25,782 36,585 25,842 46,183 51,761
Redeemable convertible preferred stock....... 34,150 46,722 40,000 -- --
Stockholders' equity (deficit)............... (59,208) (83,320) (31,690) 12,338 26,903
Dividends declared........................... -- -- -- -- --
</TABLE>
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company provides repair and logistics services, and spare parts
sourcing and service management for manufacturers of computer, communications
and electronic office equipment. In the computer marketplace, the Company
primarily services display terminals, printed circuit boards, laptops,
networking equipment and workstations. In the telecommunications marketplace,
the Company primarily services switching systems, payphones, video conferencing
products, multiplexers, mobile communications, transmission equipment, hubs and
modems. In the office automation marketplace, the Company services printers,
scanners, fax machines and high value products such as copiers, automatic teller
machines (ATMs) and other paper-handling equipment. The Company operates through
its two principal subsidiaries, Cerplex, Inc. and Aurora Electronics Group,
Inc., and their subsidiaries. Based in Tustin, California, the Company has
locations across the United States, in France and in the United Kingdom
Prior to the Merger with Old Cerplex which is discussed in more detail
below, the Company's business consisted primarily of two divisions, the Asset
Recovery Services Division (the "ARS Division") and the Parts Services Supply
Division (the "PSS Division"). The Merger was accounted for under the purchase
method of accounting and, as such, the operations of Old Cerplex are not
included in the Company's financial statements prior to April 30, 1998. The
majority of the Company's revenues subsequent to April 30, 1998 are attributable
to the repair operations of Old Cerplex acquired in the Merger. Due to this and
the fact that the Company's ARS and PSS Divisions experienced declining revenues
from fiscal 1997 to fiscal 1998, the Company's historical results, especially as
they relate to the ARS and PSS Divisions, may not be indicative of future
results.
The primary factors affecting the Company's repair business include, but
are not limited to, the pricing of the Company's services and the utilization of
the Company's resources that constitute fixed costs. Pricing in the Company's
industry is very competitive and price discounting could adversely affect the
Company's operating results. In addition, the Company has made a significant
investment in facilities, equipment and personnel. While the Company's
facilities have the capability of generating significantly more repair services
volume than current levels, the Company and Old Cerplex have, due to a variety
of factors, experienced decreasing revenues which have resulted in significant
operating losses. In particular, BT and Rank Xerox constituted Old Cerplex's and
the Company's largest customers in the last fiscal year. Revenues from these
customers have declined from fiscal 1997 to fiscal 1998 on a pro forma basis. It
is anticipated that revenues from Rank Xerox will decline in the future, and
there can be no assurance that revenues from BT or other customers will not
decline in the future. The failure of the Company to develop additional business
from new and existing customers could have a material adverse effect on the
Company's business.
CORPORATE HISTORY
The Company, as it exists today, was formed on September 30, 1992. Prior to
September 30, 1992, the Company 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, the Company 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 ("IC")
recycling services to computer OEMs and memory IC distribution services for
semiconductor manufacturers. Effective September 30, 1993, the Company 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, the Company acquired Century Computer Marketing, a Marina del Rey,
California, based company founded in 1984, which was a leading supplier of new
and refurbished spare parts to the computer maintenance market.
In the third quarter of the fiscal year ended September 30, 1995, the
Company completed a corporate reorganization, in which it: (a) exited the memory
upgrade manufacturing and supply business formerly
13
<PAGE> 15
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 the Company's remaining spare parts distribution and
electronic recycling services business.
In March 1996, the Company completed a recapitalization in which the
Company (a) acquired approximately 4,268,000 shares of its Common Stock, (b)
issued $40.0 million of convertible preferred stock and $10.0 million of
subordinated debt to WCAS, (c) established a $35.0 million credit facility, (d)
repaid $26.0 million of senior bank debt and (e) redeemed approximately $9.3
million of Senior Subordinated Notes.
In October 1997, the Company completed the sale of the remainder of its
then-existing depot repair services operation and sold its Irvine, Scotland,
recovery processing facility. Losses from these transactions were accrued into
fiscal 1997 operating results.
In April 1998, the Company completed the Merger with Old Cerplex, in which
a wholly-owned subsidiary of the Company merged into Old Cerplex and each share
of Old Cerplex's Common Stock was converted into 1.070167 shares of the
Company's Common Stock (or .1070167 shares after giving effect to the Company's
recent One-for-Ten Reverse Split). As a result of the Merger, Old Cerplex became
a wholly-owned subsidiary of the Company. The Company changed its name to The
Cerplex Group, Inc., and Old Cerplex changed its name to Cerplex, Inc. The
Company now conducts its operations through two wholly-owned subsidiaries,
Cerplex, Inc. and Aurora Electronics Group, Inc., and their subsidiaries.
RESULTS OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1998 COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1997
Net revenues for the year ended September 30, 1998 for the Company were
$66,423,000 as compared to $64,892,000 for the year ended September 30, 1997.
The Company's increase in revenues was due principally to the acquisition of Old
Cerplex. This increase is offset by a substantial decline in revenues due to the
subsequent closing of the DRAM segment of the ARS Division and an overall
decline in the prices and volume of computer repair parts in its PSS Division.
Gross profit for fiscal 1998 was $4,869,000 (7.3% of net revenues) as
compared to gross profit of $12,986,000 (20.0% of net revenues) for fiscal 1997.
The decrease in gross profit was due primarily to the decline in revenues from
the ARS and PSS Division mentioned above, and by the lower gross profit
contribution of Old Cerplex ($1,849,000 or 4.3% of Old Cerplex's net revenue
contribution).
Selling, general and administrative expenses for fiscal 1998 were
$23,145,000 (34.8% of revenue) as compared to $23,466,000 (36.2% of net
revenues) for fiscal 1997. The decrease as a percentage of revenues was due to
the reduction in employees related to the sale of its remaining depot repair
service operation and its Irvine, Scotland recovery processing facility.
Amortization expense for fiscal 1998 was $3,701,000 as compared to
$34,044,000 for fiscal 1997. Fiscal 1997 included writeoffs of goodwill and
system development costs totaling approximately $32,992,000.
Net interest expense for fiscal 1998 was $5,465,000 (8.2% of net revenues)
as compared to $4,050,000 (6.2% of net revenues) for fiscal 1997. The increase
in interest expense is due to higher loan balances on the Greyrock Line of
Credit.
Other expense for fiscal 1998 was $1,653,000 primarily for expenses
incurred to close the San Diego former headquarters. Other expense for fiscal
1997 was $498,000 which included approximately $450,000 loss from the sales of
the Sacramento Repair Facility and the Asset Recovery Facility in Scotland.
Provision for income tax was $0 in fiscal 1998 as compared to $533,000 in
fiscal 1997. The fiscal 1997 provision includes a $500,000 valuation allowance
provided for a deferred tax asset that was not expected to be realized.
Net loss for fiscal 1998 was $29,095,000 as compared to $49,605,000 in
fiscal 1997. The fiscal 1997 loss includes $32,992,000 of write-offs of goodwill
and information system development costs. If this $32,992,000 of write-offs is
excluded from the loss for fiscal 1997, the loss for fiscal 1997 was $16,613,000
as compared to
14
<PAGE> 16
$29,095,000 for fiscal 1998. The increase in loss for fiscal 1998 is due to
continued operating losses from the operations of the electronics recycling and
spare parts distribution operations mentioned above.
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 the Company were
$64,892,000 as compared to $98,019,000 for the year ended September 30, 1996.
Gross profit for fiscal 1997 was $12,986,000 (20.0% of net revenues) as compared
to gross profit for fiscal 1996 of $24,443,000 (24.9% of net revenues). The
Company's decline in revenues and gross profit was due to a continued decline in
the average sales prices for DRAM memory chips in the ARS Division and to an
overall decline in the prices of computer repair parts in its PSS Division.
Selling, general and administrative expenses for fiscal 1997 were
$23,466,000 (36.2% of revenue) as compared to $25,943,000 (26.5% of revenue) for
fiscal 1996. Included in the 1996 selling, general and administrative expenses
were approximately $725,000 in one time charges related to a recapitalization.
The increase of the selling, general and administrative expenses as a percentage
of revenue was due to the reduction in revenues described in the preceding
paragraph.
Amortization expense for fiscal 1997 was $34,044,000 as compared with
$18,042,000 in fiscal 1996. The 1997 amount included the write-offs of
$29,602,000 of unamortized goodwill remaining from the acquisition of Century
Computer marketing and $3,390,000 of computer system software and development
costs in PSS. With the continued decline in computer repair parts prices,
management's projections of non-discounted cash flows were insufficient to
recover these assets over their amortization life. The fiscal 1996 amortization
included the write-off of $16,580,000 of goodwill related to the acquisition of
Micro-C Corporation, Inc. Management wrote off the goodwill related to the
Micro-C acquisition due to the deterioration of the pricing levels in the
integrated circuit market and their negative effects on the Company's business
prospects.
Net interest expense for fiscal 1997 was $4,050,000 or 6.2% of revenue as
compared to $6,221,000, or 6.3% of revenue, for fiscal 1996. The interest
expense for fiscal 1996 includes approximately $2,243,000 of charges related to
the Company's recapitalization, including approximately $1,070,000 of previously
capitalized financed charges, $917,000 of interest, fees and expenses due to the
Company's previous lenders and $256,000 relating to the 9 1/4% Senior
Subordinated Notes.
Other expense for 1997 was $498,000 including approximately a $450,000 loss
from the sales of the Sacramento Repair Facility and the Asset Recovery Facility
in Irvine, Scotland. Other expense for fiscal 1996 was $1,284,000 including
write downs and disposal of property and equipment totaling $1,369,000.
Provision for income taxes for fiscal 1997 was $533,000 as compared to
$3,306,000 for fiscal 1996. The fiscal 1997 provision includes the increase in a
valuation allowance of $500,000 for a deferred tax asset not anticipated to be
realized. The fiscal 1996 provision includes the increase of the deferred income
tax valuation allowance in the amount of $3,234,000 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 the
Company's net operating loss carryforwards caused by the change of ownership
pursuant to the 1996 recapitalization.
Net loss for fiscal 1997 was $49,605,000 as compared to $30,353,000 for
fiscal 1996. The fiscal 1997 loss included write downs of information system
software and development costs of approximately $3,390,000 and the write off of
goodwill from the Century acquisition of approximately $29,602,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company'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. The Company had a working
capital deficit of $55.4 million as of September 30, 1998 as compared to a
working capital deficit of $3.1 million as of September 30, 1997. See Note A of
Notes to Consolidated Financial Statements -- "Current Financial Condition."
15
<PAGE> 17
The Company's most immediate liquidity concern is its ability to repay its
indebtedness under the Greyrock Line of Credit, which approximated $45.5 million
in principal amount as of December 15, 1998. All amounts owing Greyrock are due
to be repaid by April 30, 1999, and the Company's cash on hand and cash flow
from operations is anticipated to be insufficient to repay the amounts due by
such date. The Company is currently in discussions with Greyrock to extend the
repayment date of the Greyrock Line of Credit, however, there is no assurance
that the extension will be obtained, or, if obtained, that the extension will
give the Company sufficient time to obtain replacement financing to repay
Greyrock. If satisfactory extension and/or additional funds are not obtained,
the Company will experience severe liquidity problems. If the Greyrock Line of
Credit is not repaid, Greyrock has the ability to foreclose on the Greyrock Line
of Credit. This matter raises substantial doubt as to the Company's ability to
continue as a going concern. See Note A of Notes to Consolidated Financial
Statements -- "Current Financial Condition."
In addition to the need for capital to repay Greyrock, management believes
the Company will require substantial additional working capital during fiscal
1999 to fund operations and to repay the BT promissory note and the $5.0 million
loan from WCAS. Management believes that the Company will continue to experience
operating losses and negative cash flow in fiscal 1999. Because the Company does
not have availability to borrow additional amounts pursuant to the Greyrock Line
of Credit, management anticipates that the only potential source of additional
working capital available to the Company will be from WCAS, the Company's
largest stockholder. There is no assurance, however, that the Company will
attain results that WCAS will regard as sufficient to support the infusion of
additional capital.
In addition to the fact that the Company has limited access or no access to
additional working capital, the Company has limited ability to obtain working
capital from the operations of its Cerplex SAS subsidiary. The ability to obtain
working capital from Cerplex SAS is limited due to the internal capital needs of
Cerplex SAS and due to restrictions placed on Cerplex SAS in connection with the
Company's acquisition of Cerplex SAS from Rank Xerox. In May 1996, Old Cerplex
acquired Cerplex SAS from Rank Xerox. Under the terms of the acquisition, future
payments are owed to Rank Xerox and the Company therefore agreed to certain
financial covenants over a four-year period that limit the amount of dividends
and other payments Cerplex SAS can make to the Company, and impose certain other
financial restrictions on the Company and Cerplex SAS. Accordingly, of the
Company's consolidated cash of $14.2 million at September 30, 1998, the cash of
Cerplex SAS of $6.5 million is generally not available to Cerplex for financing
operations outside of Cerplex SAS.
The Company is highly leveraged, and has significant debt repayment
obligations and preferred stock redemption obligations. As of December 15, 1998,
the Company had approximately $82.2 million principal amount of indebtedness
outstanding, which consisted of: (i) $45.5 million indebtedness under the
Greyrock Line of Credit; (ii) $15.0 million indebtedness under the Company's 10%
Senior Subordinated Notes; (iii) $10.4 million indebtedness under the Company's
7 3/4% Convertible Subordinated Debentures; (iv) $7.5 million combined
indebtedness under two loans from WCAS; (v) $3.1 million indebtedness under a
promissory note to BT; and (vi) $0.7 million of other indebtedness consisting
primarily of equipment leases. In addition, the Company also had as of December
15, 1998, $21.55 million outstanding (excluding accrued dividends) of its
mandatorily redeemable 7% Convertible Preferred Stock. Set forth below is a
summary of the terms of such indebtedness, as well as redemption and other
obligations of the Company's outstanding preferred stock.
Greyrock Line of Credit. In connection with the Merger with Old Cerplex,
the Company received the Greyrock Line of Credit. The Greyrock Line of Credit
consists of a $36.0 million term loan, and a revolving line of credit with
available borrowings of up to $10.0 million depending on certain financial
conditions of the Company. As of December 15, 1998, the entire balance of the
$36.0 million term loan was outstanding and $9.5 million of the revolving line
of credit was outstanding. WCAS has guaranteed the repayment of $25.0 million of
the principal amount owing by the Company at any time under the Greyrock Line of
Credit. The amount available under the Greyrock Line of Credit is based on the
Company's eligible receivables and inventory. Currently, no additional
borrowings are available. The Greyrock Line of Credit is secured by all of the
Company's assets, including the Company's interest in its wholly-owned
subsidiary in the United Kingdom and 65% of the Company's interest in the
Company's wholly-owned subsidiary in France. The outstanding
16
<PAGE> 18
balance of the Greyrock Line of Credit bears interest each month at the highest
London Interbank Offered Rate (LIBOR) in effect during such month, plus 4.875%
per annum on the line of credit and 4.50% per annum on the term loan, provided
that the interest rate in effect in each month shall not be less than 9% per
annum, and provided that the interest charged for each month is a minimum of
$25,000, regardless of the amount of the outstanding principal balance. This
line also prohibits the Company from paying out cash dividends.
All amounts owing Greyrock are due to be repaid by April 30, 1999. The
Company's cash and cash from operations is anticipated to be insufficient to
repay the amounts due by April 30, 1999. The Company is currently in discussions
with Greyrock to extend the repayment date, however, there is no assurance that
the extension will be obtained, or, if obtained, that the extension will give
the Company sufficient time to obtain replacement financing to repay Greyrock.
If a satisfactory extension and/or additional funds are not obtained, the
Company will experience severe liquidity problems. This raises substantial doubt
about the Company's ability to continue as a going concern.
10% Series A and Series B Senior Subordinated Notes. As of December 15,
1998, there was approximately $15.0 million principal amount outstanding of the
Company's 10% Senior Subordinated Notes, issued in two series, Series A and
Series B. Almost the entire amount of the $15.0 million principal of such notes
consists of Series A notes sold to WCAS, and the balance of the principal amount
consists of Series B notes sold to certain public stockholders. The terms of the
Series A and Series B notes, as described herein, are substantially similar. The
10% Senior Subordinated Notes are subordinate in right of payment to all bank
debt and other senior indebtedness of Cerplex but rank senior to all outstanding
subordinated indebtedness. The 10% Senior Subordinated Notes are general,
unsecured obligations of the Company and bear interest at 10% per annum, payable
semi-annually in arrears in cash on June 30 and December 31 of each year,
beginning on June 30, 1998. The 10% Senior Subordinated Notes mature in three
equal annual installments commencing on December 31, 2002. The 10% Senior
Subordinated Notes may be prepaid at any time at the option of the Company in
whole or in part, upon not less than 20 or more than 60 days' notice at the
unpaid principal amount thereof plus accrued and unpaid interest.
7 3/4% Convertible Subordinated Debentures. As of December 15, 1998, there
was approximately $10.4 million principal amount outstanding of the Company's
7 3/4% Convertible Subordinated Debentures (the "Debentures"). The Debentures
mature April 15, 2001 and are convertible into Common Stock of the Company at a
conversion price, subject to adjustment in certain instances, of approximately
$116.60 per share, and are redeemable at the option of the Company at face value
plus accrued interest thereon. The Company is required to make partial sinking
fund payments of approximately $117,000 and $2,516,000 in 1999 and 2000,
respectively, on the Debentures. The Debentures bear interest at 7 3/4% payable
on April 14 and October 14 of each year through maturity.
10% Short Term WCAS Notes. As of December 15, 1998, there was $7.5 million
aggregate principal amount outstanding under two promissory notes to WCAS
evidencing recent loans by WCAS to the Company. The notes were issued on
September 30, 1998 and December 9, 1998, in the respective principal amounts of
$5.0 million and $2.5 million. The principal amount of each note must be repaid
in full on the one year anniversary of its issue date ($5.0 million is due
September 30, 1999, and $2.5 million is due December 9, 1999). The notes are
general, unsecured obligations of the Company and bear interest at 10% per
annum, payable in arrears in cash on March 30, 1999 with the balance at
maturity.
Secured Note Payable to BT. As of December 15, 1998, there was $3.1 million
principal amount outstanding under a promissory note to BT (the "BT Note"). In
July 1994 Old Cerplex purchased the operating assets of BT Repair Services for
cash and assumed the BT Note in an original principal amount of L2.5 million.
The BT Note is a non-interest bearing note, secured by the land and buildings
purchased from BT. The BT Note is payable at the earlier of the point when
orders from the customers of the business purchased by the Company from BT reach
a cumulative L78.0 million (approximately $122.0 million as of December 15,
1998) or May of 1999. As of December 15, 1998, required sales volumes had not
yet been met. Management currently estimates that sales volumes will not be high
enough to require repayment of the BT Note before the outside maturity date in
May of 1999.
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<PAGE> 19
Other Debt. As of December 15, 1998, there was $0.7 million principal
amount of other debt outstanding, consisting primarily of secured equipment
financing and capital lease obligations with interest rates ranging from 8.9% to
12.9%, due in monthly installments through 1999.
7% Senior Cumulative Convertible Preferred Stock. As of December 15, 1998,
there was $21.55 million amount outstanding (excluding accrued dividends) of the
Company's 7% Convertible Preferred Stock (215,500 shares at $100 per share).
Holders of the 7% Convertible Preferred Stock are entitled to receive dividends
of $7.00 per share per annum (or 7% of the face amount), payable when and as
declared by the Company's Board of Directors. Unpaid dividends are cumulative
and accrue. Accrued but unpaid dividends do not bear interest. The 7%
Convertible Preferred Stock must be redeemed by the Company in equal
installments on each of December 31, 2006 and 2007. In addition, the 7%
Convertible Preferred Stock is redeemable at the option of the holders thereof
upon a change of control of the Company, which includes the sale of 50% or more
of the voting power of all outstanding shares of the Company to a party other
than WCAS. In the event of a liquidation, dissolution or winding up of the
affairs of the Company, the holders of the 7% Convertible Preferred Stock are
entitled to receive a liquidation preference in the amount of $100 per share of
the 7% Convertible Preferred Stock, plus accrued and unpaid dividends thereon,
prior and in preference to any distribution to holders of any class of capital
stock of the Company junior to such 7% Convertible Preferred Stock. The 7%
Convertible Preferred Stock is convertible in whole or in part at the option of
the holders thereof. Each share of 7% Convertible Preferred Stock is convertible
into 40 shares of the Company's Common Stock upon payment of the conversion
price of $2.50 (subject to anti-dilution adjustment under certain
circumstances).
YEAR 2000 COMPLIANCE
The Company faces Year 2000 risks as the result of computer programs,
microprocessors and embedded date reliant systems using two digits rather than
four to define the applicable year. If such programs or microprocessors are not
corrected, date data concerning the Year 2000 could cause many systems to fail,
lock up or generate erroneous results. A computer system is considered to be
"Year 2000 compliant" if the system's performance and functionality are
unaffected by the processing of dates prior to, during and after the Year 2000,
but only if all products (for example hardware, software and firmware) used with
the system properly exchange accurate date data with it.
The Company is implementing a program intended to enable the Company to
become Year 2000 compliant. The Company is using management information systems
(MIS) personnel knowledgeable regarding Year 2000 problems to determine the
extent of work necessary for the Company to become Year 2000 compliant and
attempt to remedy such problems. The Company has purchased and is in the process
of installing certain software and hardware intended to upgrade its networked
personal computer system to be Year 2000 compliant. More significantly, the
Company is in discussions with its primary software vendor to obtain the source
code for the Company's main operating systems software so that the Company can
modify the software to be Year 2000 compliant. In addition, the Company has
begun discussing Year 2000 issues with certain of its significant suppliers and
customers to evaluate their Year 2000 readiness, and to determine whether any
Year 2000 issues will impede the ability of such suppliers to continue to
provide goods and services to the Company, and the ability of such customers to
continue to provide business to the Company. The Company anticipates that its
internal systems, equipment and processes will be substantially Year 2000
compliant by July 1999, and intends to complete the analysis and remediation of
potential Year 2000 problems with its significant suppliers and customers by
July 1999. The Company estimates that the total dollar amount that the Company
will spend to remediate its Year 2000 issues will not exceed $500,000. Despite
the Company's efforts to become Year 2000 compliant, there is no assurance that
the Year 2000 issue will not pose significant problems. There may be delays in
the Company's remediation efforts, a failure to fully identify all Year 2000
problems in the systems, equipment or processes of the Company or its vendors or
customers, or unanticipated remediation expenses, all of which could have
material adverse consequences on the Company's financial position and results of
operations.
The Company believes that the most likely worst case scenario with respect
to Year 2000 problems would be that the Company or the third parties with whom
the Company does business would fail to successfully
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<PAGE> 20
complete their Year 2000 remediation efforts, in which case the Company would
encounter disruptions to its business that could have a material adverse effect
on its financial position and results of operations. In addition to specific
problems that the Company may encounter with its own systems and those of the
third parties with whom the Company does business, the Company may be materially
impacted by widespread economic or financial market disruptions caused by Year
2000 problems. The Company has not at this time established Year 2000
contingency plans in the event that there is a failure of the Company's Year
2000 remediation efforts or the Year 2000 remediation efforts of third parties
with whom the Company does business. The Company intends to consider contingency
plans in the event that its Year 2000 remediation efforts and those of such
third parties appear to be ineffective or unduly delayed.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1997, the FASB issued SFAS Nos. 130
and 131 "Reporting Comprehensive Income" and "Disclosures about Segments of an
Enterprise and Related Information." SFAS Nos. 130 and 131 are effective for
fiscal years beginning after December 15, 1997, with earlier adoption permitted.
The Company does not believe that adoption of these new standards will have a
material effect on the Company.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters or fiscal years beginning after June 15, 1999. SFAS 133 establishes
accounting and reporting standards for derivative instruments embedded in other
contracts and for hedging activities. Application of this accounting standard is
not expected to have a material impact on the Company's consolidated financial
position, results of operations or liquidity.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risks with respect to its variable note
debt and its cash flows, receivables and payables denominated in foreign
currencies.
Of the Company's $82.2 million principal amount of indebtedness at December
15, 1998, $45.5 million principal amount of such debt (which represents total
principal indebtedness on the Greyrock Line of Credit) bears interest at a rate
that fluctuates based on changes in the LIBOR rate. A 1% change in the
underlying LIBOR rate would result in a $455,000 change in the annual amount of
interest payable on such debt.
The Company's overseas subsidiaries operate in England and France. Both the
trade receivables and the trade payables for these units are denominated in the
local currency. The Company does not hedge these balances. See Note O to the
Consolidated Financial Statements -- "Foreign Operations and Major Customers."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and Schedule appear in a
separate section of this Annual Report, beginning on pages F-1 and S-1,
respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 16, 1998, the Board of Directors of the Company dismissed
Arthur Andersen LLP as the Company's independent accountants, and on September
17, 1998 engaged KPMG LLP as the Company's independent accountants, who had been
the independent accountants for Old Cerplex prior to the Company's acquisition
of Old Cerplex. The Consolidated Financial Statements included herein for the
fiscal years ended September 30, 1996 and September 30, 1997 were audited by
Arthur Andersen LLP, and the Consolidated Financial Statements for the fiscal
year ended September 30, 1998, were audited by KPMG LLP. In connection with
Arthur Andersen's audits for fiscal years 1996 and 1997, and through Arthur
Andersen's dismissal on September 16, 1998, there were no disagreements with
Arthur Andersen LLP on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Arthur Andersen LLP, would
have caused them to make reference thereto in their report on the financial
statements for such years. The dismissal of Arthur Andersen LLP was reported in
greater detail in the Company's Report on Form 8-K filed on September 22, 1998.
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<PAGE> 21
PART III
The information required by Part III is omitted from this Annual Report
because the Company will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") within 120 days of the Company's fiscal
year ended September 30, 1998 in connection with the Company's Annual Meeting of
Stockholders. The Proxy Statement will contain the information that would
otherwise be included in Part III of this Annual Report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Item 10 will be provided in the Company's Proxy
Statement, to be filed within 120 days of the Company's fiscal year ended
September 30, 1998.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Item 11 will be provided in the Company's Proxy
Statement, to be filed within 120 days of the Company's fiscal year ended
September 30, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Item 12 will be provided in the Company's Proxy
Statement, to be filed within 120 days of the Company's fiscal year ended
September 30, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Item 13 will be provided in the Company's Proxy
Statement, to be filed within 120 days of the Company's fiscal year ended
September 30, 1998.
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<PAGE> 22
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements -- See Index to Consolidated Financial
Statements and Financial Statement Schedule on page F-1.
2. Financial Statement Schedule -- See Index to Consolidated Financial
Statements and Financial Statement Schedule on Page F-1.
3. Exhibits:
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2 Agreement and Plan of Merger, dated as of January 30, 1998,
among the Company, Holly Acquisition Corp. and Old Cerplex
(incorporated by reference from Appendix A to the Prospectus
contained in the Company's Registration Statement on Form
S-4 (File No. 333-48725)).
3.1.1 The Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference from Exhibit 3.1 to the
Company's Transition Report on Form 10-K for the transition
period from December 31, 1991 to September 30, 1992).
3.1.2 The Certificate of Amendment to the Restated Certificate of
Incorporation of the Company, filed on April 28, 1998
(incorporated by reference from Exhibit 4.1.1 of the
Company's Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-3, filed on May 13, 1998
(Registration No. 333-47973)).
3.1.3 The Certificate of Amendment to the Restated Certificate of
Incorporation of the Company, filed on April 30, 1998
(incorporated by reference from Exhibit 4.1.2 of the
Company's Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-3, filed on May 13, 1998
(Registration No. 333-47973)).
*3.1.4 Certificate of Amendment to Certificate of Incorporation of
the Company filed on October 6, 1998.
3.2.1 Bylaws of the Company, as amended (incorporated by reference
from Exhibit 4.2 of the Company's Registration Statement on
Form S-8 (Registration No. 33-79426)).
3.2.2 Resolutions adopted by the Board of Directors on April 30,
1998, amending the Bylaws of the Company (incorporated by
reference from Exhibit 4.2.1 of the Company's Post-Effective
Amendment No. 2 to the Company's Registration Statement on
Form S-3, filed on May 13, 1998 (Registration No.
333-47973)).
4.1 Amended and Restated Registration Rights Agreement, dated
January 30, 1998, among the Company and the purchasers named
on Schedules I and II thereto (incorporated by reference
from Exhibit 4.17 to the Company's Current Report on Form
8-K filed on February 6, 1998).
4.2 Certificate of Designations, Preferences and Rights of
Senior Cumulative Convertible Preferred Stock of the Company
filed on April 29, 1998 (incorporated by reference from
Exhibit 4.3 of the Company's Post-Effective Amendment No. 2
to the Company's Registration Statement on Form S-3, filed
on May 13, 1998 (Registration No. 333-47973)).
4.3 Form of Indenture for 10% Series B Senior Subordinated Notes
between the Company and U.S. Trust Corporation (incorporated
by reference from Exhibit 4.4 of the Company's
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-3, filed on March 27, 1998 (Registration
No. 333-47973)).
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4.4 Form of the Company's 10% Series B Senior Subordinated
Notes, due December 31, 2004 (included as Exhibit A to the
form of Indenture filed as Exhibit 4.4 of the Company's
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-3, filed on March 27, 1998 (Registration
No. 333-47973)).
4.5 Form of Letter to Stockholders of the Company (incorporated
by reference from Exhibit 4.6 of the Company's
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-3, filed on March 27, 1998 (Registration
No. 333-47973)).
4.6 Form of Subscription Certificate (incorporated by reference
from Exhibit 4.7 of the Company's Post-Effective Amendment
No. 1 to the Company's Registration Statement on Form S-3,
filed on March 27, 1998 (Registration No. 333-47973)).
4.7 Form of Instructions as to Use of Subscription Certificate
(incorporated by reference from Exhibit 4.8 of the Company's
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-3, filed on March 27, 1998 (Registration
No. 333-47973)).
4.8 Form of Letter to Brokers (incorporated by reference from
Exhibit 4.9 of the Company's Post-Effective Amendment No. 1
to the Company's Registration Statement on Form S-3, filed
on March 27, 1998 (Registration No. 333-47973)).
4.9 Form of Letter to Clients (incorporated by reference from
Exhibit 4.10 of the Company's Post-Effective Amendment No. 1
to the Company's Registration Statement on Form S-3, filed
on March 27, 1998 (Registration No. 333-47973)).
4.10 Form of Notice of Guaranteed Delivery (incorporated by
reference from Exhibit 4.11 of the Company's Post-Effective
Amendment No. 1 to the Company's Registration Statement on
Form S-3, filed on March 27, 1998 (Registration No.
333-47973)).
4.11 Form of Nominee Holder Certification (incorporated by
reference from Exhibit 4.12 of the Company's Post-Effective
Amendment No. 1 to the Company's Registration Statement on
Form S-3, filed on March 27, 1998 (Registration No.
333-47973)).
4.12 Guidelines to Form W-9 (incorporated by reference from
Exhibit 4.13 of the Company's Post-Effective Amendment No. 1
to the Company's Registration Statement on Form S-3, filed
on March 27, 1998 (Registration No. 333-47973)).
4.13 Indenture between the Registrant and MBank Dallas, National
Association relating to the Company's 7 3/4% Convertible
Subordinated Debentures due 2001, including form of
Debenture (incorporated by reference from Exhibit 4.1 to the
Company's Registration Statement on Form S-2 (Registration
No. 33-4276)).
4.14 First Supplemental Indenture relating to the Company's
7 3/4% Convertible Subordinated Debentures, dated December
1, 1987, between the Company and MTrust Corp., National
Association, appointing MTrust Corp. as successor trustee to
MBank Dallas (incorporated by reference from Exhibit 4.2 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993).
4.15 Tripartite Agreement relating to the Company's 7 3/4%
Convertible Subordinated Debentures, dated as of January 7,
1990, between Mtrust Corp., National Association, Ameritrust
Texas N.A., and the Company (incorporated by reference from
Exhibit 4.3 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989).
4.16 Second Supplemental Indenture relating to the Company's
7 3/4% Convertible Subordinated Debentures, dated to be
effective as of November 30, 1992, between the Company and
Society National Bank (incorporated by reference from
Exhibit 4.4 to the Company's Post-Effective Amendment No. 1
to Registration Statement on Form S-3 (No. 33-32377)).
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*4.17 Third Supplemental Indenture relating to the Company's
7 3/4% Convertible Subordinated Debentures, dated to be
effective as of April 30, 1998, between the Company and
Chase Manhattan Trust Company, National Association.
*4.18 Certificate of Designations, Preferences and Rights of
Convertible Preferred Stock filed on November 19, 1998
eliminating the Series B, C and D Convertible Preferred
Stock.
*4.19 Certificate of Elimination of Convertible Preferred Stock
filed on December 15, 1998.
10.1 The Cerplex Group, Inc. and its Subsidiaries Stock Option
and Restricted Stock Purchase Plan (the "Plan"), dated July
28, 1998 (incorporated by reference from the Company's Proxy
Statement filed on September 9, 1998).
*10.2.1 Loan and Security Agreement, dated April 30, 1998, between
Greyrock Business Credit, the Company, Aurora Electronics
Group, Inc., Cerplex, Inc. and Cerplex Mass, Inc.
*10.2.2 Continuing Guaranty, dated April 30, 1998, by Welsh, Carson,
Anderson & Stowe VII, L.P., for the benefit of Greyrock
Business Credit.
*10.2.3 Streamlined Facility Agreement, dated April 30, 1998,
between the Company, Aurora Electronics Group, Inc.,
Cerplex, Inc. and Cerplex Mass, Inc.
*10.2.4 Negative Pledge Agreement, dated April 30, 1998, between
Cerplex Inc. and Greyrock Business Credit.
*10.2.5 Secured Promissory Note for $36,000,000, due April 30, 1999,
between the Company, Aurora Electronics Group, Inc.,
Cerplex, Inc. and Cerplex Mass, Inc. as payors and Greyrock
Business Credit as payee.
*10.2.6 Cross-Corporate Continuing Guaranty, dated April 30, 1998,
between the Company, Aurora Electronics Group, Inc.,
Cerplex, Inc. and Cerplex Mass, Inc., for the benefit of
Greyrock Business Credit.
*10.3 10% Senior Subordinated Note for $5,000,000, due September
30, 1999, between the Company, Aurora Electronics Group,
Inc. and Cerplex, Inc. as payors and Welsh, Carson, Anderson
& Stowe VII, L.P. as payee.
*10.4 10% Senior Subordinated Note for $2,500,000, due December 9,
1999, between the Company, Aurora Electronics Group, Inc.
and Cerplex, Inc. as payors and Welsh, Carson, Anderson &
Stowe VII, L.P. as payee.
10.5 Securities Purchase and Exchange Agreement, dated January
30, 1998, between the Company, Welsh, Carson, Anderson &
Stowe VII, L.P., WCAS Capital Partners II, L.P., and the
several purchasers named in Annex I thereto (incorporated by
reference from Exhibit 10.47 to the Company's Current Report
on Form 8-K filed on February 6, 1998).
10.6 Form of Irrevocable Proxy and Option Agreement executed by
certain stockholders of Old Cerplex for the benefit of the
Company (incorporated by reference from Exhibit 10.45 to the
Company's Current Report on Form 8-K filed on February 6,
1998).
10.7 Interim Management Agreement, dated January 30, 1998,
between the Company and Old Cerplex (incorporated by
reference from Exhibit 10.51 to the Company's Current Report
on Form 8-K filed on February 6, 1998).
10.8 10% Senior Subordinated Bridge Note between the Company, as
payor, and Welsh, Carson, Anderson & Stowe VII, L.P., as
payee (incorporated by reference from Exhibit 10.48 to the
Company's Current Report on Form 8-K filed on February 6,
1998).
10.9 Form of 10% Senior Subordinated Note, due December 31, 2004,
of the Company, as payor (incorporated by reference from
Exhibit 10.49 to the Company's Current Report on Form 8-K
filed on February 6, 1998).
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10.10 Stockholders Agreement, dated January 30, 1998, among Welsh,
Carson, Anderson & Stowe VII, L.P., the Company and Old
Cerplex (incorporated by reference from Exhibit 10.50 to the
Company's Current Report on Form 8-K filed on February 6,
1998).
10.11 Cerplex Note Purchase Agreement, dated January 30, 1998,
between the Company and Old Cerplex (incorporated by
reference from Exhibit 10.52 to the Company's Current Report
on Form 8-K filed on February 6, 1998).
10.12 Form of 10% Subordinated Note, due June 30, 1998, between
the Company and Old Cerplex (incorporated by reference from
Exhibit 10.53 to the Company's Current Report on Form 8-K
filed on February 6, 1998).
10.13 Form of Affiliates Letter to be executed in accordance with
the Agreement and Plan of Merger, dated January 30, 1998
(incorporated by reference from Exhibit 10.46 to the
Company's Current Report on Form 8-K filed on February 6,
1998).
10.14 Amendment No. 1 to Interim Management Agreement, dated as of
February 25, 1998, between Old Cerplex and the Company
(incorporated by reference to the Company's Registration
Statement on Form S-4, filed on March 26, 1998 (File No.
333-48725)).
10.15 Standard Lease Agreement, dated October 27, 1992, between
Crow-Brindell-Mitchell and Aurora Electronics Group, Inc. as
Assignee of CCB Computer Brokers, Inc. d/b/a Century
Computer Services, Inc. (incorporated by reference from
Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994).
10.16 Lease dated July 14, 1988, between American National Bank
and Trust Registrant of Chicago and BSN Corp. (now the
Company) (incorporated by reference from Exhibit 10.12 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994).
10.17 Form of Tax Indemnity Agreement between the Company and SSG
(incorporated by reference from Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991).
10.18 Stock Purchase Agreement, dated as of September 30, 1992,
between the Company, Robert E. Morris and Norma J. Morris,
Trustees of the Robert and Norma Morris Family Trust and The
Robert and Norma Morris Charitable Remainder Unitrust
(incorporated by reference from Exhibit 2.1 to the Company's
Form 8-K filed on October 19, 1992).
10.19 Merger Agreement and Plan of Reorganization, dated September
12, 1993, between the Company and FRS, Inc. (incorporated by
reference from Exhibit 2.1 to the Company's Current Report
on Form 8-K filed on October 15, 1993).
10.20 Asset Purchase Agreement, dated March 15, 1994, to be
effective as of March 1, 1994, as amended, between the
Company, Aurora Electronics Group, Inc. and CCB Computer
Brokers, Inc. and CCM Computers International, Ltd.
(incorporated by reference from Exhibit (b)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994).
10.21 The Company's 401-K Plan (incorporated by reference from
Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993).
10.22 Securities Purchase Agreement between the Company, Welsh,
Carson, Anderson & Stowe VII, L.P., WCAS Capital Partners
II, L.P. and the several purchasers named therein, dated
February 21, 1996 (incorporated by reference from Exhibit
(b)(2) of the Company's Issuer Tender Offer Statement on
Schedule 13E-4, which was filed with the Securities and
Exchange Commission on February 23, 1996).
10.23 The Company's Offer to Purchase for Cash up to 6,500,000
Shares of its Common Stock at $2.875 Per Share, dated
February 23, 1996 (incorporated by reference from Exhibit
(a)(1) of the Company's Issuer Tender Offer Statement on
Schedule 13E-4, which was filed with the Securities and
Exchange Commission on February 23, 1996).
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10.24 Amended and Restated Financial Support Agreement, between
the Company, Aurora Electronics Group, Inc., Welsh, Carson,
Anderson & Stowe VII, L.P., and WCAS Capital Partners II,
L.P. (incorporated by reference from Exhibit 10.39 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
10.25 Securities Purchase Agreement, dated August 14, 1997,
between the Company and Welsh, Carson, Anderson & Stowe VII,
L.P. for the purchase of the Company's Series B Preferred
Stock (incorporated by reference from Exhibit 10.40 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
10.26 Securities Purchase Agreement, dated October 2, 1997,
between the Company and Welsh, Carson, Anderson & Stowe VII,
L.P. for the purchase of the Company's Series C Preferred
Stock (incorporated by reference from Exhibit 10.41 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
10.27 Securities Purchase Agreement, dated October 24, 1997,
between the Company and Welsh, Carson, Anderson & Stowe VII,
L.P. for the purchase of the Company's Series D Preferred
Stock (incorporated by reference from Exhibit 10.42 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
10.28 Senior Subordinated Note Purchase Agreement, between the
Company and Welsh, Carson, Anderson & Stowe VII, L.P.
(incorporated by reference from Exhibit 10.43 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
10.29 Form of $2,800,000 10% Senior Subordinated Demand Note,
dated December 5, 1997, between the Company, as payor, and
Welsh, Carson, Anderson & Stowe VII, L.P., as payee
(incorporated by reference from Exhibit 10.44 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
10.30 Form of Indemnity Agreement (incorporated by reference from
Exhibit 10.15 to Old Cerplex's Registration Statement on
Form S-1 (File No. 33-75004)).
10.31 Letter from Nightingale & Associates, LLC to the Company,
dated June 30, 1997, together with Letter from Nightingale &
Associates, LLC to the Company, dated August 18, 1997,
amending terms of the June 30, 1997 Letter (incorporated by
reference from Exhibit 10.37 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997).
*21.1 Subsidiaries of the Company.
*23.1 Consent of KPMG LLP.
*23.2 Consent of Arthur Andersen LLP.
*27 Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
(b) Reports on Form 8-K.
The following current reports on Form 8-K were filed by the Company in the
last quarter of the fiscal year ended September 30, 1998:
1. Current report on Form 8-K filed July 22, 1998 regarding the acquisition
of Old Cerplex and related Rights Offering.
2. Current report on Form 8-K filed September 17, 1998 regarding the
dismissal of Arthur Andersen LLP as independent accountants.
3. Current report on Form 8-K/A filed September 22, 1998 regarding the
dismissal of Arthur Andersen LLP as independent accountants.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: January 11, 1999
THE CERPLEX GROUP, INC.
By: /s/ STEVEN L. KORBY
------------------------------------
Steven L. Korby
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed on the dated indicated below by the
following persons on behalf of the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ GEORGE L. MCTAVISH Chairman of the Board of Directors January 11, 1999
- ------------------------------------- and Chief Executive Officer
George L. McTavish (Principal Executive Officer)
/s/ STEVEN L. KORBY Executive Vice President January 11, 1999
- ------------------------------------- and Chief Financial Officer
Steven L. Korby (Principal Financial Officer)
/s/ ANTHONY E. PALUMBO Corporate Controller (Controller) January 11, 1999
- -------------------------------------
Anthony E. Palumbo
/s/ THOMAS E. MCINERNEY Director January 11, 1999
- -------------------------------------
Thomas E. McInerney
/s/ RICHARD H. STOWE Director January 11, 1999
- -------------------------------------
Richard H. Stowe
/s/ WILLIAM A. KLEIN Director January 11, 1999
- -------------------------------------
William A. Klein
/s/ ROBERT A. FINZI Director January 11, 1999
- -------------------------------------
Robert A. Finzi
</TABLE>
26
<PAGE> 28
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
INDEX TO THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Reports of Independent Auditors............................. F-2
Consolidated Balance Sheets as of September 30, 1998 and
September 30, 1997........................................ F-4
Consolidated Statements of Operations for the years ended
September 30, 1998, 1997 and 1996......................... F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended September 30, 1998, 1997 and 1996..... F-6
Consolidated Statements of Cash Flows for the years ended
September 30, 1998, 1997 and 1996......................... F-7
Notes to Consolidated Financial Statements.................. F-8
Schedule II -- Valuation and Qualifying Accounts for the
years ended September 30, 1998, 1997 and 1996............. S-1
</TABLE>
All other financial statement schedules are omitted as the required
information is presented in the consolidated financial statements or the notes
thereto or is not necessary.
F-1
<PAGE> 29
INDEPENDENT AUDITORS' REPORTS
The Board of Directors
The Cerplex Group, Inc.
We have audited the accompanying consolidated balance sheet of The Cerplex
Group, Inc. and subsidiaries (formerly known as Aurora Electronics, Inc.) as of
September 30, 1998, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year then ended, as listed
in the accompanying index. In connection with our audit of the consolidated
financial statements, we also have audited the consolidated financial statement
schedule as of and for the year ended September 30, 1998, as listed in the
accompanying index. These consolidated financial statements and financial
statement schedule are the responsibility of Cerplex's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Cerplex
Group, Inc. and subsidiaries as of September 30, 1998, and the results of their
operations and their cash flows for the year then ended, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that The Cerplex Group, Inc. will continue
as a going concern. As discussed in Note A to the consolidated financial
statements, The Cerplex Group, Inc. has suffered recurring losses from
operations, has net stockholders' and working capital deficiencies and does not
have the necessary funds to pay certain debt obligations which mature in fiscal
year 1999. In addition, the Company's losses are expected to continue for the
forseeable future, and the Company will require additional funding and financial
support. These factors raise substantial doubt about The Cerplex Group's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note A. The consolidated financial statements and
financial statement schedule do not include any adjustments that might result
from the outcome of this uncertainty.
/s/ KPMG LLP
Orange County, California
December 28, 1998
F-2
<PAGE> 30
INDEPENDENT AUDITORS' REPORTS
To the Stockholders of Aurora Electronics, Inc.:
We have audited the accompanying consolidated balance sheet of Aurora
Electronics, Inc. (a Delaware Corporation) and subsidiaries as of September 30,
1997, and the related consolidated statements of operations, stockholders'
equity (deficit), and cash flows for each of the two years in the period ended
September 30, 1997. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aurora
Electronics, Inc. and subsidiaries as of September 30, 1997, and the results of
their operations and their cash flows for each of the two years in the period
ended September 30, 1997 in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
A to the consolidated financial statements, the Company has experienced
declining revenues, significant operating losses, has negative working capital
and a deficit in stockholders' equity. In addition, since a recapitalization of
the Company in March 1996, the Company has relied upon the financial support of
its largest shareholder for additional capital and to maintain its existing
credit facilities. The Company's losses are expected to continue for the
foreseeable future and the Company will require additional funding and financial
support from its largest shareholder or another third party. There can be no
assurance that such additional funding and financial support will be available
on acceptable terms, or that such funds, if available, would enable the Company
to continue operating. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to the consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Orange County, California
January 12, 1998
F-3
<PAGE> 31
THE CERPLEX GROUP, INC.
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 14,196 $ 323
Trade receivables, less allowance for doubtful accounts of
$2,511 ($736 in 1997).................................. 12,416 5,480
Inventories............................................... 6,626 3,389
Other current assets...................................... 4,628 449
--------- ---------
Total current assets........................................ 37,866 9,641
Property, plant and equipment, net.......................... 25,021 3,023
Goodwill, net............................................... 37,202 496
Intangible and other assets, net............................ 452 1,469
--------- ---------
Total assets...................................... $ 100,541 $ 14,629
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt......................... $ 53,886 $ 1,177
Accounts payable.......................................... 9,903 6,846
Accrued liabilities....................................... 14,165 1,904
Accrued interest.......................................... 1,424 503
Current portion of reserve for discontinued operations.... 154 702
Income taxes payable...................................... 1,271 --
Other current liabilities................................. 12,478 1,622
--------- ---------
Total current liabilities................................... 93,281 12,754
Long-term debt.............................................. 25,782 36,585
Reserve for discontinued operations......................... 1,822 1,888
Other long-term liabilities................................. 4,714 --
Commitments and contingencies (note Q)
Subsequent events (notes H, J, K, and L)
Redeemable convertible preferred stock, 260 shares issued
(425 shares in 1997)...................................... 34,150 46,722
Stockholders' deficit:
Preferred stock, 1,000 shares authorized, none issued..... -- --
Common stock, 75,000 shares authorized, 7,601 shares
issued (1,159 shares issued in 1997)................... 2,262 348
Additional paid-in capital................................ 116,400 62,443
Accumulated deficit....................................... (161,232) (129,472)
Treasury stock, at cost, 483 shares (474 shares in
1997).................................................. (16,675) (16,639)
Cumulative translation adjustment......................... 37 --
--------- ---------
Total stockholders' deficit................................. (59,208) (83,320)
--------- ---------
Total liabilities and stockholders' deficit....... $ 100,541 $ 14,629
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 32
THE CERPLEX GROUP, INC.
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net revenues............................................... $ 66,423 $ 64,892 $ 98,019
Cost of sales.............................................. 61,554 51,906 73,576
-------- -------- --------
Gross profit............................................... 4,869 12,986 24,443
Selling, general and administrative expenses............... 23,145 23,466 25,943
Amortization of intangibles, including write-offs of $405,
$32,992 and $16,580 in 1998, 1997 and 1996,
respectively............................................. 3,701 34,044 18,042
-------- -------- --------
Operating loss............................................. (21,977) (44,524) (19,542)
Interest expense........................................... (5,465) (4,050) (6,221)
Other expense, net......................................... (1,653) (498) (1,284)
-------- -------- --------
Loss from operations before provision for income taxes..... (29,095) (49,072) (27,047)
Provision for income taxes................................. -- 533 3,306
-------- -------- --------
Net loss................................................... (29,095) (49,605) (30,353)
Accrued dividends on redeemable preferred stock............ (2,665) (2,822) (1,400)
-------- -------- --------
Net loss applicable to common stockholders................. $(31,760) $(52,427) $(31,753)
======== ======== ========
Basic and diluted loss per common share.................... $ (8.26) $ (78.60) $ (44.40)
======== ======== ========
Weighted average number of common shares outstanding....... 3,843 667 716
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 33
THE CERPLEX GROUP, INC.
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
--------------- PAID-IN ACCUMULATED TREASURY TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT STOCK ADJUSTMENT TOTAL
------ ------ ---------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30, 1995.......... 806 $ 242 $ 61,932 $ (44,683) $ (5,153) $ -- $ 12,338
Issuance of common stock/treasury
stock - acquisitions................ 148 45 66 (601) 771 -- 281
Issuance of common stock for notes
payable............................. 61 18 1,029 -- -- -- 1,047
Repurchase of common stock............ -- -- -- -- (12,271) -- (12,271)
Issuance of common stock.............. 34 10 903 (8) 14 -- 919
Financing costs from issuance of
redeemable convertible preferred
stock............................... -- -- (2,254) -- -- -- (2,254)
Accretion of dividends on redeemable
convertible preferred stock......... -- -- -- (1,400) -- -- (1,400)
Exercise of stock options............. -- -- 3 -- -- -- 3
Net loss.............................. -- -- -- (30,353) -- -- (30,353)
----- ------ -------- --------- -------- ---- --------
Balances at September 30, 1996.......... 1,049 315 61,679 (77,045) (16,639) -- (31,690)
Issuance of common
stock -- acquisitions............... 23 7 380 -- -- -- 387
Issuance of common stock -- employee
bonuses............................. 9 3 151 -- -- -- 154
Issuance of common stock -- litigation
settlement.......................... 78 23 (23) -- -- -- --
Financing costs -- warrants issued for
guarantees on bank debt............. -- -- 256 -- -- -- 256
Accretion of dividends on redeemable
convertible preferred stock......... -- -- -- (2,822) -- -- (2,822)
Net loss.............................. -- -- -- (49,605) -- -- (49,605)
----- ------ -------- --------- -------- ---- --------
Balances at September 30, 1997.......... 1,159 348 62,443 (129,472) (16,639) -- (83,320)
Issuance of common stock --
acquisition......................... 3,890 1,167 6,616 -- -- -- 7,783
Conversion of Series A, B, C, D
redeemable convertible preferred
stock............................... 2,544 747 47,341 -- -- -- 48,088
Repurchase of common stock............ 8 -- -- -- (36) -- (36)
Accretion of dividends on redeemable
convertible preferred stock......... -- -- -- (2,665) -- -- (2,665)
Translation adjustment................ -- -- -- -- -- 37 37
Net loss.............................. -- -- -- (29,095) -- -- (29,095)
----- ------ -------- --------- -------- ---- --------
Balances at September 30, 1998.......... 7,601 $2,262 $116,400 $(161,232) $(16,675) $ 37 $(59,208)
===== ====== ======== ========= ======== ==== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 34
THE CERPLEX GROUP, INC.
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM (USED BY) OPERATING ACTIVITIES:
Net loss.................................................. $(29,095) $(49,605) $(30,353)
Adjustments to reconcile net loss to net cash flows from
(used by) operating activities:
Depreciation and amortization........................... 4,994 32,322 19,686
Noncash interest expense................................ 2,008 2,044 1,340
Loss on disposition of assets........................... 224 3,390 1,369
Foreign currency translation............................ 37 -- --
Changes in assets and liabilities, net of acquisitions:
Trade receivables, inventories and other assets....... 8,202 4,227 7,133
Accounts payable, accrued compensation and other
liabilities........................................ (12,730) (1,389) (729)
Accrued interest and income taxes
receivable/payable................................. (489) 70 632
Deferred income taxes................................. -- 500 3,234
-------- -------- --------
Net cash flows from (used by) continuing operations....... (26,849) (8,441) 2,312
Net cash flows used by discontinued operations............ (614) (478) (1,005)
-------- -------- --------
Net cash flows from (used by) operating activities........ (27,463) (8,919) 1,307
-------- -------- --------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Acquisition of property, plant and equipment.............. (1,106) (3,053) (2,072)
Purchase of treasury stock, net........................... (36) -- (12,271)
Purchase of Old Cerplex, net of cash acquired............. 13,681 -- --
-------- -------- --------
Net cash flows used by investing activities............... 12,539 (3,053) (14,343)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt.......................................... (59,500) (1,405) (30,741)
Issuance of redeemable convertible preferred stock........ 22,750 2,500 37,747
Issuance of senior subordinated debentures................ 15,000 -- --
Proceeds from promissory note............................. 5,000 -- --
Proceeds from LIBOR revolving line of credit and term
debt.................................................... 45,547 -- --
Advances under line of credit............................. -- 9,663 7,486
-------- -------- --------
Net cash flows from financing activities.................. 28,797 10,758 14,492
-------- -------- --------
Net change in cash and cash equivalents................... 13,873 (1,214) 1,456
Cash and cash equivalents at beginning of period............ 323 1,537 81
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 14,196 $ 323 $ 1,537
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest................................................ $ 3,456 $ 1,907 $ 5,368
======== ======== ========
Income taxes............................................ $ 30 $ 42 $ 72
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock to acquire Old Cerplex........... 7,783 -- --
======== ======== ========
Conversion of 10% senior debt to redeemable convertible
preferred stock......................................... $ 10,101 $ -- $ --
======== ======== ========
Reduction in 7% debt as a result of common stock sale..... $ -- $ -- $ 956
======== ======== ========
Reduction in 9 1/4% debt as a result of issuance of
Notes................................................... $ -- $ -- $ 8,593
======== ======== ========
Issuance of common stock for employee bonuses............. $ -- $ 154 $ --
======== ======== ========
Accretion of dividends on redeemable convertible preferred
stock................................................... $ 2,665 $ 2,882 $ 1,400
======== ======== ========
Conversion of redeemable convertible preferred stock into
common stock............................................ $ 48,088 $ -- $ --
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 35
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
GENERAL
The Cerplex Group, Inc. (the "Company") was formerly named Aurora
Electronics, Inc. The Company changed its name during the year in connection
with its acquisition of The Cerplex Group ("Old Cerplex"). See Note C.
On October 5, 1998, the Company effected a one for ten reverse common stock
split. All share and per share amounts in the accompanying consolidated
financial statements have been restated to reflect this split. At this time the
amount of authorized Common Stock was established at 75,000.
NOTE A -- CURRENT FINANCIAL CONDITION
During the years ended September 30, 1998, 1997 and 1996, the Company
experienced recurring operating losses. As a result of these losses, at
September 30, 1998 the Company has a deficit of $59,208 in stockholders' equity
and negative working capital of $55,415. In addition, since a recapitalization
of the Company in March 1996, the Company has relied upon the financial support
of its largest stockholder for additional capital and to maintain its existing
credit facilities. The Company has approximately $45,500 in principal amount
outstanding under its term debt and line of credit which matures on April 30,
1999. The Company is currently in discussions with its lender to extend the
repayment date. Furthermore, as of September 30, 1998, the Company has $5.0
million and $3.1 million outstanding related to its promissory note to its
largest stockholder and a secured note payable to one of its customers,
respectively, which are also due in fiscal year ending 1999. Though the Company
intends to make efforts to increase revenues to improve operations, the
Company's losses are expected to continue for the foreseeable future and the
Company will require additional funding and financial support from its largest
stockholder or another third party. There can be no assurance that such
additional funding and financial support will be available on acceptable terms,
or that such funds, if available, would enable the Company to continue
operating, or that the Company will be successful in increasing revenues. In
addition, there can be no assurance that the Company will be successful in
extending the repayment date of its term debt and line of credit. These matters
raise substantial doubt about the Company's ability to continue as a going
concern.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization. The Company provides repair services and spare parts
distribution to major personal computer manufacturers and field service
organizations.
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Cash and Cash Equivalents. The Company considers all liquid investments
with a maturity of three months or less at the date of purchase to be cash
equivalents.
In May 1996, Old Cerplex acquired Cerplex SAS. As part of the acquisition,
sufficient cash was provided to fund certain liabilities of Cerplex SAS. Under
the terms of the Stock Purchase Agreement, Old Cerplex 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.
Accordingly, the cash of Cerplex SAS is generally not available for financing
operations outside of Cerplex SAS. The cash balance of Cerplex SAS at September
30, 1998 was $6.5 million.
F-8
<PAGE> 36
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Write-downs for cost in excess
of net realizable value are determined periodically by comparing sales prices
and volumes to cost and quantity of inventory on hand.
Property, Plant and Equipment. Property, plant and equipment is recorded at
cost and is depreciated over the estimated useful lives of the related assets by
the straight-line method for financial reporting purposes, and accelerated
methods with respect to certain assets for income tax purposes. Property, plant
and equipment includes computer hardware, software and implementation costs
which are purchased, acquired and modified for internal use. The Company's
policy is to capitalize and accumulate such costs as incurred and to commence
amortization when placed in service. Leasehold improvements are amortized over
the terms of the related leases or their useful lives, whichever is shorter.
Intangible and Other Long-Lived Assets. Goodwill, which represents the
excess of purchase price over fair value of net assets acquired, is being
amortized on a straight-line basis over the expected periods to be benefited.
Goodwill associated with the acquisition of Old Cerplex is being amortized over
five years. MicroLine goodwill has been written off in the current year.
Goodwill resulting from other acquisitions has been previously written off.
Long-lived assets and certain identifiable intangibles to be held and used by
the Company are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Further, any such
assets that are to be disposed of are reported at the lower of carrying amount
or fair value less cost to sell, except for assets covered by the Accounting
Principles Board ("APB") Opinion No. 30, "Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions."
Revenue Recognition. Revenue is recognized upon completion of services,
normally represented by the shipment of products to customers. The Company
warrants products against defects and has policies permitting the return of
products under certain circumstances. Provisions are made for warranty costs and
returns. Such costs generally have not been material. The Company does not offer
price protection to its customers. The Company performs ongoing credit
evaluations of its customers and has established provisions for potential credit
losses.
Earnings Per Share. In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
128 "Earnings Per Share," which requires companies to present basic earnings per
share (EPS) and diluted earnings per share, instead of primary and fully diluted
EPS that was previously required. The new standard requires additional
informational disclosures, and also makes certain modifications to the currently
applicable EPS calculations defined in APB Opinion No. 15. The new standard was
required to be adopted by all public companies for reporting periods ending
after December 15, 1997, and required restatement of EPS for all prior periods
reported. Basic earnings per share and diluted earnings per share are the same
as to previously reported primary and fully diluted earnings per share.
Basic earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding after adding
to loss from operations cumulative dividends to holders of the Company's
redeemable convertible preferred stock.
Diluted earnings per share is computed by dividing net income (loss)
available to common stockholders by the sum of the weighted average number of
common shares outstanding and dilutive stock options. For all years presented,
common stock equivalents (stock options) were excluded from calculations as they
were considered to be anti-dilutive.
F-9
<PAGE> 37
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
Foreign Currency Translation. The functional currency for each of the
Company's foreign subsidiaries is their respective local currency. Assets and
liabilities of foreign subsidiaries are translated at year-end rates of exchange
and net sales and expenses are translated at the average rates of exchange for
the year. Translation gains and losses are excluded from the measurement of net
loss and are recorded as a separate component of stockholders' equity (deficit).
Gains and losses resulting from foreign currency transactions are included in
operations, and were not material during all years presented.
Stock-Based Compensation. In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This standard, if fully adopted,
requires the accounting for employee stock-based compensation using a fair value
methodology. For stock options, fair value is determined using an option pricing
model that takes into account the stock price at the date of grant, the exercise
price, the expected life of the option, the volatility of the underlying stock,
the expected dividends and the risk-free interest rate. For stock-based
compensation issued to non-employees, the standard requires measurement based on
the value of the related services performed or the stock-based compensation
issued, whichever is more reliably measurable.
The adoption of the accounting methodology of SFAS 123 related to employees
is optional and as permitted under SFAS 123, the Company continues to account
for employee stock options using the methodology in accordance with APB Opinion
No. 25; however, pro forma disclosure as if the Company adopted the accounting
methodology of SFAS 123 are required to be presented. See Note L -- "Employee
Stock and Savings Plans.".
Fair Value of Financial Instruments. SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," requires all entities to disclose the fair
value of financial instruments, both assets and liabilities recognized and not
recognized on the balance sheet, for which it is practicable to estimate fair
value. SFAS No. 107 defines fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. As of September 30, 1998 and 1997, the carrying value of all
debt approximates fair value as the related interest rates approximate rates
currently available to the Company. The carrying value of all other financial
instruments approximates fair value due to the short-term nature of such
instruments.
NOTE C -- ACQUISITIONS
MICROLINE, INC.
Effective March 31, 1997, the Company acquired MicroLine, Inc., the
developer and operator of PowerSource On-line, an internet-based information
service that matches computer parts buyers to available inventories from
distributors that participate in the on-line parts data base of PowerSource. The
consideration to the former shareholders of MicroLine was 23 shares of Common
Stock of the Company. The business operated as the PowerSource Division of the
Company.
F-10
<PAGE> 38
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
The estimated fair value of assets and liabilities as of the date of the
acquisition of MicroLine is summarized as follows:
<TABLE>
<S> <C>
Current assets............................................ $ 78
Property, plant and equipment............................. 21
Other assets.............................................. 3
Goodwill.................................................. 496
Liabilities............................................... (211)
-----
Net purchase price.............................. $ 387
=====
</TABLE>
Goodwill from the MicroLine acquisition has been written off as the Company
disposed of this division in the current year. See Note G -- "Goodwill,
Intangibles and Other Assets."
OLD CERPLEX
On April 30, 1998, the Company, formerly known as Aurora Electronics, Inc.,
merged with Old Cerplex, a provider of electronic parts repair, spare parts
sales and management and logistics to the electronics industry. As a result of
the merger, Old Cerplex became a wholly-owned subsidiary of the Company, and the
current equity holders of Old Cerplex received, in a tax-free exchange,
approximately 3,890 shares of the Company's Common Stock or approximately 25% of
the post-merger, fully-diluted Common Stock of the Company, after giving effect
to the financing from Welsh, Carson, Anderson & Stowe ("WCAS"), described in
Note H -- "Long-Term Debt." Under the terms of the agreement, each share of Old
Cerplex Common Stock was converted into .1070167 shares of the Company's Common
Stock. The Company changed its name to The Cerplex Group, Inc. and the combined
company is operating under that name.
Management estimated that the fair value of the Common Stock issued was
approximately 80% of the negotiated conversion price of the 7% Senior Cumulative
Convertible Preferred Stock. Based upon a $2.50 per share conversion price for
the 7% Senior Cumulative Convertible Preferred Stock, the fair value of the
Common Stock issued to Old Cerplex stockholders was valued at $2.00 per share.
The merger with Old Cerplex has been accounted for using the purchase
method of accounting. Accordingly, the operating results of Old Cerplex have
been included in the Company's consolidated financial statements since the date
of the merger. The allocation of the purchase price was as follows:
<TABLE>
<S> <C>
Current assets........................................ $ 38,721
Property, plant and equipment......................... 22,519
Other assets.......................................... 113
Goodwill.............................................. 40,583
Net current liabilities............................... (75,600)
Long term liabilities................................. (15,698)
--------
Net purchase price.......................... $ 10,638
========
</TABLE>
Goodwill resulting from the merger has been determined as the excess of:
(i) the fair value of the shares issued to Old Cerplex shareholders totaling
$7,783, plus merger costs incurred of approximately $2.9 million over; (ii) the
fair value of the identifiable assets less the liabilities of Old Cerplex.
F-11
<PAGE> 39
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
The following table presents unaudited pro forma consolidated results of
operations for the years ended September 30, 1998 and 1997 assuming the
acquisition of Old Cerplex occurred as of October 1, 1996 (in thousands, except
per share data). These results are not necessarily indicative of future
operations:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net sales...................................... $ 95,654 $225,741
Net earnings (loss)............................ (32,250) (76,513)
Loss per share -- basic and diluted............ (8.39) (19.94)
</TABLE>
Considering the historical operating losses of the Company and Old Cerplex,
and the volatility of the acquired operations, management is amortizing the
resulting goodwill over 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 future 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 in the carrying value of the goodwill resulting from the
merger.
In connection with the Merger, the Company sold an aggregate of $15.0
million of newly issued 10% Series A Senior Subordinated Notes and $21.55
million of newly issued 7% Senior Cumulative Convertible Preferred Stock
primarily to its principal stockholder, WCAS. The aggregate consideration paid
for the 10% Senior Subordinated Notes and the 7% Senior Cumulative Convertible
Preferred Stock consisted of approximately $12.0 million in cash, the
cancellation of $21.0 million of combined indebtedness of Old Cerplex and the
Company to WCAS, and the surrender of warrants held by WCAS to purchase capital
stock of Old Cerplex. The cash proceeds of approximately $12.0 million and
borrowings under the Greyrock Line of Credit of $38.5 million was used in full
to repay $30.0 million of indebtedness of Old Cerplex under a line of credit
from Citibank, N.A., to repay $16.5 million of the Company's indebtedness under
a line of credit with The Chase Manhattan Bank, N.A., and the balance to pay
investment banking and other transactional fees in connection with the Merger.
NOTE D -- DISCONTINUED OPERATIONS
Commencing in 1990, the Company began to discontinue its sporting goods
operations and divest itself of the related assets. Effective September 30,
1992, the Company announced that its remaining sporting goods operations would
be accounted for as discontinued operations and the remaining assets would be
sold. As of September 30, 1998, no material assets remained related to the
discontinued operations. Obligations and contingencies relating to discontinued
operations consists primarily of a leased building. See Note H -- "Long-Term
Debt."
NOTE E -- INVENTORIES
Inventories at September 30, 1998 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
Spare and repair parts............................. $5,569 $ 377
Work in process.................................... 113 94
Finished goods..................................... 944 2,918
------ ------
Total inventories........................ $6,626 $3,389
====== ======
</TABLE>
F-12
<PAGE> 40
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
NOTE F -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 1998 and 1997 consisted of
the following:
<TABLE>
<CAPTION>
ESTIMATED LIFE 1998 1997
-------------- ------- -------
<S> <C> <C> <C>
Land...................................... $ 5,482 $ --
Buildings................................. 20 years 2,135 --
Furniture, fixtures and equipment......... 3-5 years 20,205 6,707
Leasehold improvements.................... 1-5 years 1,196 1,112
------- -------
29,018 7,819
Less accumulated depreciation and
amortization............................ (3,997) (4,796)
------- -------
Total property, plant and
equipment..................... $25,021 $ 3,023
======= =======
</TABLE>
In connection with changes in the Parts Services Division, the Company
charged $3,390 of capitalized information systems software and development costs
to operations in the fourth quarter of fiscal 1997. See Note G -- "Goodwill,
Intangibles and Other Assets."
NOTE G -- GOODWILL, INTANGIBLES AND OTHER ASSETS
Intangibles and other assets at September 30, 1998 and 1997 consisted of
the following:
<TABLE>
<CAPTION>
1998 1997
------- ------
<S> <C> <C>
Goodwill.......................................... $40,583 $ 496
Debt issuance costs............................... 601 1,741
Other............................................. 557 518
------- ------
Total goodwill, intangibles and other assets...... 41,741 2,755
Less accumulated amortization..................... (4,087) (790)
------- ------
Net goodwill, intangibles and other
assets................................ $37,654 $1,965
======= ======
</TABLE>
Due to the closure of the PowerSource Division business during fiscal 1998,
management charged the remaining goodwill of $405 to operations in the second
quarter. This charge was necessary as management decided to shut down the
PowerSource Division and disposed of the operation in exchange for $36 of
treasury stock.
In fiscal 1997, due to continuing declines in the prices for replacement
and repair parts, the Parts Services Division (formerly Century) experienced a
continued decrease in inventory values and increasing levels of operating
losses. As a result, management decided to reorganize its parts business to
reduce inventory exposure and to more cost effectively deliver parts to its
customers. The Company replaced Century's inventory and labor intensive
operating methods with MicroLine's internet-based electronic processing
technology. As a result, management charged the remaining balance of goodwill
and the database valuation resulting from the acquisition of Century,
aggregating $29,602, to operations in the fourth quarter of fiscal 1997. These
charges were determined necessary as management estimated that the amortization
of the respective intangible balances over their remaining lives would not be
recovered through the projected non-discounted future cash flows over their
respective remaining amortization periods. Also, the new internet technology
made obsolete much of the Company's capitalized information systems software and
development costs and, therefore, $3,390 of such formerly capitalized costs were
charged to operations in the fourth quarter of fiscal 1997.
F-13
<PAGE> 41
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
Due to the deterioration of the pricing levels in the integrated circuit
market in the latter part of fiscal 1996 and their related negative effects on
the Company's business prospects, management charged the remaining balance of
goodwill related to the acquisition of Micro-C, totaling $16,580, to operations
in the fourth quarter of fiscal 1996. This charge was determined to be necessary
as management estimated that the amortization of the respective goodwill
balances over their remaining lives would not be recovered through the projected
non-discounted future cash flows over their respective remaining amortization
periods.
NOTE H -- LONG-TERM DEBT
Long-term debt at September 30, 1998 and 1997 consists of the following:
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
LIBOR revolving line of credit............................ $ 9,547 $ --
LIBOR term debt........................................... 36,000 --
Credit agreement.......................................... -- 16,292
10% Senior subordinated notes............................. 15,000 9,727
7 3/4% Convertible subordinated debentures................ 10,381 10,353
7% Subordinated convertible promissory notes.............. -- 883
Secured note payable to customer.......................... 3,064 --
Promissory note........................................... 5,000 --
Other..................................................... 676 507
-------- -------
Total long-term debt............................ 79,668 37,762
Less current portion of long-term debt.......... (53,886) (1,177)
-------- -------
Total long-term portion......................... $ 25,782 $36,585
======== =======
</TABLE>
LIBOR FINANCING
In connection with the acquisition of Old Cerplex, the Company entered into
a financing relationship with a financial institution. This arrangement provides
for two elements, a $10,000 revolving loan and a $36,000 term loan. The amount
available under the revolving loan is based upon eligible receivables and
inventory, as defined in the agreement. Interest accrues at the highest LIBOR
rate in effect during the month plus 4.875% per annum on the revolving loan or
4.5% per annum on the term loan, but not less than 9% per annum provided that
the interest charged for each month is a minimum of $25. At September 30, 1998
the rates were 10.5% and 10.125% respectively.
These loans are secured by essentially all assets of the Company including
the Company's interest in its wholly-owned United Kingdom subsidiary and 65% of
its interest in its French subsidiary. Furthermore, WCAS, the Company's
principal stockholder, has guaranteed $25,000 of indebtedness under this
revolving line of credit and the term loan. These loans also prohibit the
payment of dividends.
The loans mature on April 30, 1999. Thus, all amounts are shown as current
maturities of long term debt in the accompanying consolidated financial
statements. The Company is currently negotiating with the financial institution
to extend the payment date.
CREDIT AGREEMENT
In March 1996, in conjunction with the recapitalization of the Company
("Recapitalization"), the Company's operating subsidiary, Aurora Electronics
Group, Inc. ("AEG"), entered into a Credit Agreement with a group of lenders
which provided for up to $35,000 of borrowings for working capital and for
approved
F-14
<PAGE> 42
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
acquisitions. Borrowings under the Credit Agreement were secured by
substantially all of the assets of AEG. The term of the Credit Agreement was
originally five years. The interest rate was based on LIBOR plus 2.75% or the
Bank's Base Rate plus 1.25%, with interest rate adjustments based on the ratio
of total funded senior debt to the Company's earnings before interest, taxes,
amortization and depreciation.
At June 30, 1996, and at various subsequent dates, AEG was not in
compliance with certain financial covenants under the Credit Agreement. To
obtain waivers of noncompliance from the lenders, on September 30, 1996, the
Company, AEG and WCAS (the Company's largest stockholder) entered into a
Financial Support Agreement, pursuant to which, with subsequent amendments, WCAS
guaranteed $16,292, the total borrowings then outstanding under the Credit
Agreement, and the Company granted WCAS warrants to purchase 223 Common Shares
of the Company, at prices ranging from $10.25 to $20.90 per share. At September
30, 1997 the Credit Agreement was 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. This obligation
was paid off as part of the transaction with Old Cerplex.
10% SENIOR SUBORDINATED NOTES
In connection with the acquisition of Old Cerplex, the Company issued
$15,000 of 10% Series A and Series B Senior Subordinated Notes to WCAS.
Subsequently, approximately 3% of this amount was purchased by the public. These
Notes are subordinate to all bank debt and other senior debt but senior to all
outstanding subordinated indebtedness. This obligation is unsecured and bears
interest at 10% annually payable semi-annually on June 30 and December 31. The
debentures mature in three equal installments on December 31, 2002, 2003 and
2004. Payment is accelerated in case of a change of control as defined in the
agreement.
In connection with the Recapitalization, the Company issued 10% Senior
Subordinated Notes to WCAS with a face value of $10,000 due September 30, 2001.
The Notes are shown net of the value of 61 shares of common stock issued
simultaneously with the Notes which is reflected as a discount to the related
debt. The discount was being amortized through the maturity date of the 10%
Senior Subordinated Notes. Interest on the Notes was payable on March 31 and
September 30 of each year beginning September 30, 1996 through maturity. Unpaid
interest totaling $500 was added to the principal balance of the Notes in the
fourth quarter of fiscal 1997, pursuant to the terms of the Notes. The proceeds
of the Notes were used to repay the 9 1/4% Senior Subordinated Notes due
November 1996. See Note K -- "Stockholders' Equity."
During 1998, the $10,000 notes were exchanged for 33 shares of the 7%
Senior Cumulative Convertible Preferred Stock. See Note J -- "Redeemable
Convertible Preferred Stock."
7 3/4% CONVERTIBLE SUBORDINATED DEBENTURES
The 7 3/4% Convertible Subordinated Debentures mature April 15, 2001
("Convertible Debentures") and are shown net of unamortized discount of
approximately $70 and $98 at September 30, 1998 and 1997, respectively. The
Company is required to make partial sinking fund payments of approximately $117
and $2,516 in 1999 and 2000, respectively. The Convertible Debentures are
convertible into Common Stock of the Company at a conversion price, subject to
adjustment in certain instances, of $116.60 per share, and are
F-15
<PAGE> 43
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
redeemable at the option of the Company at face value plus accrued interest
thereon. Interest on the Convertible Debentures is payable on April 14 and
October 14 of each year through maturity.
7% SUBORDINATED CONVERTIBLE PROMISSORY NOTES
In connection with the acquisition of Micro-C, the Company issued 7% Notes
to the sellers aggregating approximately $7,379. In April 1995, the Company was
awarded in arbitration a final settlement which reduced the outstanding balance
of the notes to $2,648. These notes were paid at maturity during 1998.
SECURED NOTE PAYABLE TO CUSTOMER
In July 1994, Old Cerplex acquired the operating assets of BT Repair
Services for cash and a L2.5 million non-interest bearing note (approximately
$3.9 million at December 31, 1994) secured by the land and buildings. The note
is payable at the earlier of the point when orders from the customers reach a
cumulative L78.0 million (approximately $122.0 million) or five years from the
acquisition date. Cerplex is committed to pay BT L1.8 million (approximately
$3.1 million as of September 30, 1998) in 1999 or earlier if certain sales
volumes are reached. As of September 30, 1998, required sales volumes had not
yet been met. Management currently estimates that the note will be repaid in
1999.
PROMISSORY NOTES
On September 30, 1998 the Company borrowed $5,000 from WCAS, under a 10%
unsecured promissory note due September 30, 1999. Subsequent to September 30,
1998, the Company borrowed $2,500 from WCAS under the terms of a 10% unsecured
promissory note which matures on December 9, 1999.
OTHER LONG-TERM DEBT
Additional long-term debt consists primarily of secured equipment financing
and capital lease obligations with interest rates ranging from 8.9% to 12.9%,
due in monthly installments through 2001.
Aggregate maturities of long-term debt for the fiscal years ending
September 30 are as follows: 1999 -- $53,886; 2000 -- $2,740; and
2001 -- $8,042; 2002 -- $0; 2003 -- $5,000; thereafter -- $10,000.
NOTE I -- INCOME TAXES
Components of loss from continuing operations before taxes consist of the
following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
-----------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
United States...................................... $(25,094) $(49,161) $(27,429)
Foreign............................................ (4,001) 89 382
-------- -------- --------
$(29,095) $(49,072) $(27,047)
======== ======== ========
</TABLE>
F-16
<PAGE> 44
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
---------------------------------
1998 1997 1996
------- --------- ---------
<S> <C> <C> <C>
Current benefit:
Federal............................................... $ -- $ -- $ --
Foreign............................................... (362) -- --
State................................................. -- -- --
----- ------- -------
Total current benefit................................... (362) -- --
Deferred provision:
Federal............................................... -- 455 2,822
Foreign............................................... 362 -- --
State................................................. -- 78 484
----- ------- -------
Total deferred provision...................... 362 533 3,306
----- ------- -------
Total provision for income tax expense:....... $ -- $ 533 $ 3,306
===== ======= =======
</TABLE>
The provision for income taxes in the accompanying consolidated statements
of operations differs from the amount of tax based on the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED SEPTEMBER 30,
----------------------------------
1998 1997 1996
--------- --------- --------
<S> <C> <C> <C>
Benefit for income taxes at statutory rate.......... $ (9,892) $(16,684) $(9,196)
Nondeductible expenses.............................. 1,178 30 5,794
Deferred benefit not currently recognized........... 7,009 3,860 2,045
Permanent effect of book/tax adjustments............ -- 14,104 1,747
Increase in valuation allowance of deferred tax
asset due to uncertainty.......................... 4,195 500 3,234
State taxes, net of federal benefit................. (1,289) (1,310) (614)
Other............................................... (1,201) 33 296
-------- -------- -------
Total provision for income taxes.......... $ -- $ 533 $ 3,306
======== ======== =======
</TABLE>
F-17
<PAGE> 45
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
The components of the Company's deferred income tax assets are as follows:
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
Reserves for discontinued operations........................ $ 1,539 $ 1,040
Allowance for doubtful accounts and notes................... 3,362 410
Inventory reserves.......................................... 705 374
Nondeductible accruals...................................... 396 899
Warranty reserve............................................ 85 --
Valuation allowance -- current.............................. (6,087) (2,723)
-------- --------
Current deferred income tax benefit......................... -- --
-------- --------
Depreciation................................................ 2,265 659
Net operating loss carryforwards -- long-term............... 50,594 18,381
Capital loss carryback...................................... -- 2,084
Tax credits................................................. 6,023 273
Goodwill amortization and other amortization................ 9,495 8,541
Other....................................................... 39 --
Valuation allowance -- long-term............................ (68,416) (29,938)
-------- --------
Long-term deferred income tax benefit....................... -- --
-------- --------
$ -- $ --
======== ========
</TABLE>
At September 30, 1998, the Company had tax basis net operating losses
("NOLs") of approximately $140 million available to offset future ordinary
taxable income. The utilization of the Company's NOLs will be substantially
limited due to the Recapitalization and the acquisition of Old Cerplex, among
other things. These carryforwards begin to expire during 2007. The income tax
benefit related to these NOLs, as well as to certain reserves recorded by the
Company, have been reflected in the deferred income tax asset accounts to the
extent they are considered realizable.
The Company has established a valuation allowance for the entire deferred
tax asset because it is not likely to be realized in the foreseeable future.
NOTE J -- REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has issued, in series, Redeemable Convertible Preferred Stock
(the "Shares"), primarily to its largest stockholder, WCAS. The Company has
authorized 230 of the 1,000 total authorized preferred stock for this series.
The Shares have a par value of $.01 per share and were issued for $100 per
share. The Shares have a liquidation preference of $100 per share plus accrued
and unpaid dividends. Dividends accrue at 7% per annum. The Shares (including
all unpaid dividends) are convertible into Common Stock of the Company and are
subject to mandatory redemption by the Company on September 30, 2006 at the
price of $100 per share plus all accrued and unpaid dividends to the redemption
date. The holders of the Shares have voting rights equivalent to the holders of
Common Stock on an "as converted" basis. The issues were:
7% Senior Cumulative Convertible Preferred -- 216 shares were issued
in connection with the acquisition of Old Cerplex and exchange of the 10%
Senior Subordinated Notes. Dividends are cumulative at 7%, payable when
declared by the Board of Directors. Each share is convertible into 40
F-18
<PAGE> 46
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
shares of Common Stock at $2.50 per share at the option of the holder
subject to certain requirements. These shares must be redeemed in equal
installments on December 30, 2006 and 2007. Upon a change of control of the
Company, as set forth in the certificates, the shares must be redeemed at
the option of the holders.
Old Series A -- 400 shares issued concurrent with the Recapitalization
with a current conversion price of $1.91 as adjusted for anti-dilution
adjustments. In connection with the acquisition of Old Cerplex 356 of those
shares were converted into approximately 1.9 million shares of Common
Stock. In November 1998, the remaining 44 shares with a carrying value of
$4.837 were converted into 249 shares of Common Stock. See Note
K -- "Stockholders' Equity."
Series B, C, D -- 25 shares of Series B, 25 shares of Series C and 20
shares of Series D were issued on August 14, 1997, October 2, 1997 and
October 24, 1997, respectively. All shares were converted into
approximately $0.6 million shares of Common Stock in connection with the
Old Cerplex Acquisition.
NOTE K -- STOCKHOLDERS' EQUITY
On October 5, 1998, the Company effected a one for ten reverse common stock
split ("One-for-Ten Reverse Split"). All share and per share amounts in the
accompanying consolidated financial statements have been restated to reflect
this split. At this time the amount of authorized Common Stock was established
at 75,000 shares.
Subsequent to the One-for-Ten Reverse Split, 249 shares of the Company's
Common Stock were issued as a result of the conversion of 44 shares of the
Series A Preferred Stock.
The Company has 1,000 shares of authorized, $.01 par value Preferred Stock,
with none issued or outstanding. The Company has 75,000 shares of authorized,
$.03 par value, Common Stock 7,118 shares outstanding at September 30, 1998,
(compared to 685 at September 30, 1997, respectively).
In October 1995, the Company sold 34 shares of Common Stock to investors in
a private placement of equity securities in exchange for proceeds totaling $883,
net of issuance costs. Proceeds from the offering were used to make the
principal payment due September 30, 1996 on the 7% notes payable.
In March 1996, the Company completed a comprehensive Recapitalization of
the Company, pursuant to which the Company (a) sold (i) 400 shares of Redeemable
Convertible Preferred Stock, $.01 par value, to WCAS and certain other investors
for an aggregate purchase price of $40,000 and (ii) 61 shares of Common Stock,
along with a $10,000 10% Senior Subordinated Note due September 2001, to WCAS
Capital Partners II, L.P. ("WCAS CP II") for an aggregate purchase price of
$10,000, and (b) repurchased 427 shares of the Company's Common Stock at $2.875
per share pursuant to a tender offer for up to 650 shares of Common Stock.
In consideration for WCAS guaranteeing certain borrowings, the Company has
granted WCAS warrants to purchase 223 Common Shares at prices ranging from
$20.90 to $10.25 per share. See Note H -- "Long-term Debt."
In connection with the merger with Old Cerplex, warrants held by Old
Cerplex note holders and certain principals of Old Cerplex were converted into
warrants to purchase 98 Common Shares at prices ranging from $0.94 to $82.23.
F-19
<PAGE> 47
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
NOTE L -- EMPLOYEE STOCK AND SAVINGS PLANS
Employee stock purchase plan. Effective October 1, 1994, the Company
established an employee stock purchase plan for all eligible employees. Under
the plan, shares of the Company's Common Stock may be purchased at three-month
intervals at 85% of the lower of the fair market value on the first or the last
day of each three-month period. Employees may purchase shares having a value not
exceeding 15% of their gross compensation during an offering period.
Savings plan. The Company has a savings plan, which qualifies under Section
401(k) of the Internal Revenue Code. Under the plan, participating U.S.
employees may defer up to 15% of their pretax salary, but not more than
statutory limits. The Company contributes a discretionary amount, set by the
Board of Directors, for each dollar contributed by a participant, with a maximum
of 6% of participant earnings. There was no matching contribution in fiscal
1998. The Company's matching contribution to the savings plan was $207 and $252
for the years ended September 30, 1997 and 1996, respectively.
Stock option plan. The Company has a stock option plan for directors,
officers, and key employees which provides for incentive and nonqualified stock
options. A committee comprised of disinterested directors determines the option
price (not less than the fair market value of the stock at the date of grant).
The options generally expire ten years from the date of grant and generally vest
over four years. As of September 30, 1998, options for 219 shares were issued
and 302 shares were available for future grants under the plan. This stock
option plan was instituted at the time of the Recapitalization. At that time,
the Company offered to exchange options issued under prior stock option plans
for options under the new plan at the market price per share at the time of the
Recapitalization.
The Company accounts for its stock option plans under APB Opinion No. 25,
under which no compensation cost has been recognized. The following pro forma
disclosures represent what the Company's net loss and loss per share would have
been had the Company recorded compensation cost for these plans in accordance
with the provisions of FASB Statement No. 123, "Accounting for Stock-Based
Compensation." (SFAS No. 123).
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Pro forma net loss applicable to common stockholders... $(32,621) $(53,497)
Pro forma basic and diluted loss per share............. $ (8.47) $ (8.01)
</TABLE>
Because the method of accounting required under Statement No. 123 has not
been applied to options granted prior to October 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected in
future years.
F-20
<PAGE> 48
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
--------------------------------------
SHARES RANGE OF OPTION
(IN THOUSANDS) PRICES
-------------- ---------------------
<S> <C> <C> <C> <C>
Outstanding at September 30, 1995.............. 114 33.80 - 117.50
Granted........................................ 490 21.30 - 41.90
Forfeited...................................... (201) 33.80 - 117.50
-------------- ---------------------
Outstanding at September 30, 1996.............. 403 21.30 - 117.50
Granted........................................ 166 10.00 - 17.50
Forfeited...................................... (127) 21.30
-------------- ---------------------
Outstanding at September 30, 1997.............. 442 $10.00 - $117.50
Issued in connection with Old Cerplex merger... 72 15.60
Forfeited...................................... (295) 3.00 - 117.50
-------------- ---------------------
Outstanding at September 30, 1998.............. 219 2.70 - $117.50
============== =====================
</TABLE>
The weighted-average fair value of options granted and forfeited were
$3.00, and $33.43 for fiscal 1998, $11.80 and $21.30 for fiscal 1997, and $16.70
and $33.80 for fiscal 1996, respectively.
The shares outstanding at September 30, 1998 have a weighted average
exercise price of $25.40 and a weighted average contractual life of 5.0 years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1998 and 1997: risk-free interest rates of 6.5%
in 1998 and 1997 and 6.6% in 1996; no expected dividend yield; expected lives of
4 years; expected volatility of 117% for all three years.
On October 5, 1995 the Company adopted its 1998 Stock Option and Restricted
Stock Plan, which provides for the grant to eligible employees and others the
right to purchase up to 2,836 shares of the Company's Common Stock.
NOTE M -- INVESTMENT AND RETIREMENT PLANS
In October 1996, Old Cerplex established a defined contribution plan for
the employees of Cerplex Ltd., a wholly-owned subsidiary of Old Cerplex
operating in the United Kingdom ("U.K. Plan"), not covered by the U.K. Pension
Plan (see below). Participating employees are allowed to contribute either 3% or
6% of their annual compensation subject to maximum limitations based on
compensation and Internal Revenue Service regulations. The Company contributes
an amount equal to 100% of the employee's contributions in connection with the
U.K. Plan. The Company contributions vest immediately. In the event the U.K.
Plan is terminated, all participants are entitled to receive a distribution
equal to their account balance at that date. Contributions to the U.K. Plan were
approximately $258 for 1998.
Certain employees of Cerplex Ltd. are also covered by a defined benefit
pension plan. The Company's contribution rates have been actuarially assessed
and are being amortized over the estimated employees' working lives with the
Company. Benefits are determined based on employee's final pensionable pay. The
net assets and benefit obligation, as well as pension costs relating to this
plan are not significant to the consolidated financial statements as of
September 30, 1998 and for the year then ended, respectively.
NOTE N -- CONCENTRATION OF CREDIT RISK
The Company's revenues are primarily with Original Equipment Manufacturers
("OEMs") or Third Party Maintainers ("TPMs") in the computer and peripheral,
telecommunications and office automation
F-21
<PAGE> 49
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
industries located principally in the United States and Europe. The Company
performs ongoing credit evaluations of its customers' financial condition and,
generally, requires no collateral from its customers. Credit risk is affected by
conditions or occurrences within the economy and the computer and peripheral,
telecommunications and office automation markets.
NOTE O -- FOREIGN OPERATIONS AND MAJOR CUSTOMERS
Revenues, operating losses and assets of the Company's operations as of and
for the years ended September 30, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
United States
Revenues................................. $ 38,470 $ 56,201 $ 88,741
Operating loss........................... (18,973) (46,168) (19,950)
Assets................................... 58,861 12,113 50,290
Foreign
Revenues................................. 27,953 8,691 9,278
Operating income (loss).................. (3,004) 1,644 408
Assets................................... 41,680 2,516 2,498
</TABLE>
In fiscal 1998 two customers accounted for approximately 17% and 11% of net
revenues. One customer accounted for 11% percent or more of net revenues in
fiscal 1997 and 19% of net revenues in 1996.
NOTE P -- LOSS PER SHARE
In fiscal 1998, the Company adopted SFAS No. 128, as discussed in Note B.
The following table illustrates the computation of basic and diluted loss per
share under the provisions of SFAS No. 128.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Numerator for basic and diluted loss per share -- net
loss..................................................... (29,095) (49,605) (30,353)
Preferred stock dividends.................................. (2,665) (2,822) (1,400)
-------- -------- --------
Numerator for basic and diluted earnings per share......... $(31,760) $(52,427) $(31,753)
======== ======== ========
Denominator for basic and diluted loss per share --weighted
average number of common shares outstanding during the
period................................................... 3,843 667 716
-------- -------- --------
Basic and diluted loss per share........................... $ (8.26) $ (78.60) $ (44.40)
======== ======== ========
</TABLE>
The computation of diluted loss per share for each of the years in the
three-year period ended September 30, 1998 excluded the effect of all
incremental common shares attributable to the exercise of outstanding Common
Stock options and warrants and conversions of the Convertible Preferred Stock
because their effect would be antidilutive. See Note B -- "Summary of
Significant Accounting Principles", Note K -- "Stockholders' Equity" and Note
L -- "Employee Stock and Savings Plans."
F-22
<PAGE> 50
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
NOTE Q -- COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases the majority of its office and warehousing facilities
and certain equipment under noncancellable operating leases which expire at
various dates through 2008.
Rental expense, net of sublease income, for the years ended September 30,
1998, 1997 and 1996 was approximately $1,265, $1,531 and $1,246, respectively.
Future minimum lease payments as of September 30, 1998 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
SEPTEMBER 30 (DOLLARS IN THOUSANDS)
------------ ----------------------
<S> <C>
1999...................................................... $ 4,176
2000...................................................... 3,525
2001...................................................... 2,981
2002...................................................... 2,487
2003...................................................... 2,180
Thereafter................................................ 5,589
-------
$20,938
=======
</TABLE>
CONTINGENCIES
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. In the opinion of
management, the resolution of these matters will not materially affect the
Company's consolidated financial position and results of operations or
liquidity.
F-23
<PAGE> 51
SCHEDULE II
THE CERPLEX GROUP, INC.
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT END
PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------------ ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED SEPTEMBER 30, 1998
Allowance for doubtful accounts....... $ 736 $1,246 $1,775 $1,246 $2,511
====== ====== ====== ====== ======
Reserve for discontinued operations... $2,590 $ -- $ -- $ 614 $1,976
====== ====== ====== ====== ======
FOR THE YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts....... $1,209 $ 372 $ -- $ 845(1) $ 736
====== ====== ====== ====== ======
Reserve for discontinued operations... $3,068 $ -- $ -- $ 478 $2,590
====== ====== ====== ====== ======
FOR THE YEAR ENDED SEPTEMBER 30, 1996
Allowance for doubtful accounts....... $1,414 $ 410 $ -- $ 615(1) $1,209
====== ====== ====== ====== ======
Reserve for discontinued operations... $4,073 $ -- $ -- $1,005 $3,068
====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Uncollectible accounts written off, net of recoveries.
S-1
<PAGE> 52
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
2 Agreement and Plan of Merger, dated as of January 30, 1998,
among the Company, Holly Acquisition Corp. and Old Cerplex
(incorporated by reference from Appendix A to the Prospectus
contained in the Company's Registration Statement on Form
S-4 (File No. 333-48725)).
3.1.1 The Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference from Exhibit 3.1 to the
Company's Transition Report on Form 10-K for the transition
period from December 31, 1991 to September 30, 1992).
3.1.2 The Certificate of Amendment to the Restated Certificate of
Incorporation of the Company, filed on April 28, 1998
(incorporated by reference from Exhibit 4.1.1 of the
Company's Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-3, filed on May 13, 1998
(Registration No. 333-47973)).
3.1.3 The Certificate of Amendment to the Restated Certificate of
Incorporation of the Company, filed on April 30, 1998
(incorporated by reference from Exhibit 4.1.2 of the
Company's Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-3, filed on May 13, 1998
(Registration No. 333-47973)).
*3.1.4 Certificate of Amendment to Certificate of Incorporation of
the Company filed on October 6, 1998.
3.2.1 Bylaws of the Company, as amended (incorporated by reference
from Exhibit 4.2 of the Company's Registration Statement on
Form S-8 (Registration No. 33-79426)).
3.2.2 Resolutions adopted by the Board of Directors on April 30,
1998, amending the Bylaws of the Company (incorporated by
reference from Exhibit 4.2.1 of the Company's Post-Effective
Amendment No. 2 to the Company's Registration Statement on
Form S-3, filed on May 13, 1998 (Registration No.
333-47973)).
4.1 Amended and Restated Registration Rights Agreement, dated
January 30, 1998, among the Company and the purchasers named
on Schedules I and II thereto (incorporated by reference
from Exhibit 4.17 to the Company's Current Report on Form
8-K filed on February 6, 1998).
4.2 Certificate of Designations, Preferences and Rights of
Senior Cumulative Convertible Preferred Stock of the Company
filed on April 29, 1998 (incorporated by reference from
Exhibit 4.3 of the Company's Post-Effective Amendment No. 2
to the Company's Registration Statement on Form S-3, filed
on May 13, 1998 (Registration No. 333-47973)).
4.3 Form of Indenture for 10% Series B Senior Subordinated Notes
between the Company and U.S. Trust Corporation (incorporated
by reference from Exhibit 4.4 of the Company's
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-3, filed on March 27, 1998 (Registration
No. 333-47973)).
4.4 Form of the Company's 10% Series B Senior Subordinated
Notes, due December 31, 2004 (included as Exhibit A to the
form of Indenture filed as Exhibit 4.4 of the Company's
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-3, filed on March 27, 1998 (Registration
No. 333-47973)).
4.5 Form of Letter to Stockholders of the Company (incorporated
by reference from Exhibit 4.6 of the Company's
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-3, filed on March 27, 1998 (Registration
No. 333-47973)).
4.6 Form of Subscription Certificate (incorporated by reference
from Exhibit 4.7 of the Company's Post-Effective Amendment
No. 1 to the Company's Registration Statement on Form S-3,
filed on March 27, 1998 (Registration No. 333-47973)).
</TABLE>
<PAGE> 53
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
4.7 Form of Instructions as to Use of Subscription Certificate
(incorporated by reference from Exhibit 4.8 of the Company's
Post-Effective Amendment No. 1 to the Company's Registration
Statement on Form S-3, filed on March 27, 1998 (Registration
No. 333-47973)).
4.8 Form of Letter to Brokers (incorporated by reference from
Exhibit 4.9 of the Company's Post-Effective Amendment No. 1
to the Company's Registration Statement on Form S-3, filed
on March 27, 1998 (Registration No. 333-47973)).
4.9 Form of Letter to Clients (incorporated by reference from
Exhibit 4.10 of the Company's Post-Effective Amendment No. 1
to the Company's Registration Statement on Form S-3, filed
on March 27, 1998 (Registration No. 333-47973)).
4.10 Form of Notice of Guaranteed Delivery (incorporated by
reference from Exhibit 4.11 of the Company's Post-Effective
Amendment No. 1 to the Company's Registration Statement on
Form S-3, filed on March 27, 1998 (Registration No.
333-47973)).
4.11 Form of Nominee Holder Certification (incorporated by
reference from Exhibit 4.12 of the Company's Post-Effective
Amendment No. 1 to the Company's Registration Statement on
Form S-3, filed on March 27, 1998 (Registration No.
333-47973)).
4.12 Guidelines to Form W-9 (incorporated by reference from
Exhibit 4.13 of the Company's Post-Effective Amendment No. 1
to the Company's Registration Statement on Form S-3, filed
on March 27, 1998 (Registration No. 333-47973)).
4.13 Indenture between the Registrant and MBank Dallas, National
Association relating to the Company's 7 3/4% Convertible
Subordinated Debentures due 2001, including form of
Debenture (incorporated by reference from Exhibit 4.1 to the
Company's Registration Statement on Form S-2 (Registration
No. 33-4276)).
4.14 First Supplemental Indenture relating to the Company's
7 3/4% Convertible Subordinated Debentures, dated December
1, 1987, between the Company and MTrust Corp., National
Association, appointing MTrust Corp. as successor trustee to
MBank Dallas (incorporated by reference from Exhibit 4.2 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1993).
4.15 Tripartite Agreement relating to the Company's 7 3/4%
Convertible Subordinated Debentures, dated as of January 7,
1990, between Mtrust Corp., National Association, Ameritrust
Texas N.A., and the Company (incorporated by reference from
Exhibit 4.3 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1989).
4.16 Second Supplemental Indenture relating to the Company's
7 3/4% Convertible Subordinated Debentures, dated to be
effective as of November 30, 1992, between the Company and
Society National Bank (incorporated by reference from
Exhibit 4.4 to the Company's Post-Effective Amendment No. 1
to Registration Statement on Form S-3 (No. 33-32377)).
*4.17 Third Supplemental Indenture relating to the Company's
7 3/4% Convertible Subordinated Debentures, dated to be
effective as of April 30, 1998, between the Company and
Chase Manhattan Trust Company, National Association.
*4.18 Certificate of Designations, Preferences and Rights of
Convertible Preferred Stock filed on November 19, 1998
eliminating the Series B, C and D Convertible Preferred
Stock.
*4.19 Certificate of Elimination of Convertible Preferred Stock
filed on December 15, 1998.
10.1 The Cerplex Group, Inc. and its Subsidiaries Stock Option
and Restricted Stock Purchase Plan (the "Plan"), dated July
28, 1998 (incorporated by reference from the Company's Proxy
Statement filed on September 9, 1998).
*10.2.1 Loan and Security Agreement, dated April 30, 1998, between
Greyrock Business Credit, the Company, Aurora Electronics
Group, Inc., Cerplex, Inc. and Cerplex Mass, Inc.
</TABLE>
<PAGE> 54
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
*10.2.2 Continuing Guaranty, dated April 30, 1998, by Welsh, Carson,
Anderson & Stowe VII, L.P., for the benefit of Greyrock
Business Credit.
*10.2.3 Streamlined Facility Agreement, dated April 30, 1998,
between the Company, Aurora Electronics Group, Inc.,
Cerplex, Inc. and Cerplex Mass, Inc.
*10.2.4 Negative Pledge Agreement, dated April 30, 1998, between
Cerplex Inc. and Greyrock Business Credit.
*10.2.5 Secured Promissory Note for $36,000,000, due April 30, 1999,
between the Company, Aurora Electronics Group, Inc.,
Cerplex, Inc. and Cerplex Mass, Inc. as payors and Greyrock
Business Credit as payee.
*10.2.6 Cross-Corporate Continuing Guaranty, dated April 30, 1998,
between the Company, Aurora Electronics Group, Inc.,
Cerplex, Inc. and Cerplex Mass, Inc., for the benefit of
Greyrock Business Credit.
*10.3 10% Senior Subordinated Note for $5,000,000, due September
30, 1999, between the Company, Aurora Electronics Group,
Inc. and Cerplex, Inc. as payors and Welsh, Carson, Anderson
& Stowe VII, L.P. as payee.
*10.4 10% Senior Subordinated Note for $2,500,000, due December 9,
1999, between the Company, Aurora Electronics Group, Inc.
and Cerplex, Inc. as payors and Welsh, Carson, Anderson &
Stowe VII, L.P. as payee.
10.5 Securities Purchase and Exchange Agreement, dated January
30, 1998, between the Company, Welsh, Carson, Anderson &
Stowe VII, L.P., WCAS Capital Partners II, L.P., and the
several purchasers named in Annex I thereto (incorporated by
reference from Exhibit 10.47 to the Company's Current Report
on Form 8-K filed on February 6, 1998).
10.6 Form of Irrevocable Proxy and Option Agreement executed by
certain stockholders of Old Cerplex for the benefit of the
Company (incorporated by reference from Exhibit 10.45 to the
Company's Current Report on Form 8-K filed on February 6,
1998).
10.7 Interim Management Agreement, dated January 30, 1998,
between the Company and Old Cerplex (incorporated by
reference from Exhibit 10.51 to the Company's Current Report
on Form 8-K filed on February 6, 1998).
10.8 10% Senior Subordinated Bridge Note between the Company, as
payor, and Welsh, Carson, Anderson & Stowe VII, L.P., as
payee (incorporated by reference from Exhibit 10.48 to the
Company's Current Report on Form 8-K filed on February 6,
1998).
10.9 Form of 10% Senior Subordinated Note, due December 31, 2004,
of the Company, as payor (incorporated by reference from
Exhibit 10.49 to the Company's Current Report on Form 8-K
filed on February 6, 1998).
10.10 Stockholders Agreement, dated January 30, 1998, among Welsh,
Carson, Anderson & Stowe VII, L.P., the Company and Old
Cerplex (incorporated by reference from Exhibit 10.50 to the
Company's Current Report on Form 8-K filed on February 6,
1998).
10.11 Cerplex Note Purchase Agreement, dated January 30, 1998,
between the Company and Old Cerplex (incorporated by
reference from Exhibit 10.52 to the Company's Current Report
on Form 8-K filed on February 6, 1998).
10.12 Form of 10% Subordinated Note, due June 30, 1998, between
the Company and Old Cerplex (incorporated by reference from
Exhibit 10.53 to the Company's Current Report on Form 8-K
filed on February 6, 1998).
10.13 Form of Affiliates Letter to be executed in accordance with
the Agreement and Plan of Merger, dated January 30, 1998
(incorporated by reference from Exhibit 10.46 to the
Company's Current Report on Form 8-K filed on February 6,
1998).
</TABLE>
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
10.14 Amendment No. 1 to Interim Management Agreement, dated as of
February 25, 1998, between Old Cerplex and the Company
(incorporated by reference to the Company's Registration
Statement on Form S-4, filed on March 26, 1998 (File No.
333-48725)).
10.15 Standard Lease Agreement, dated October 27, 1992, between
Crow-Brindell-Mitchell and Aurora Electronics Group, Inc. as
Assignee of CCB Computer Brokers, Inc. d/b/a Century
Computer Services, Inc. (incorporated by reference from
Exhibit 10.10 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994).
10.16 Lease dated July 14, 1988, between American National Bank
and Trust Registrant of Chicago and BSN Corp. (now the
Company) (incorporated by reference from Exhibit 10.12 to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994).
10.17 Form of Tax Indemnity Agreement between the Company and SSG
(incorporated by reference from Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991).
10.18 Stock Purchase Agreement, dated as of September 30, 1992,
between the Company, Robert E. Morris and Norma J. Morris,
Trustees of the Robert and Norma Morris Family Trust and The
Robert and Norma Morris Charitable Remainder Unitrust
(incorporated by reference from Exhibit 2.1 to the Company's
Form 8-K filed on October 19, 1992).
10.19 Merger Agreement and Plan of Reorganization, dated September
12, 1993, between the Company and FRS, Inc. (incorporated by
reference from Exhibit 2.1 to the Company's Current Report
on Form 8-K filed on October 15, 1993).
10.20 Asset Purchase Agreement, dated March 15, 1994, to be
effective as of March 1, 1994, as amended, between the
Company, Aurora Electronics Group, Inc. and CCB Computer
Brokers, Inc. and CCM Computers International, Ltd.
(incorporated by reference from Exhibit (b)(1) to the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994).
10.21 The Company's 401-K Plan (incorporated by reference from
Exhibit 10.13 to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993).
10.22 Securities Purchase Agreement between the Company, Welsh,
Carson, Anderson & Stowe VII, L.P., WCAS Capital Partners
II, L.P. and the several purchasers named therein, dated
February 21, 1996 (incorporated by reference from Exhibit
(b)(2) of the Company's Issuer Tender Offer Statement on
Schedule 13E-4, which was filed with the Securities and
Exchange Commission on February 23, 1996).
10.23 The Company's Offer to Purchase for Cash up to 6,500,000
Shares of its Common Stock at $2.875 Per Share, dated
February 23, 1996 (incorporated by reference from Exhibit
(a)(1) of the Company's Issuer Tender Offer Statement on
Schedule 13E-4, which was filed with the Securities and
Exchange Commission on February 23, 1996).
10.24 Amended and Restated Financial Support Agreement, between
the Company, Aurora Electronics Group, Inc., Welsh, Carson,
Anderson & Stowe VII, L.P., and WCAS Capital Partners II,
L.P. (incorporated by reference from Exhibit 10.39 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
10.25 Securities Purchase Agreement, dated August 14, 1997,
between the Company and Welsh, Carson, Anderson & Stowe VII,
L.P. for the purchase of the Company's Series B Preferred
Stock (incorporated by reference from Exhibit 10.40 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
10.26 Securities Purchase Agreement, dated October 2, 1997,
between the Company and Welsh, Carson, Anderson & Stowe VII,
L.P. for the purchase of the Company's Series C Preferred
Stock (incorporated by reference from Exhibit 10.41 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<S> <C>
10.27 Securities Purchase Agreement, dated October 24, 1997,
between the Company and Welsh, Carson, Anderson & Stowe VII,
L.P. for the purchase of the Company's Series D Preferred
Stock (incorporated by reference from Exhibit 10.42 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
10.28 Senior Subordinated Note Purchase Agreement, between the
Company and Welsh, Carson, Anderson & Stowe VII, L.P.
(incorporated by reference from Exhibit 10.43 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
10.29 Form of $2,800,000 10% Senior Subordinated Demand Note,
dated December 5, 1997, between the Company, as payor, and
Welsh, Carson, Anderson & Stowe VII, L.P., as payee
(incorporated by reference from Exhibit 10.44 to the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
10.30 Form of Indemnity Agreement (incorporated by reference from
Exhibit 10.15 to Old Cerplex's Registration Statement on
Form S-1 (File No. 33-75004)).
10.31 Letter from Nightingale & Associates, LLC to the Company,
dated June 30, 1997, together with Letter from Nightingale &
Associates, LLC to the Company, dated August 18, 1997,
amending terms of the June 30, 1997 Letter (incorporated by
reference from Exhibit 10.37 to the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30,
1997).
*21.1 Subsidiaries of the Company.
*23.1 Consent of KPMG LLP.
*23.2 Consent of Arthur Andersen LLP.
*27 Financial Data Schedule.
</TABLE>
- ---------------
* Filed herewith.
<PAGE> 1
EXHIBIT 3.1.4
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
THE CERPLEX GROUP, INC.
The undersigned, the President and Secretary of The Cerplex
Group, Inc. a Delaware corporation (the "Corporation"), do hereby certify as
follows:
1. The Board of Directors of The Cerplex Group, Inc. duly adopted
a resolution, in accordance with Section 242 of the General Corporation Law of
the State of Delaware, to amend the Certificate of Incorporation of The Cerplex
Group, Inc. to effect a one-for-ten reverse stock split on the Common Stock and
declaring the advisability thereof.
2. At the Special Meeting of Stockholders held on October 5,
1998, dully called and held in accordance with the provisions of Section 222 of
the General Corporation Law of the State of Delaware, a majority of the shares
of the outstanding stock entitled to vote thereon, and a majority of the
outstanding stock of each class entitled to vote thereon as a class, were voted
in favor of such amendment in accordance with Section 242 of the General
Corporation Law of the State of Delaware.
3. Paragraph (A) of Article Fourth of the Certificate of
Incorporation of the Corporation is hereby amended in its entirety to read as
follows:
"(A) The total number of shares of all classes of stock which the
Company shall have authority to issue is 76,000,000 shares, consisting
of 75,000,000 shares of Common Stock $0.03 par value, and 1,000,000
shares of Preferred Stock, $0.01 par value. Upon amendment of this
Article as herein set forth (the "Effective Date"), each ten (10) shares
of Common Stock issued and outstanding on the Effective Date (the "Old
Common Stock") shall be converted into one (1) share of Common Stock
(the "New Common Stock"), subject to the treatment of fractional share
interests as described below. A holder of each such 10 shares of Old
Common Stock shall be entitled to receive upon surrender of the
certificates representing such Old Common Stock (the "Old Certificates,"
whether one or more) to the Company's Transfer Agent for cancellation, a
certificate or certificates (the "New Certificates," whether one or
more) representing the number of whole shares of the New Common Stock
into which and for which the shares of
1
<PAGE> 2
the Old Common Stock formerly represented by such Old Certificates so
surrendered, are reclassified under the terms hereof. From and after the
Effective Date, Old Certificates shall represent only the right to receive New
Certificates pursuant to the provisions hereof. No certificates or scrip
representing fractional share interests in New Common Stock will be issued, and
no such fractional share interest will entitle the holder thereof to vote, or to
any rights of a shareholder of the Company. In lieu of any such fractional
shares, each holder of Common Stock who would otherwise have been entitled to a
fraction of a share of Common Stock upon surrender of such holder's Certificates
will be entitled to receive a cash payment (without interest) determined by
multiplying (i) ten, (ii) the fractional interest to which such holder would
otherwise be entitled (after taking into account all shares of Old Common Stock
then held of record by such holder) and (iii) the average last sale price of
shares of Old Common Stock for the 20 trading days immediately prior to the
Effective Date or, if no such sale takes place on such days, the average of the
closing bid and asked prices thereof for such days, in each case as officially
reported on the OTC Bulletin Board. If more than one Old Certificate shall be
surrendered at one time for the account of the same stockholder, the number of
full shares of New Common Stock for which New Certificates shall be issued shall
be computed on the basis of the aggregate number of shares represented by the
Old Certificate so surrendered. In the event that the Company's Transfer Agent
determines that a holder of Old Certificates has not tendered all his or her
certificates for exchange, the Transfer Agent shall carry forward any fractional
share until all certificates of that holder have been presented for exchange
such that payment for fractional shares to any one person shall not exceed the
value of one share. If any New Certificate is to be issued in a name other than
that in which the Old Certificates surrendered for exchange are issued, the Old
Certificates so surrendered shall be properly endorsed and otherwise in proper
form for transfer, and the person or persons requesting such exchange shall
affix any requisite stock transfer tax stamps to the Old Certificates
surrendered, or provide funds for their purchase, or establish to the
satisfaction of the Transfer Agent that such taxes are not payable. From and
after the Effective Date the amount of capital represented by the shares of the
New Common Stock into which and for which the shares of the Old Common Stock are
reclassified under the terms hereof shall be the same as the amount of capital
represented by the shares of Old Common Stock so reclassified, until thereafter
reduced or increased in accordance with applicable law."
IN WITNESS WHEREOF, the undersigned has executed this Certificate
as of ____, 1998.
The Cerplex Group, Inc.
By: /s/ George L. McTavish
----------------------------------
George L. McTavish
Chairman and Chief
Executive Officer
2
<PAGE> 1
EXHIBIT 4.17
THIRD SUPPLEMENTAL INDENTURE
This Third Supplemental Indenture, effective as of April 30, 1998 (the
"Supplemental Indenture"), is entered into by and between The Cerplex Group,
Inc. (f/k/a Aurora Electronics, Inc.), a corporation organized and existing
under the laws of the State of Delaware (the "Company"), and Chase Manhattan
Trust Company, National Association (the "Successor Trustee"), in order to
supplement and amend that certain Indenture, dated as of April 15, 1986, by and
between the Company and MTrust Corp., N.A., as Predecessor Trustee, as
supplemented by the First Supplemental Indenture dated as of December 1, 1987,
and the Second Supplemental Indenture dated as of November 30, 1992, each
relating to the 7-3/4% Convertible Subordinated Debentures due 2001, and as
further amended by a Tripartite Agreement dated as of January 17, 1990
appointing the Successor Trustee (collectively, the "Indenture"). Terms used
herein which are not separately defined shall have the meanings assigned to them
in the Indenture.
WHEREAS, Section 11.01 of the Indenture provides that, without the
consent of the Debentureholders, the Company and the Successor Trustee may enter
into indentures supplemental to the Indenture to cure any ambiguity or to
correct or supplement any provision contained in the Indenture, provided such
action does not adversely affect the interests of the Debentureholders;
WHEREAS, effective April 30, 1998, Aurora Electronics, Inc. changed its
name to The Cerplex Group, Inc.; and
WHEREAS, the Company and the Successor Trustee desire to correct and
supplement the Indenture solely for the purposes of reflecting such name change
and clarifying that the company will remain obligated for the due and punctual
performance of all the terms, conditions and covenants of the Indenture;
NOW, THEREFORE, BE IT RESOLVED, for and in consideration of the mutual
covenants contained herein, the parties hereto, for themselves and the benefit
of the Debentureholders without preference, priority or distinction among them,
agree as follows:
1. For all purposes on or subsequent to April 30, 1998, all references
to Aurora Electronics, Inc. or Aurora as a party to the Indenture are hereby
deleted and replaced by The Cerplex Group, Inc. or Cerplex.
2. The definition of Company contained in Section 1.02 of Article One of
the Indenture is hereby amended and shall read in its entirety as follows:
"Company: The term "Company" shall mean The Cerplex Group, Inc.
(formerly known as Aurora Electronics, Inc.), a Delaware corporation,
and, subject to the provisions of Article Thirteen, shall also include
its successors and assigns."
<PAGE> 2
3. The Company remains obligated for the due and punctual payment of the
principal of and interest on all the Debentures and the due and punctual
performance and observance of all the covenants and conditions of the Indenture
to be performed or observed by the Company.
4. Upon request of any party to this Supplemental Indenture, the other
party to this Supplemental Indenture shall execute and deliver such further
instruments and do such further acts as may reasonably be necessary or advisable
to more effectually carry out the purpose of this Supplemental Indenture.
5. Except as supplemented hereby, the Indenture remains in full force
and effect in accordance with its terms.
6. This Supplemental Indenture may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all such counterparts together shall constitute one and the same instrument.
2
<PAGE> 3
IN WITNESS WHEREOF, the undersigned have executed this Supplemental
Indenture to be effective as of April 30, 1998.
ATTEST: THE CERPLEX GROUP, INC.
By: /s/ Phil Pietrowski By: /s/ Steven L. Korby
------------------------------ --------------------------------
Name: Phil Pietrowski, Name: Steven L. Korby
Title: Assistant Secretary Title: Executive Vice President
ATTEST: CHASE MANHATTAN TRUST
COMPANY, NATIONAL ASSOCIATION,
By: as Successor Trustee to Mellon
------------------------------ Bank, F.S.B.,
as Successor Trustee to KeyBank
National Association,
as Successor Trustee to Society
National Bank,
as Successor Trustee
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
3
<PAGE> 1
EXHIBIT 4.18
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
CONVERTIBLE PREFERRED STOCK
OF
THE CERPLEX GROUP, INC.
----------------------------------------------
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
------------------------------------------------
THE CERPLEX GROUP, 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 resolutions were duly adopted by the vote of a
majority of the Board of Directors of the Corporation in attendance at a meeting
on November 4, 1998 at which a quorum was present.
Elimination of Series B, C and D Convertible Preferred Stock
------------------------------------------------------------
WHEREAS, no shares of the Corporation's Series B Convertible
Preferred Stock, $.01 par value ("Series B Convertible Preferred Stock"), Series
C Convertible Preferred Stock, $.01 par value ("Series C Convertible Preferred
Stock"), or Series D Convertible Preferred Stock, $.01 par value ("Series D
Convertible Preferred Stock"), of the Corporation, are outstanding;
WHEREAS, the Board of Directors of the Corporation desires that
no such shares will be issued subject to the respective certificates of
designations, preferences and rights previously filed with respect to each such
series of Preferred Stock; and
WHEREAS, the Board of Directors of the Corporation desires to
eliminate from the Certificate of Incorporation of the Corporation all matters
set forth in such certificates of designations, preferences and rights with
respect to such series of Preferred Stock.
Now therefore, be it:
<PAGE> 2
RESOLVED, that no shares of the Corporation's Series B
Convertible Preferred Stock, the Series C Convertible Preferred Stock,
or the Series D Convertible Preferred Stock will be issued pursuant to
the respective certificates of designations, preferences and rights
previously filed with respect to each such series of Preferred Stock and
that all matters set forth in the certificates of designations,
preferences and rights with respect to each such series of Preferred
Stock shall be eliminated from the Certificate of Incorporation of the
Corporation upon filing of this Certificate of Designations, Preferences
and Rights in accordance with the General Corporation Law of the State
of Delaware ("DGCL").
Conversion of Convertible Preferred Stock
-----------------------------------------
WHEREAS, the Board of Directors of the Corporation desires that
all outstanding shares of the series of the Corporation's Preferred Stock
designated as Convertible Preferred Stock, $.01 par value, be automatically
converted into shares of Common Stock, $.03 par value ("Common Stock"), of the
Corporation on the basis set forth herein; and
WHEREAS, the holders of greater than a majority of the
outstanding shares of the Corporation's Convertible Preferred Stock, voting as a
class, have consented to the automatic conversion of the Convertible Preferred
Stock on the basis set forth herein, in accordance with the DGCL;
Now therefore, be it:
RESOLVED, that all outstanding shares of Convertible Preferred
Stock, upon filing of this Certificate in accordance with the DGCL, be
converted into such number of fully paid and nonassessable whole shares
of Common Stock as is obtained by (i) multiplying the number of shares
of Convertible Preferred Stock so to be converted by $100, (ii) adding
$7 per share of Convertible Preferred Stock so to be converted in
respect of accrued but unpaid dividends thereon, and (iii) dividing the
result by the conversion price of $1.889;
RESOLVED, that upon filing of this Certificate in accordance with
the DGCL, the rights of the holder or holders of such share or shares of
Convertible Preferred Stock as registered in the transfer books of the
Corporation shall cease, and the person or persons in whose name or
names any certificate of certificates for shares of Common Stock shall
be issuable upon such conversion shall be deemed to have become the
holder of record of the shares of Common Stock represented thereby;
RESOLVED, that promptly after the filing of this Certificate in
accordance with DGCL, the Corporation shall issue and deliver, or cause
to be issued and delivered, to
2
<PAGE> 3
each holder of shares of Convertible Preferred Stock as registered in
the transfer books of the Corporation a certificate or certificates for
the number of whole shares of Common Stock issuable upon the conversion
of such share or shares of Convertible Preferred Stock registered in the
name of such holder and that all shares of Common Stock which shall be
so issued shall be duly and validly issued and fully paid and
non-assessable and free from all taxes, liens and charges arising out of
or by reason of the issue thereof;
RESOLVED, that no fractional shares shall be issued upon
conversion of the Convertible Preferred Stock into Common Stock and the
number of shares of Common Stock to be issued shall be rounded to the
nearest whole share.
* * * * *
3
<PAGE> 4
IN WITNESS WHEREOF, this Certificate of Designation, Preferences
and Rights has been executed by the Corporation this 17th day of November 1998
by a duly authorized officer.
THE CERPLEX GROUP, INC.
By: /s/ Steven L. Korby
------------------------------------
Name: Steven L. Korby
Title: Executive Vice President
<PAGE> 1
EXHIBIT 4.19
CERTIFICATE OF ELIMINATION
OF
CONVERTIBLE PREFERRED STOCK
OF
THE CERPLEX GROUP, INC.
-------------------------------
Pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware
-------------------------------
THE CERPLEX GROUP, 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 resolutions were duly adopted by the vote of a
majority of the Board of Directors of the Corporation in attendance at a meeting
on November 4, 1998 at which a quorum was present.
Elimination of Convertible Preferred Stock
------------------------------------------
WHEREAS, no shares of the series of the Corporation's Preferred
Stock designated as Convertible Preferred Stock, $.01 par value ("Convertible
Preferred Stock"), are outstanding;
WHEREAS, the Board of Directors of the Corporation desires that
no such shares will be issued subject to the certificate of designations,
preferences and rights previously filed with respect to such series of Preferred
Stock; and
WHEREAS, the Board of Directors of the Corporation desires to
eliminate from the Certificate of Incorporation of the Corporation all matters
set forth in such certificate of designations, preferences and rights with
respect to such series of Preferred Stock.
Now therefore, be it:
RESOLVED, that no shares of the series of the Corporation's
Preferred Stock designated as Convertible Preferred Stock will be issued
pursuant to the respective certificates of designations, preferences and
rights previously filed with respect to such series of Preferred Stock
and that all matters set forth in the certificates of designations,
<PAGE> 2
preferences and rights with respect to such series of Preferred Stock
shall be eliminated from the Certificate of Incorporation of the
Corporation upon filing of this Certificate of Elimination in accordance
with the General Corporation Law of the State of Delaware ("DGCL").
* * * * *
2
<PAGE> 3
IN WITNESS WHEREOF, this Certificate of Designation, Preferences
and Rights has been executed by the Corporation this 15th day of December 1998
by a duly authorized officer.
THE CERPLEX GROUP, INC.
By: /s/ Steven L. Korby
-----------------------------------------
Name: Steven L. Korby
Title: Executive Vice President
3
<PAGE> 1
EXHIBIT 10.2.1
[GREYROCK BUSINESS CREDIT LETTERHEAD]
LOAN AND SECURITY AGREEMENT
BORROWERS: THE CERPLEX GROUP, INC. (FORMERLY AURORA ELECTRONICS, INC.)
AURORA ELECTRONICS GROUP, INC.
CERPLEX, INC. (FORMERLY THE CERPLEX GROUP, INC.)
CERPLEX MASS, INC.
ADDRESS: 1283 BELL AVENUE
TUSTIN, CALIFORNIA 92780
DATE: APRIL 30, 1998
This Loan and Security Agreement is entered into on the above date between
GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial Corporation
(GBC), whose address is 10880 Wilshire Blvd., Suite 950, Los Angeles, CA 90024
and the borrowers named above (jointly and severally, BORROWER), each of whose
chief executive office is located at the above address (BORROWER'S ADDRESS). The
Schedule to this Agreement (the SCHEDULE) being signed concurrently is an
integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 LOANS. GBC will make loans to Borrower (the LOANS), in amounts determined
by GBC in its good faith business judgment, sole discretion, up to the amounts
(the CREDIT LIMIT) shown on the Schedule, provided no Default or Event of
Default has occurred and is continuing. If at any time or for any reason the
total of all outstanding Loans and all other Obligations exceeds the Credit
Limit, Borrower shall immediately pay the amount of the excess to GBC, without
notice or demand.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear interest
at the rates shown on the Schedule, except where expressly set forth to the
contrary in this Agreement or in another written agreement signed by GBC and
Borrower. Interest shall be payable monthly, on the last day of the month.
Interest may, in GBC's discretion, be charged to Borrower's loan account, and
the same shall thereafter bear interest at the same rate as the other Loans.
1.3 FEES. Borrower shall pay GBC the fee(s) shown on the Schedule, which are
in addition to all interest and other sums payable to GBC and are not
refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of the
Obligations when due, Borrower hereby grants to GBC a security interest in all
of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the COLLATERAL): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitation,
all of Borrower's Deposit Accounts, all money, all collateral in which GBC is
granted a security interest pursuant to any other present or future agreement,
all property now or at any time in the future in GBC's possession, and all
proceeds (including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties), all products of the foregoing, and all books and
records related to any of the foregoing.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce GBC to enter into this Agreement and to make Loans,
Borrower represents and warrants to GBC as follows, and Borrower covenants that
the following representations will continue to be true, and that Borrower will
at all times comply with all of the following covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is and will
continue to be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Borrower is and will continue to
be qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Borrower. The
execution, delivery and performance by Borrower of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles (regardless of whether
considered in a proceeding at law or in equity) and by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or similar laws relating to
creditors' rights generally), (iii) do not violate Borrower's articles or
certificate of incorporation, or Borrower's by-laws, or any material law or any
material agreement or instrument which is binding upon Borrower or its property,
and
-1-
<PAGE> 2
GREYROCK BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
(iv) do not constitute grounds for acceleration of any material indebtedness or
obligation under any material agreement or instrument which is binding upon
Borrower or its property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
present trade names of Borrower and all of Borrower's prior names and trade
names, in each case used by Borrower during the four years prior to the date
hereof. Borrower shall give GBC 30 days' prior written notice before changing
its name or doing business under any other name. Borrower has complied, and will
in the future comply, with all laws relating to the conduct of business under a
fictitious business name.
3.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is located only at the locations
set forth on the Schedule. Borrower will give GBC at least 30 days prior written
notice before opening any additional place of business, changing its chief
executive office, or moving any of the Collateral to a location other than
Borrower's Address or one of the locations set forth on the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. GBC now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend GBC and the Collateral against all claims of others. So long as any
Loan is outstanding which is a term loan, none of the Collateral now is or will
be affixed to any real property in such a manner, or with such intent, as to
become a fixture unless, prior to such time as any Collateral shall have become
a fixture, GBC shall have obtained a first-priority perfected security interest
therein subject only to permitted liens. Borrower is not and will not become a
lessee under any real property lease pursuant to which the lessor may obtain any
rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by GBC, use its reasonable best efforts to cause such third party to
execute and deliver to GBC, in form reasonably acceptable to GBC, such waivers
and subordinations as GBC shall specify, so as to ensure that GBC's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply, in
all material respects, with all the material terms of, any lease of real
property where any of the Collateral now or in the future may be located.
Notwithstanding the foregoing provisions of this Section 3.4, it is understood
and agreed that Borrower shall be permitted to make the following sales
("Permitted Asset Sales"): (i) sell Inventory in the ordinary course of business
and (ii) so long as no Event of Default has occurred and is continuing (a)
dispose in the ordinary course of business of items of Equipment which have
become worn out or obsolete in the reasonable opinion of the executive
management of Borrower, (b) sell Equipment in the ordinary course and in good
faith, arm's length transaction and (c) sell or otherwise dispose, in good
faith, arm's length transactions, Collateral not having, in the aggregate (for
all locations), a fair market value not exceeding $500,000 from the locations
("Proposed Discontinued Locations") set forth in the Schedule under the caption
"Proposed Discontinued Locations". Further, it is understood and agreed that the
provisions of the fifth and sixth sentences of this Section 3.4 shall not apply
to Collateral located at any of the Proposed Discontinued Locations.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in good
working condition, ordinary wear and tear excepted, and Borrower will not use
the Collateral for any unlawful purpose. Borrower will immediately advise GBC in
writing of any material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at Borrower's
Address complete and accurate books and records, comprising an accounting system
in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future delivered to GBC have been, and will be, prepared in conformity
with generally accepted accounting principles (except, in the case of unaudited
financial statements, for the absence of footnotes and, also in the case of
unaudited financial statements as at and for periods other than fiscal year end,
subject to normal year-end adjustments) and now and in the future will, in all
material respects, completely and fairly reflect the financial condition of
Borrower, at the times and for the periods therein stated. Between the last date
covered by any such statement provided to GBC and the date hereof, there has
been no material adverse change in the financial condition or business of
Borrower. Borrower is now and will continue to be solvent.
-2-
<PAGE> 3
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by applicable
law, and Borrower has timely paid, and will timely pay, all applicable taxes,
assessments, deposits and contributions now or in the future owed by Borrower.
Borrower may, however, defer payment of any contested taxes, provided that
Borrower (i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted, (ii)
notifies GBC in writing of the commencement of, and any material development in,
the proceedings, and (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a lien upon any of the Collateral. Borrower is
unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency. Borrower shall, at all
times, utilize the services of an outside payroll service providing for the
automatic deposit of all payroll taxes payable by Borrower.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and all
environmental matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no claim, suit,
litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Borrower, or in any material impairment
in the ability of Borrower to carry on its business in substantially the same
manner as it is now being conducted. Borrower will promptly inform GBC in
writing of any claim, proceeding, litigation or investigation in the future
threatened or instituted by or against Borrower involving any single claim of
$100,000 or more, or involving $250,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes.
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and warrants
to GBC as follows: Each Receivable with respect to which Loans are requested by
Borrower shall, on the date each Loan is requested and made, represent an
undisputed, bona fide, existing, unconditional obligation of the Account Debtor
created by the sale, delivery, and acceptance of goods or the rendition of
services, in the ordinary course of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to GBC as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be, and all
signatories and endorsers have the capacity to contract. All sales and other
transactions underlying or giving rise to each Receivable shall comply with all
applicable laws and governmental rules and regulations. All signatures and
indorsements on all documents, instruments, and agreements relating to all
Receivables are and shall be genuine, and all such documents, instruments and
agreements are and shall be as to borrower legally enforceable in accordance
with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver to
GBC transaction reports and loan requests, schedules and assignments of all
Receivables, and schedules of collections, all on GBC's standard forms;
provided, however, that Borrower's failure to execute and deliver the same shall
not affect or limit GBC's security interest and other rights in all of
Borrower's Receivables, nor shall GBC's failure to advance or lend against a
specific Receivable affect or limit GBC's security interest and other rights
therein. Together with each such schedule and assignment, or later if requested
by GBC, Borrower shall furnish GBC with copies (or, at GBC's request, originals)
of all contracts, orders, invoices, and other similar documents, and all
original shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave rise
to such Receivables, and Borrower warrants the genuineness in all material
respects of all of the foregoing (such warranty being limited to Borrower's
knowledge in cases where any of the foregoing was not prepared by Borrower).
Borrower shall also furnish to GBC an aged accounts receivable trial balance in
such form and at such intervals as GBC shall request. In addition, Borrower
shall deliver to GBC the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Receivables, promptly upon receipt thereof and in the same form as received,
with all necessary indorsements.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect all
Receivables, unless and until an Event of Default has occurred and is
continuing. Borrower shall hold all payments on, and proceeds of, Receivables in
trust for GBC, and Borrower shall deliver all such payments and proceeds to GBC,
within one business day after receipt of the same, in their original form, duly
endorsed, to be applied to the Obligations in such order as GBC shall determine
provided that if no Event of Default has occurred and is continuing, proceeds of
Borrower's Inventory sold in the ordinary course of business shall not be
applied to the principal balance of the Term Loan (as defined in the Schedule).
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4.5 DISPUTES. Borrower shall notify GBC promptly of all disputes or claims
relating to Receivables on the regular reports to GBC. Borrower shall not
forgive, or settle any Receivable for less than payment in full, or agree to do
any of the foregoing, except that Borrower may do so, provided that: (i)
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, and in arm's length transactions, which are
reported to GBC on the regular reports provided to GBC; (ii) no Default or Event
of Default has occurred and is continuing; and (iii) taking into account all
such settlements and forgiveness, the total outstanding Loans and other
Obligations will not exceed the Credit Limit.
4.6 RETURNS. Provided no Event of Default has occurred and is continuing, if
any Account Debtor returns any Inventory to Borrower in the ordinary course of
its business, Borrower shall promptly determine the reason for such return and
promptly issue a credit memorandum to the Account Debtor in the appropriate
amount (sending a copy to GBC). In the event any attempted return occurs after
the occurrence and during the continuation of any Event of Default, Borrower
shall (i) not accept any return without GBC's prior written consent, (ii) hold
the returned Inventory in trust for GBC, (iii) segregate all returned Inventory
from all of Borrower's other property, (iv) conspicuously label the returned
Inventory as GBC's property, and (v) promptly notify GBC of the return of any
Inventory, specifying the reason for such return, the location and condition of
the returned Inventory, and on GBC's request deliver such returned Inventory to
GBC.
4.7 VERIFICATION. GBC may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or GBC or such other name as GBC may choose, and GBC or its designee
may, at any time, notify Account Debtors that it has a security interest in the
Receivables.
4.8 NO LIABILITY. GBC shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission, or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall GBC be deemed to be responsible for any of Borrower's obligations under
any contract or agreement giving rise to a Receivable. Nothing herein shall,
however, relieve GBC from liability for its own gross negligence or willful
misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 INSURANCE. Borrower shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to GBC, in such form and amounts as GBC may
reasonably require, and Borrower shall provide evidence of such insurance to
GBC, so that GBC is satisfied that such insurance is, at all times, in full
force and effect. All such insurance policies shall name GBC as an additional
loss payee, and shall contain a lenders loss payee endorsement in form
reasonably acceptable to GBC. Upon receipt of the proceeds of any such
insurance, GBC shall apply such proceeds in reduction of the Obligations as GBC
shall determine in its sole discretion, except that, provided no Default or
Event of Default has occurred and is continuing, (i) proceeds totaling $100,000
or less per casualty shall be permitted to be paid directly to Borrower and
shall be used by Borrower for the repair, replacement or restoration of the
property or assets on account of which such proceeds were paid and (ii)
proceeds, totaling more than $100,000, but less than $500,000 per casualty
occurrence, shall be paid directly to GBC but shall promptly be released by GBC
to Borrower and shall be used by Borrower for the repair, replacement or
restoration of the property or assets on account of which such proceeds were
paid. GBC may require reasonable assurance that the insurance proceeds so
released will be so used. If Borrower fails to provide or pay for any insurance,
GBC may, but is not obligated to, obtain the same at Borrower's expense.
Borrower shall promptly deliver to GBC copies of all reports made to insurance
companies.
5.2 REPORTS. Borrower, at its expense, shall provide GBC with the written
reports set forth in the Schedule, and such other written reports with respect
to Borrower (including budgets, sales projections, operating plans and other
financial documentation), as GBC shall from time to time reasonably specify.
5.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one
business day's notice, GBC, or its agents, shall have the right to inspect the
Collateral, and the right to audit and copy Borrower's books and records. GBC
shall take reasonable steps to keep confidential all information obtained in any
such inspection or audit, but GBC shall have the right to disclose any such
information to its auditors, regulatory agencies, and attorneys, and pursuant to
any subpoena or other legal process. The foregoing inspections and audits shall
be at Borrower's expense and the charge therefor shall be $600 per person per
day (or such higher amount as shall represent GBC's then current standard charge
for the same), plus reasonable out-of-pockets expenses. Borrower shall not be
charged more than $3,000 per audit (plus reasonable out-of-pockets expenses),
nor shall audits be done more frequently than two times per calendar year,
provided that the foregoing limits shall not apply after the occurrence and
during the continuance of a Default or Event of Default, nor shall they restrict
GBC's right to conduct audits at its own expense (whether or not a Default or
Event of Default has occurred). Borrower will not enter into any agreement
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with any accounting firm, service bureau or third party to store Borrower's
books or records at any location other than Borrower's Address, without first
obtaining GBC's written consent, which may be conditioned upon such accounting
firm, service bureau or other third party agreeing to give GBC the same rights
with respect to access to books and records and related rights as GBC has under
this Agreement.
5.4 REMITTANCE OF PROCEEDS. All proceeds arising from the sale or other
disposition of any Collateral shall be delivered, in kind, by Borrower to GBC in
the original form in which received by Borrower not later than the following
business day after receipt by Borrower, to be applied (subject to Section 4.4
above) to the Obligations in such order as GBC shall determine; provided that,
if no Default or Event of Default has occurred and is continuing, the foregoing
provisions of this Section 5.4 shall not apply to proceeds arising from the
following: the sales referred to in clauses (ii)(a)-(c) of Section 3.4 above
(collectively, "Specified Asset Sales"). Except for the proceeds arising from
Specified Asset Sales, Borrower shall not commingle proceeds of Collateral with
any of Borrower's other funds or property, and shall hold such proceeds separate
and apart from such other funds and property and in an express trust for GBC.
Nothing in this Section limits the restrictions on disposition of Collateral set
forth elsewhere in this Agreement.
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule, Borrower
shall not, without GBC's prior written consent, do any of the following: (i)
merge or consolidate with another corporation or entity; (ii) acquire any
assets, except in the ordinary course of business; (iii) enter into any other
transaction outside the ordinary course of business; (iv) sell or transfer any
Collateral, except that, provided no Event of Default has occurred and is
continuing, Borrower may make Permitted Asset Sales (and GBC shall promptly
execute and deliver such UCC and other releases as are reasonably necessary in
connection therewith); (v) store any Inventory or other Collateral with any
warehouseman or other third party; (vi) sell any Inventory on a sale-or-return,
guaranteed sale, consignment, or other contingent basis; (vii) make any loans of
any money or other assets other than extensions of trade credit in the ordinary
course of business and reasonable travel and entertainment expenses to employees
in the ordinary course of business; (viii) incur any debts, outside the ordinary
course of business, which would have a material, adverse effect on Borrower or
on the prospect of repayment of the Obligations (it being understood and agreed
that (a) Borrower's entering into capitalized leases or incurring purchase money
indebtedness, in each case for assets to be used in Borrower's business, and for
all such cases together not consisting in the aggregate of more than $1,000,000
of principal indebtedness at any time outstanding, and (b) a Borrower incurring
debt to another Borrower, shall not be deemed to be outside of the ordinary
course nor to have a material adverse effect on Borrower or on the prospect of
the Obligations); (ix) except for guaranties by a Borrower named above of the
obligations of another Borrower named above or of a subsidiary of such Borrower
or other Borrower under real property leases which are not prohibited hereunder,
and except for the existing guarantees by Cerplex, Inc. of the obligations of
Cerplex Limited (UK) to BT Repair Services Limited and British
Telecommunications plc. guarantee or otherwise become liable with respect to the
obligations of another party or entity; (x) pay or declare any dividends on
Borrower's stock (except for dividends payable solely in stock of Borrower);
(xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any
of Borrower's stock; (xii) make any change in Borrower's capital structure which
would have a material adverse effect on Borrower or on the prospect of repayment
of the Obligations; or (xiii) dissolve or elect to dissolve; or (xiv) agree to
do any of the foregoing.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against GBC with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to GBC, make available
Borrower and its officers, employees and agents, and Borrower's books and
records, without charge, to the extent that GBC may deem them reasonably
necessary in order to prosecute or defend any such suit or proceeding.
5.7 NOTIFICATION OF CHANGES. Borrower will promptly notify GBC in writing of
any change in its senior executive officers or directors, the opening of any new
bank account or other deposit account, and any material adverse change in the
business or financial affairs of Borrower.
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by GBC, to
execute all documents and take all actions, as GBC may deem reasonably necessary
or useful in order to perfect and maintain GBC's perfected security interest in
the Collateral, and in order to fully consummate the transactions contemplated
by this Agreement.
5.9 INDEMNITY. Borrower hereby agrees to indemnify GBC and hold GBC harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including reasonable
attorneys' fees), of every nature, character and description, which GBC may
sustain or incur based upon or arising out of any of the Obligations, any actual
or alleged failure to collect and pay over any withholding or other tax relating
to Borrower or its employees, any relationship or agreement between GBC and
Borrower,
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any actual or alleged failure of GBC to comply with any writ of attachment or
other legal process relating to Borrower or any of its property, or any other
matter, cause or thing whatsoever occurred, done, omitted or suffered to be done
by GBC relating to Borrower or the Obligations (except any such amounts
sustained or incurred as the result of the gross negligence or willful
misconduct of GBC or any of its directors, officers, employees, agents,
attorneys, or any other person affiliated with or representing GBC).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement and shall for all purposes continue in full force and effect.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the maturity
date set forth on the Schedule (the MATURITY DATE); provided that the Maturity
Date shall automatically be extended, and this Agreement shall automatically and
continuously renew, for successive additional terms of one year each, unless one
party gives written notice to the other, not less than sixty days prior to the
next Maturity Date, that such party elects to terminate this Agreement effective
on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the Maturity
Date as follows: (i) by Borrower, effective three business days after written
notice of termination is given to GBC; or (ii) by GBC at any time after the
occurrence and during the continuation of an Event of Default, without notice,
effective immediately. If this Agreement is terminated by Borrower or by GBC
under this Section 6.2, Borrower shall pay to GBC a termination fee (the
TERMINATION FEE) in the amount shown on the Schedule. The Termination Fee shall
be due and payable on the effective date of termination and thereafter shall
bear interest until paid in full at a rate equal to the higher of the rates set
forth in Section 2 of the Schedule.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier effective
date of termination, Borrower shall pay and perform in full all Obligations,
whether evidenced by installment notes or otherwise, and whether or not all or
any part of such Obligations are otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding letters of
credit issued based upon an application, guarantee, indemnity or similar
agreement on the part of GBC, then on such date Borrower shall provide to GBC
cash collateral in an amount equal to 110% of the face amount of all such
letters of credit plus all interest, fees and costs due or (in GBC's estimation)
likely to become due in connection therewith, to secure all of the Obligations
relating to said letters of credit, pursuant to GBC's then standard form cash
pledge agreement. Notwithstanding any termination of this Agreement, all of
GBC's security interests in all of the Collateral and all of the terms and
provisions of this Agreement shall continue in full force and effect until all
Obligations have been paid and performed in full; provided that, without
limiting the fact that Loans are subject to the good faith business judgment of
GBC, GBC may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of GBC, nor shall any such termination relieve Borrower of any Obligation
to GBC, until all of the Obligations have been paid and performed in full. Upon
payment and performance in full of all the Obligations and termination of this
Agreement, GBC shall promptly deliver to Borrower termination statements,
requests for reconveyances and such other documents as may be reasonably
required to terminate GBC's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an EVENT OF DEFAULT under this Agreement, and Borrower shall give GBC
immediate written notice thereof: (a) Any warranty, representation, statement,
report or certificate made or delivered to GBC by Borrower or any of Borrower's
officers, employees or agents, now or in the future, shall be untrue or
misleading in a material respect; or (b) Borrower shall fail to pay when due any
principal amount of any Loan or, after the expiration of a five-day period of
grace, any interest thereon or any other monetary Obligation; or (c) the total
Loans and other Obligations outstanding at any time shall exceed the Credit
Limit; or (d) Borrower shall fail to perform any non-monetary Obligation which
by its nature cannot be cured; or (e) Borrower shall fail to perform any other
non-monetary Obligation, which failure is not cured within 5 business days after
the date performance is due; or (f) any levy, assessment, attachment, seizure,
lien or encumbrance (other than a Permitted Lien) is made on all or any part of
the Collateral which is not cured within 10 days after the occurrence of the
same; or (g) any default or event of default occurs under any obligation secured
by a Permitted Lien, which is not cured within any applicable cure period or
waived in writing by the holder of the Permitted Lien, as to which the
principal amount of the indebtedness secured is more than $100,000 and the
effect of the occurrence of such Event of Default is to permit the holder of
such indebtedness to accelerate the payment of the entire principal amount
thereof; or (h) Borrower breaches any material contract or obligation, which has
or may reasonably be expected to have a material adverse effect on Borrower's
business or financial condition; or (i) dissolution, termination of existence,
insolvency or business failure of Borrower or any Guarantor; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any Guarantor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or in the future in effect; or (j) the
commencement of any proceeding against Borrower or any Guarantor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, which is not cured by the dismissal thereof within 45 days
after the date commenced; or (k) revocation or termination of, or limitation or
denial of liability upon, any guaranty of the Obligations or any attempt to do
any of the foregoing; or (l) revocation or termination of, or limitation or
denial of liability upon, any pledge of any certificate of deposit, securities
or other property or asset pledged by any third party to secure any or all of
the Obligations, or any attempt to do any of the foregoing, or commencement of
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proceedings by or against any such third party under any bankruptcy or
insolvency law which is not cured by the dismissal thereof within 45 days after
the date commenced; or (m) Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligations other
than as permitted in the applicable subordination agreement, or if any Person
who has subordinated such indebtedness or obligations terminates or in any way
limits or terminates its subordination agreement or any Event of Default occurs
under any such subordinated indebtedness which is not waived by the holders
thereof or cured; or (n) Welsh, Carson, Anderson & Stowe VII, L.P. or other
funds which it controls, is controlled by or is under common control with,
ceases to own more than 50% of the total outstanding voting capital stock of the
Borrower directly or indirectly; or (o) Borrower shall generally not pay its
debts as they become due, or Borrower shall conceal, remove or transfer any part
of its property, with intent to hinder, delay or defraud its creditors, or make
or suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (p) there shall be a
material adverse change in Borrower's business or financial condition. GBC may
cease making any Loans hereunder during any of the above cure periods, and
thereafter if an Event of Default has occurred and continues.
7.2 REMEDIES. Upon the occurrence and during the continuance of any Event of
Default, GBC, at its option, and without notice or demand of any kind (all of
which are hereby expressly waived by Borrower), may do any one or more of the
following: (a) Cease making Loans or otherwise extending credit to Borrower
under this Agreement or any other document or agreement; (b) Accelerate and
declare all or any part of the Obligations to be immediately due, payable, and
performable, notwithstanding any deferred or installment payments allowed by any
instrument evidencing or relating to any Obligation; (c) Take possession of any
or all of the Collateral wherever it may be found, and for that purpose Borrower
hereby authorizes GBC without judicial process to enter onto any of Borrower's
premises without interference to search for, take possession of, keep, store, or
remove any of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so long
as GBC deems it reasonably necessary in order to complete the enforcement of its
rights under this Agreement or any other agreement; provided, however, that
should GBC seek to take possession of any of the Collateral by Court process,
Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an incident
to such possession; (ii) any demand for possession prior to the commencement of
any suit or action to recover possession thereof; and (iii) any requirement that
GBC retain possession of, and not dispose of, any such Collateral until after
trial or final judgment; (d) Require Borrower to assemble any or all of the
Collateral and make it available to GBC at places designated by GBC which are
reasonably convenient to GBC and Borrower, and to remove the Collateral to such
locations as GBC may deem advisable; (e) Complete the processing, manufacturing
or repair of any Collateral prior to a disposition thereof and, for such purpose
and for the purpose of removal, GBC shall have the right to use Borrower's
premises, vehicles, hoists, lifts, cranes, equipment and all other property
without charge; (f) Sell, lease or otherwise dispose of any of the Collateral,
in its condition at the time GBC obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. GBC shall have the right to conduct
such disposition on Borrower's premises without charge, for such time or times
as GBC deems reasonable, or on GBC's premises, or elsewhere and the Collateral
need not be located at the place of disposition. GBC may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale; (g) Demand payment
of, and collect any Receivables and General Intangibles comprising Collateral
and, in connection therewith, Borrower irrevocably authorizes GBC to endorse or
sign Borrower's name on all collections, receipts, instruments and other
documents, to take possession of and open mail addressed to Borrower and remove
therefrom payments made with respect to any item of the Collateral or proceeds
thereof, and, in GBC's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables, General Intangibles and the like for
less than face value; and (h) Demand and receive possession of any of Borrower's
federal and state income tax returns and the books and records utilized in the
preparation thereof or referring thereto. All reasonable attorneys' fees,
expenses, costs, liabilities and obligations incurred by GBC with respect to the
foregoing shall be added to and become part of the Obligations, shall be due on
demand, and shall bear interest until paid in full at a rate equal to the higher
of the rates set forth in Section 2 of the Schedule.
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7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and GBC
agree that a sale or other disposition (collectively, SALE) of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Borrower at least
ten days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least ten days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by GBC, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m; (v)
Payment of the purchase price in cash or by cashier's check or wire transfer is
required; (vi) With respect to any sale of any of the Collateral, GBC may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. GBC shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of any
Event of Default, without limiting GBC's other rights and remedies, Borrower
grants to GBC an irrevocable power of attorney coupled with an interest,
authorizing and permitting GBC (acting through any of its employees, attorneys
or agents) at any time, at its option, but without obligation, with or without
notice to Borrower, and at Borrower's expense, to do any or all of the
following, in Borrower's name or otherwise, but GBC agrees to exercise the
following powers in a commercially reasonable manner: (a) Execute on behalf of
Borrower any documents that GBC may, in its sole discretion, deem advisable in
order to perfect and maintain GBC's security interest in the Collateral, or in
order to exercise a right of Borrower or GBC, or in order to fully consummate
all the transactions contemplated under this Agreement, and all other present
and future agreements; (b) Execute on behalf of Borrower any document
exercising, transferring or assigning any option to purchase, sell or otherwise
dispose of or to lease (as lessor or lessee) any real or personal property which
is part of GBC's Collateral or in which GBC has an interest; (c) Execute on
behalf of Borrower, any invoices relating to any Receivable, any draft against
any Account Debtor and any notice to any Account Debtor, any proof of claim in
bankruptcy, any Notice of Lien, claim of mechanic's, materialman's or other
lien, or assignment or satisfaction of mechanic's, materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of payment or
proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into GBC's
possession; (e) Endorse all checks and other forms of remittances received by
GBC; (f) Pay, contest or settle any lien, charge, encumbrance, security interest
and adverse claim in or to any of the Collateral, or any judgment based thereon,
or otherwise take any action to terminate or discharge the same; (g) Grant
extensions of time to pay, compromise claims and settle Receivables and General
Intangibles for less than face value and execute all releases and other
documents in connection therewith; (h) Pay any sums required on account of
Borrower's taxes or to secure the release of any liens therefor, or both; (i)
Settle and adjust, and give releases of, any insurance claim that relates to any
of the Collateral and obtain payment therefor; (j) Instruct any third party
having custody or control of any books or records belonging to, or relating to,
Borrower to give GBC the same rights of access and other rights with respect
thereto as GBC has under this Agreement; and (k) Take any action or pay any sum
required of Borrower pursuant to this Agreement and any other present or future
agreements. Any and all reasonable sums paid and any and all reasonable costs,
expenses, liabilities, obligations and reasonable attorneys' fees incurred by
GBC with respect to the foregoing shall be added to and become part of the
Obligations, shall be payable on demand, and shall bear interest at a rate equal
to the highest interest rate applicable to any of the Obligations. In no event
shall GBC's rights under the foregoing power of attorney or any of GBC's other
rights under this Agreement be deemed to indicate that GBC is in control of the
business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
or other disposition of the Collateral shall be applied by GBC first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by GBC in the exercise of its rights under this Agreement, second to
the interest due upon any of the Obligations, and third to the principal of the
Obligations, in such order as GBC shall determine in its sole discretion. Any
surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to GBC for any deficiency. If GBC, in its sole
discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, GBC shall have
the option, exercisable at any time, in its sole discretion, of either reducing
the Obligations by the principal amount of purchase price or deferring the
reduction of the Obligations until the actual receipt by GBC of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, GBC shall have all the other rights and remedies accorded a
secured party under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between GBC and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
GBC of one or more of its rights or remedies shall not be deemed an election,
nor bar GBC from subsequent exercise or partial exercise of any other rights or
remedies. The failure or delay of GBC to exercise any rights or remedies shall
not operate as a waiver thereof, but all rights and remedies shall continue in
full force and effect until all of the Obligations have been fully paid and
performed.
8. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
ACCOUNT DEBTOR means the obligor on a Receivable.
AFFILIATE means, with respect to any Person, a relative, partner, shareholder
who holds 10% or more of the voting capital stock of Borrower, director,
officer, or employee of such Person, or any parent or subsidiary of such Person,
or any Person controlling, controlled by or under common control with such
Person.
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<PAGE> 9
AGREEMENT and THIS AGREEMENT means this Loan and Security Agreement and all
modifications and amendments thereto, extensions thereof, and replacements
therefor.
BUSINESS DAY means a day on which GBC is open for business.
CODE means the Uniform Commercial Code as adopted and in effect in the State
of California from time to time.
COLLATERAL has the meaning set forth in Section 2.1 above.
DEFAULT means any event which with notice or passage of time or both, would
constitute an Event of Default.
DEPOSIT ACCOUNT has the meaning set forth in Section 9105 of the Code.
ELIGIBLE INVENTORY means Inventory which GBC, in its good faith business
judgment, deems eligible for borrowing, from time to time. The following are the
minimum requirements for Inventory to be Eligible Inventory: The Inventory must
(i) consist of finished goods, in good, new and salable condition, not obsolete
or unmerchantable, and not comprised of raw materials, work in process,
packaging materials or supplies (it being understood and agreed that the term
"finished goods" shall, without limitation, include and be deemed to include
Borrower's inventories of spare parts and such inventories of spare parts shall
not be included or be deemed to be included in the terms "raw materials" or
"work in process"); (ii) meet all applicable governmental standards; (iii) have
been manufactured in compliance with the Fair Labor Standards Act; (iv) conform
in all respects to the warranties and representations set forth in the Loan
Agreement; (v) be at all times subject to GBC's duly perfected, first priority
security interest; and (vi) be situated at a one of the locations set forth in
the Loan Agreement.
ELIGIBLE RECEIVABLES means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which GBC,
in its good faith business judgment, deems eligible for borrowing, from time to
time. The following are the minimum requirements for Receivables to be Eligible
Receivables: (i) the Receivable must not be outstanding for more than 90 days
from its invoice date, (ii) the Receivable must not represent progress billings,
or be due under a fulfillment or requirements contract with the Account Debtor,
(iii) the Receivable must not be subject to any contingencies (including
Receivables arising from sales on consignment, guaranteed sale or other terms
pursuant to which payment by the Account Debtor may be conditional), (iv) the
Receivable must not be owing from an Account Debtor with whom the Borrower has
any dispute (whether or not relating to the particular Receivable), (v) the
Receivable must not be owing from an Affiliate of Borrower, (vi) the Receivable
must not be owing from an Account Debtor which is subject to any insolvency or
bankruptcy proceeding, or whose financial condition is not acceptable to GBC, or
which, fails or goes out of a material portion of its business, (vii) the
Receivable must not be owing from an Account Debtor to whom Borrower is or may
be liable for goods purchased from such Account Debtor or otherwise. In
addition, if more than 50% of the Receivables owing from an Account Debtor are
outstanding more than 90 days from their invoice date (without regard to
unapplied credits) or are otherwise not eligible Receivables, then all
Receivables owing from that Account Debtor will be deemed ineligible for
borrowing. GBC may, from time to time, in its good faith business judgment,
revise the foregoing requirements, upon written notice to the Borrower.
EQUIPMENT means all of Borrower's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
EVENT OF DEFAULT means any of the events set forth in Section 7.1 of this
Agreement.
GENERAL INTANGIBLES means all general intangibles of Borrower, whether now
owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, inventions, designs, drawings, blueprints, patents,
patent applications, trademarks and the goodwill of the business symbolized
thereby, names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Borrower against GBC, rights to purchase or sell real
or personal property, rights as a licensor or licensee of any kind, royalties,
telephone numbers, proprietary information, purchase orders, and all insurance
policies and claims
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<PAGE> 10
(including life insurance, key man insurance, credit insurance, liability
insurance, property insurance and other insurance), tax refunds and claims,
computer programs, discs, tapes and tape files, claims under guaranties,
security interests or other security held by or granted to Borrower, all rights
to indemnification and all other intangible property of every kind and nature
(other than Receivables).
GUARANTOR means any Person who has guaranteed any of the Obligations.
INVENTORY means all of Borrower's and Borrower's UK subsidiary Cerplex
Limited's now owned and hereafter acquired goods, merchandise or other personal
property, wherever located, to be furnished under any contract of service or
held for sale or lease (including all raw materials, work in process, finished
goods and goods in transit), and all materials and supplies of every kind,
nature and description which are or might be used or consumed in Borrower's
business or used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, merchandise or other personal
property, and all warehouse receipts, documents of title and other documents
representing any of the foregoing.
LIBOR RATE means (i) the one-month London Interbank Offered Rate for deposits
in U.S. dollars, as shown each day in The Wall Street Journal (Eastern Edition)
under the caption "Money Rates - London Interbank Offered Rates (LIBOR)"; or
(ii) if the Wall Street Journal does not publish such rate, the offered
one-month rate for deposits in U.S. dollars which appears on the Reuters Screen
LIBO Page as of 10:00 a.m., New York time, each day, provided that if at least
two rates appear on the Reuters Screen LIBO Page on any day, the "LIBOR Rate"
for such day shall be the arithmetic mean of such rates; or (iii) if the Wall
Street Journal does not publish such rate on a particular day and no such rate
appears on the Reuters Screen LIBO Page on such day, the rate per annum at which
deposits in U.S. dollars are offered to the principal London office of The Chase
Manhattan Bank, in the London interbank market at approximately 11:00 A.M.,
London time, on such day in an amount approximately equal to the outstanding
principal amount of the Loans, for a period of one month, in each of the
foregoing cases as determined in good faith by GBC, which determination shall be
conclusive absent manifest error.
OBLIGATIONS means all present and future Loans, advances, debts, liabilities,
obligations, guaranties, covenants, duties and indebtedness at any time owing by
Borrower to GBC, whether evidenced by this Agreement or any note or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, banker's acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by GBC in Borrower's debts owing to
others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, reasonable attorney's fees,
expert witness fees, audit fees, letter of credit fees, loan fees, termination
fees, minimum interest charges and any other sums chargeable to Borrower under
this Agreement or under any other present or future instrument or agreement
between Borrower and GBC.
PERMITTED LIENS means the following: (i) purchase money security interests in
specific items of Equipment; (ii) leases of specific items of Equipment; (iii)
liens for taxes not yet payable; (iv) additional security interests and liens
which are subordinate to the security interest in favor of GBC and are consented
to in writing by GBC (which consent shall not be unreasonably withheld); (v)
security interests being terminated substantially concurrently with this
Agreement; (vi) liens of materialmen, mechanics, warehousemen, carriers, or
other similar liens arising in the ordinary course of business and securing
obligations which are not delinquent; (vii) liens incurred in connection with
the extension, renewal or refinancing of the indebtedness secured by liens of
the type described above in clauses (i) or (ii) above, provided that any
extension, renewal or replacement lien is limited to the property encumbered by
the existing lien and the principal amount of the indebtedness being extended,
renewed or refinanced does not increase; (viii) Liens in favor of customs and
revenue authorities which secure payment of customs duties in connection with
the importation of goods; (ix) liens in favor of GBC hereunder; (x) deposits to
secure the performance of bids, trade contracts, leases, statutory obligations,
surety and appeal bonds, performance bonds and other obligations or encumbrances
of a like nature incurred in the ordinary course of Borrower's business; (xi)
liens listed on the Schedule and (xii) easements, rights-of-way, restrictions
and other similar encumbrances incurred in the ordinary course of Borrower's
business which, in the aggregate, are not substantial in amount and which do not
in any case materially detract from the property subject thereto or materially
interfere with the ordinary conduct of business of Borrower. GBC will have the
right to require, as a condition to its consent under subparagraph (iv) above,
that the holder of the additional security interest or lien sign an
intercreditor agreement on GBC's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of GBC, and
agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
PERSON means any individual, sole proprietorship, partnership, joint venture,
trust, unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity.
RECEIVABLES means all of Borrower's and Borrower's UK subsidiary Cerplex
Limited's now owned and hereafter acquired accounts (whether or not earned by
performance), letters of credit, contract rights, chattel paper, instruments,
securities, documents and all other forms of obligations at any time owing to
Borrower, all guaranties and other security therefor, all merchandise returned
to or repossessed by Borrower, and all rights of stoppage in transit and all
other rights or remedies of an unpaid vendor, lienor or secured party.
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OTHER TERMS. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by GBC (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by GBC on account of the Obligations three Business Days after receipt
by GBC of immediately available funds. GBC shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to GBC in its reasonable business judgment and GBC may charge
Borrower's Loan account for the amount of any item of payment which is returned
to GBC unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in GBC's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as GBC shall determine in its sole
discretion.
9.3 CHARGES TO ACCOUNT. GBC may, in its discretion, require that Borrower pay
monetary Obligations in cash to GBC, or charge them to Borrower's Loan account,
in which event they will bear interest at the same rate applicable to the Loans.
9.4 MONTHLY ACCOUNTINGS. GBC shall provide Borrower monthly with an account of
advances, charges, expenses and payments made pursuant to this Agreement. Such
account shall be deemed correct, accurate and binding on Borrower and an account
stated (except for reverses and reapplications of payments made and corrections
of errors discovered by GBC), unless Borrower notifies GBC in writing to the
contrary within sixty days after each account is rendered, describing the nature
of any alleged errors or admissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to GBC or Borrower at the addresses shown in the heading to this
Agreement (and, in the case of notices to Borrower, also to Reboul, MacMurray,
Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York 10111,
attention: Charles D. Uniman), or at any other address designated in writing by
one party to the other party. All notices shall be deemed to have been given
upon delivery in the case of notices personally delivered, or at the expiration
of one business day following delivery to the private delivery service, or two
business days following the deposit thereof in the United States mail, with
postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.
9.7 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete agreement between Borrower and GBC and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement. There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the parties
in connection herewith.
9.8 WAIVERS. The failure of GBC at any time or times to require Borrower to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and GBC shall not waive or diminish
any right of GBC later to demand and receive strict compliance therewith. Any
waiver of any default shall not waive or affect any other default, whether prior
or subsequent, and whether or not similar. None of the provisions of this
Agreement or any other agreement now or in the future executed by Borrower and
delivered to GBC shall be deemed to have been waived by any act or knowledge of
GBC or its agents or employees, but only by a specific written waiver signed by
an authorized officer of GBC and delivered to Borrower. Borrower waives demand,
protest, notice of protest and notice of default or dishonor, notice of payment
and nonpayment, release, compromise, settlement, extension or renewal of any
commercial paper, instrument, account, General Intangible, document or guaranty
at any time held by GBC on which Borrower is or may in any way be liable, and
notice of any action taken by GBC, unless expressly required by this Agreement.
9.9 AMENDMENT. The terms and provisions of this Agreement may not be waived or
amended, except in a writing executed by Borrower and a duly authorized officer
of GBC.
9.10 TIME OF ESSENCE. Time is of the essence in the performance by Borrower of
each and every obligation under this Agreement.
9.11 ATTORNEYS FEES AND COSTS. Subject to the limitations set forth in Section
5.3 hereof as to audit expenses, Borrower shall reimburse GBC for all reasonable
attorneys' fees and all filing, recording, search, title insurance, appraisal,
audit, and other reasonable costs incurred by GBC, pursuant to, or in connection
with, or relating to this Agreement (whether or not a lawsuit is filed),
including, but not limited to, any reasonable attorneys' fees and costs GBC
incurs in order to do the following: prepare and negotiate this Agreement and
the documents relating to this Agreement; obtain legal advice in connection with
this Agreement or Borrower; enforce, or seek to enforce, any of its rights;
prosecute actions against, or defend actions by, Account Debtors; commence,
intervene in, or defend any action or proceeding; initiate any complaint to be
relieved of the automatic stay in bankruptcy; file or prosecute any probate
claim, bankruptcy claim, third-party claim, or other claim; examine, audit,
copy, and inspect any of the Collateral or any of Borrower's books and records;
protect, obtain possession of, lease, dispose of, or otherwise enforce GBC's
security interest in, the Collateral; and otherwise represent GBC in any
litigation
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relating to Borrower. If either GBC or Borrower files any lawsuit against the
other predicated on a breach of this Agreement, the prevailing party in such
action shall be entitled to recover its reasonable costs and attorneys' fees,
including (but not limited to) reasonable attorneys' fees and costs incurred in
the enforcement of, execution upon or defense of any order, decree, award or
judgment. All attorneys' fees and costs to which GBC may be entitled pursuant to
this Paragraph shall immediately become part of Borrower's Obligations, shall be
due on demand, and shall bear interest at a rate equal to the highest interest
rate applicable to any of the Obligations.
* SUBJECT TO THE LIMITATIONS SET FORTH IN SECTION 5.3 HEREOF AS TO AUDIT
EXPENSES,
9.12 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Borrower and GBC; provided, however, that
Borrower may not assign or transfer any of its rights under this Agreement
without the prior written consent of GBC, and any prohibited assignment shall be
void. No consent by GBC to any assignment shall release Borrower from its
liability for the Obligations.
9.13 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than one
Person, their liability shall be joint and several, and the compromise of any
claim with, or the release of, any Borrower shall not constitute a compromise
with, or a release of, any other Borrower.
9.14 CONFIDENTIALITY. GBC agrees to use commercially reasonable efforts to
keep confidential any written or oral information provided by or on behalf of
Borrower or any of its Affiliates pursuant to or in connection with this
Agreement and any information obtained by GBC based on a review of the books and
records of Borrower or any of its Affiliates or based upon discussions with
officers, directors, employees, accountants or agents of Borrower or any of its
Affiliates, provided that nothing in this Section 9.14 shall prevent GBC from
disclosing such information to (i) its employees, agents, attorneys and
accountants on a need-to-know basis and provided that each of same has agreed
similarly to keep such information confidential, (ii) upon the order of any
court or administrative agency of competent jurisdiction, (iii) upon the demand
of any regulatory agency having jurisdiction over GBC, (iv) which has been
publicly disclosed other than by way of a breach of this Agreement or (v)
subject to Borrower's or such Affiliate's obtaining a protective order barring
public disclosure thereof, in connection with the exercise of any remedy
hereunder.
9.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and GBC acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including",
whenever used in this Agreement, shall mean "including (but not limited to)".
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against GBC or Borrower under any rule of construction or
otherwise.
9.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of GBC and Borrower shall
be governed by the laws of the State of California. As a material part of the
consideration to GBC to enter into this Agreement, Borrower (i) agrees that all
actions and proceedings relating directly or indirectly to this Agreement shall,
at GBC's option, be litigated in courts located within California, and that the
exclusive venue therefor shall be Los Angeles County; (ii) consents to the
jurisdiction and venue of any such court and consents to service of process in
any such action or proceeding by personal delivery or any other method permitted
by law; and (iii) waives any and all rights Borrower may have to object to the
jurisdiction of any such court, or to transfer or change the venue of any such
action or proceeding.
9.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND GBC EACH HEREBY WAIVE THE RIGHT
TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN
ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN GBC AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF GBC OR
BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR
ANY OTHER PERSONS AFFILIATED WITH GBC OR BORROWER, IN ALL OF THE FOREGOING
CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
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BORROWER:
THE CERPLEX GROUP, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
AURORA ELECTRONICS GROUP, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
CERPLEX, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
BORROWER:
CERPLEX MASS, INC.
BY_______________________________
PRESIDENT OR VICE PRESIDENT
BY_______________________________
SECRETARY OR ASS'T SECRETARY
GBC:
GREYROCK BUSINESS CREDIT,
A DIVISION OF NATIONSCREDIT COMMERCIAL
CORPORATION
BY_______________________________
TITLE______________________________
Version -4
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SCHEDULE TO LOAN AND SECURITY AGREEMENT -.S.
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<PAGE> 15
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[GREYROCK BUSINESS CREDIT LETTERHEAD]
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWERS: THE CERPLEX GROUP, INC. (FORMERLY AURORA ELECTRONICS, INC.)
AURORA ELECTRONICS GROUP, INC.
CERPLEX, INC. (FORMERLY THE CERPLEX GROUP, INC.)
CERPLEX MASS, INC.
ADDRESS: 1283 BELL AVENUE
TUSTIN, CALIFORNIA 92780
DATE: APRIL 30, 1998
This Schedule is an integral part of the Loan and Security Agreement between
GREYROCK BUSINESS CREDIT, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION
(GBC) and the above-borrower (Borrower) of even date.
================================================================================
1. CREDIT LIMIT
(Section 1.1): Term Loan. A term loan the ("Term Loan"),
being made concurrently herewith in the
original principal amount of $36,000,000, which
shall be payable and shall bear interest as set
forth in the Promissory Note being executed and
delivered by Borrower to GBC concurrently
herewith.
Revolving Loans. Revolving loans (the
"Revolving Loans") in an amount not to exceed
the lesser of (1) or (2) below:
(1) $10,000,000 at any one time outstanding; or
(2) an amount equal to
(i) 80% of the amount of Borrower's Eligible
Receivables (as defined in Section 8 above),
plus
(ii) the lesser of 50% of the Value of
Borrower's Eligible Inventory (as defined in
Section 8 above) or $3,000,000. Value, as
used herein, means the lower of cost or fair
market value.
Receivables and Inventory of Borrower's UK
subsidiary, Cerplex Limited may be included as
Eligible Receivables and Eligible Inventory,
provided that (i) they meet the other
requirements for Eligible Receivables and
Eligible Inventory, and (ii) the Guaranties and
Security Agreements referred to in Section 7(2)
below have been executed and delivered and are
in full force and effect, and (iii) GBC
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GREYROCK BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
has a first-priority, perfected security
interest in all such Inventory and Receivables.
Borrower may borrow, re-pay and re-borrower the
Revolving Loans, subject to all of the terms
and conditions of this Agreement, but Borrower
may not re-pay and re-borrower all or any
portion of the Term Loan. The Term Loan and the
Revolving Loans shall constitute "Loans" for
all purposes of this Agreement. Revolving Loans
will be made separately to each Borrower based
on the Eligible Receivables and Eligible
Inventory of each.
================================================================================
2. INTEREST.
INTEREST RATE (Section 1.2):
The interest rate in effect throughout each
calendar month during the term of this
Agreement shall be the highest LIBOR Rate in
effect during such month, plus:
4.875% per annum, in the case of
Revolving Loans and
4.50% per annum, in the case of the Term
Loan and
provided that the interest rate in effect in
each month shall not be less than 9% per annum,
and provided that the interest charged for each
month shall be a minimum of $25,000, regardless
of the amount of the Obligations outstanding.
Interest shall be calculated on the basis of a
360-day year for the actual number of days
elapsed. LIBOR Rate has the meaning set forth
in Section 8 above.
================================================================================
3. FEES (Section 1.3/Section 6.2):
Loan Fee: $360,000, payable concurrently herewith.
Termination Fee: $10,000 per month for each month (or portion
thereof) from the effective date of termination
to the Maturity Date
NSF Check Charge: $15.00 per item.
Wire Transfers: $15.00 per transfer.
================================================================================
4. MATURITY DATE
(Section 6.1): APRIL 30, 1999, subject to automatic renewal
as provided in Section 6.1 above, and early
termination as provided in Section 6.2 above.
================================================================================
5. REPORTING. (Section 5.2):
Borrower shall provide GBC with the following:
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1. Annual financial statements, as soon as
available, and in any event within 90 days
following the end of Borrower's fiscal year,
certified by independent certified public
accountants acceptable to GBC.
2. Quarterly unaudited financial statements, as
soon as available, and in any event within 45
days after the end of each fiscal quarter of
Borrower.
3. Monthly unaudited financial statements, as soon
as available, and in any event within 30 days
after the end of each month.
4. Monthly Receivable agings, aged by invoice
date, within 15 days after the end of each
month.
5. Monthly accounts payable agings, aged by
invoice date, and outstanding or held check
registers within 15 days after the end of each
month.
6. Monthly perpetual inventory reports for the
Inventory valued on a first-in, first-out basis
at the lower of cost or market (in accordance
with generally accepted accounting principles)
or such other inventory reports as are
reasonably requested by GBC, all within 30 days
after the end of each month.
================================================================================
6. BORROWER INFORMATION:
PRIOR NAMES OF
BORROWER
(Section 3.2): See Exhibit A hereto
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2): See Exhibit A hereto
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2): See Exhibit A hereto
OTHER LOCATIONS AND
ADDRESSES (Section 3.3): See Exhibit A hereto
PROPOSED DISCONTINUED
LOCATIONS (Section 3.4): See Exhibit A hereto
MATERIAL ADVERSE
LITIGATION (Section 3.10): See Exhibit A hereto
OTHER PERMITTED LIENS
(Section 8): See Exhibit A hereto
================================================================================
7. ADDITIONAL PROVISIONS:
(1) GUARANTY OF WELSH CARSON. Borrower shall
concurrently cause WELSH, CARSON, ANDERSON
& STOWE VII, L.P. to execute and
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<PAGE> 18
deliver to GBC a Continuing Guaranty, in
the form previously agreed to, with
respect to all of the Obligations (with
liability of Welsh Carson limited to
$25,000,000 principal amount, plus
interest thereon and reasonable costs in
connection therewith), and Borrower shall
cause such Guaranty to continue in full
force and effect throughout the term of
this Loan Agreement and so long as any
portion of the Obligations remains
outstanding.
(2) GUARANTY OF CERPLEX LIMITED (UK). Borrower
shall concurrently cause CERPLEX LIMITED
(UK) to execute and deliver to GBC a
Continuing Guaranty, on such terms and
conditions, in the form previously agreed
to, with respect to all of the
Obligations, and a security agreement
securing said Guaranty and granting GBC a
first-priority security interest in all of
its assets, and Borrower shall cause such
Guaranty and security agreement to
continue in full force and effect
throughout the term of this Loan Agreement
and so long as any portion of the
Obligations remains outstanding.
(3) CERPLEX SAS. Cerplex, Inc. shall
concurrently execute and deliver to GBC a
negative pledge agreement with respect to
its wholly-owned subsidiary, CERPLEX SAS,
A FRENCH COMPANY, in the form previously
agreed to and Borrower shall cause such
agreement to continue in full force and
effect throughout the term of this Loan
Agreement and so long as any portion of
the Obligations remains outstanding.
(4) OTHER CONDITIONS SATISFIED. Borrower
represents and warrants that all
conditions to the making of the Loans set
forth in the Loan Commitment dated April
13, 1998 issued by GBC to Aurora
Electronics, Inc. have been satisfied.
(5) SUBORDINATED DEBT. Borrower represents and
warrants that listed on Exhibit A is all
outstanding indebtedness of borrower which
has been subordinated to the Obligations
(the "Subordinated Debt"), and that
Borrower has delivered to GBC true and
correct copies of the instruments
evidencing the same and all indentures
pursuant to which evidence of the same
have been issued. Borrower shall not make
any principal payments on any of the
Subordinated Debt during the term of this
Agreement and while any of the Obligations
are outstanding.
(6) CONSIGNMENT INVENTORY. Without limiting
any of the other terms and provisions
hereof, inventory consigned to Borrower by
others shall be physically segregated and
separately identified as such and shall
not be included in any inventory reports
provided to GBC, and no Receivables
constituting proceeds thereof shall be
included in reports of Receivables
provided by Borrower to GBC.
(7) MASSACHUSETTS LEGAL OPINION. Within 30
days after the date hereof, Borrower shall
cause a Massachusetts law firm reasonably
acceptable to GBC to issue to GBC an
opinion covering such matters and in such
form as GBC shall specify in its good
faith business judgment; provided that an
enforceability opinion will not be
required.
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<PAGE> 19
(8) SUBSIDIARIES. Concurrently Borrower's
shall deliver to GBC stock certificates
evidencing all of the outstanding shares
of stock of Aurora Electronics Group,
Inc., The Cerplex Group, Inc. and Cerplex
Mass, Inc., together with duly executed
stock powers with respect thereto, which
stock shall constitute additional
Collateral hereunder. Borrower represents
and warrants that the following affiliates
of Borrower are not operating entities and
do not have assets with a value in excess
of $10,000, that Borrowers do not have any
other subsidiaries other than other
Borrowers, Cerplex SAS, a French company
and Cerplex Limited, a UK company, and
that the foregoing representations and
warranties will continue to be true
throughout the term of this Agreement:
Cerplex Subsidiary II, Inc., a Delaware
corporation, Cerplex Canada Ltd., a
Canadian corporation, Certech Technology,
Inc., a Texas corporation, Apex Computer
Company, a Washington corporation,
Modcomp/Cerplex, L.P., a Delaware company,
and Aurora Electronics Limited, a Wales
company.
Borrower: Borrower:
AURORA ELECTRONICS GROUP, INC. THE CERPLEX GROUP, INC.
By_______________________________ By_______________________________
President or Vice President President or Vice President
By_______________________________ By_______________________________
Secretary or Ass't Secretary Secretary or Ass't Secretary
Borrower: Borrower:
CERPLEX, INC. CERPLEX MASS, INC.
By_______________________________ By_______________________________
President or Vice President President or Vice President
By_______________________________ By_______________________________
Secretary or Ass't Secretary Secretary or Ass't Secretary
GBC:
GREYROCK BUSINESS CREDIT,
a Division of NationsCredit Commercial
Corporation
By_______________________________
Title_____________________________
Version -4
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<PAGE> 20
- --------------------------------------------------------------------------------
Exhibit A
PRIOR NAMES OF
BORROWER
(Section 3.2):
PRIOR TRADE
NAMES OF BORROWER
(Section 3.2):
EXISTING TRADE
NAMES OF BORROWER
(Section 3.2):
OTHER LOCATIONS AND
ADDRESSES (Section 3.3):
PROPOSED DISCONTINUED
LOCATIONS (Section 3.4):
MATERIAL ADVERSE
LITIGATION (Section 3.10):
OTHER PERMITTED LIENS
(Section 8):
SUBORDINATED DEBT
(Schedule-Section 7(5)):
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<PAGE> 1
EXHIBIT 10.2.2
[GREYROCK BUSINESS CREDIT LETTERHEAD]
CONTINUING GUARANTY
BORROWERS: THE CERPLEX GROUP, INC. (FORMERLY AURORA ELECTRONICS, INC.)
AURORA ELECTRONICS GROUP, INC.
CERPLEX, INC. (FORMERLY THE CERPLEX GROUP, INC.)
CERPLEX MASS, INC.
GUARANTOR(S): WELSH, CARSON, ANDERSON & STOWE VII, L.P.
DATE: APRIL 30, 1998
THIS CONTINUING GUARANTY is executed by the above-named guarantor(s) (jointly
and severally, the Guarantor), as of the above date, in favor of GREYROCK
BUSINESS CREDIT, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION (GBC), whose
address is 10880 Wilshire Blvd. Suite 950, Los Angeles, CA 90024, with respect
to the Indebtedness of the above-named borrowers (jointly and severally, the
Borrower).
1-A. CONTINUING GUARANTY. Subject to the limitations set forth in paragraph 1-B
hereof, Guarantor hereby unconditionally guarantees and promises to pay on
demand to GBC, at the address indicated above, or at such other address as GBC
may direct, in lawful money of the United States, and to perform for the benefit
of GBC, all Indebtedness of Borrower. As used herein, the term Indebtedness
shall mean and be in all respects limited to: (a) the principal amount when due
(whether upon maturity, by acceleration or otherwise) of the loans under that
certain Loan and Security Agreement, dated April 30, 1998 (the "Loan
Agreement"), between Borrower and GBC, and all interest thereon and all other
sums now or hereafter due from Borrower to GBC under the Loan Agreement;
regardless of whether recovery thereon may be or hereafter become barred by any
statute of limitations, discharged or uncollectible in any bankruptcy,
insolvency or other proceeding, or otherwise unenforceable; and (b) any and all
amendments, modifications, renewals and extensions of any or all of the
foregoing, including without limitation amendments, modifications, renewals and
extensions which are evidenced by any new or additional instrument, document or
agreement; and (c) any and all reasonable attorneys' fees, court costs, and
collection charges incurred in endeavoring to collect or enforce any of the
foregoing against Borrower or Guarantor, (whether or not suit be brought) and
any other reasonable expenses of, for or incidental to collection thereof.
1-B. LIMITATION OF LIABILITY. Notwithstanding anything to the contrary expressed
or implied herein, in any promissory note between Borrower and GBC or in any
Loan Document (as such term is defined in the Loan Agreement), Guarantor's
liability hereunder shall be limited to the sum of $25,000,000, plus all
interest thereon, plus all reasonable attorneys fees and other costs and
expenses incurred in collecting the foregoing from Guarantor or otherwise in
connection with the enforcement of GBC's rights and remedies against Guarantor.
Guarantor's liability hereunder shall not be reduced or affected by the fact
that the Indebtedness may exceed said amount or the fact that the Indebtedness
may be reduced below said amount and subsequently increased.
1-C. BORROWER. As used herein, the term Borrower shall include any successor to
the business and assets of Borrower, and shall also include Borrower in its
capacity as a debtor or debtor in possession under the federal Bankruptcy Code,
and any trustee, custodian or receiver for
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<PAGE> 2
GREYROCK BUSINESS CREDIT CONTINUING GUARANTY
- --------------------------------------------------------------------------------
Borrower or any of its assets, should Borrower hereafter become the subject of
any bankruptcy or insolvency proceeding, voluntary or involuntary; and all
indebtedness, liabilities and obligations incurred by any such person shall be
included in the Indebtedness guaranteed hereby. This Guaranty is given in
consideration for credit and other financial accommodations which may, from time
to time, be given by GBC to Borrower in GBC's good faith business judgment, but
Guarantor acknowledges and agrees that acceptance by GBC of this Guaranty shall
not constitute a commitment of any kind by GBC to extend such credit or other
financial accommodation to Borrower or to permit Borrower to incur Indebtedness
to GBC. All sums due under this Guaranty shall bear interest from the date due
until the date paid at the highest rate charged with respect to any of the loans
under the Loan Agreement as set forth on the Schedule thereto pursuant to
Section 1.2 thereof.
2. WAIVERS. Guarantor hereby waives: (a) presentment for payment, notice of
dishonor, demand, protest, and notice thereof as to any instrument, and all
other notices and demands to which Guarantor might be entitled, including
without limitation notice of all of the following: the acceptance hereof; the
creation, existence, or acquisition of any Indebtedness; the amount of the
Indebtedness from time to time outstanding; any foreclosure sale or other
disposition of any property which secures any or all of the Indebtedness or
which secures the obligations of any other guarantor of any or all of the
Indebtedness; any adverse change in Borrower's financial position; any other
fact which might increase Guarantor's risk; any default, partial payment or
non-payment of all or any part of the Indebtedness; the occurrence of any other
Event of Default (as hereinafter defined); any and all agreements and
arrangements between GBC and Borrower and any changes, modifications, or
extensions thereof, and any revocation, modification or release of any guaranty
of any or all of the Indebtedness by any person (including without limitation
any other person signing this Guaranty); (b) any right to require GBC to
institute suit against, or to exhaust its rights and remedies against, Borrower
or any other person, or to proceed against any property of any kind which
secures all or any part of the Indebtedness, or to exercise any right of offset
or other right with respect to any reserves, credits or deposit accounts held by
or maintained with GBC or any indebtedness of GBC to Borrower, or to exercise
any other right or power, or pursue any other remedy GBC may have; (c) any
defense arising by reason of any disability or other defense of Borrower or any
other guarantor or any endorser, co-maker or other person, or by reason of the
cessation from any cause whatsoever of any liability of Borrower or any other
guarantor or any endorser, co-maker or other person, with respect to all or any
part of the Indebtedness, or by reason of any act or omission of GBC or others
which directly or indirectly results in the discharge or release of Borrower or
any other guarantor or any other person or any Indebtedness or any security
therefor, whether by operation of law or otherwise; (d) any defense arising by
reason of any failure of GBC to obtain, perfect, maintain or keep in force any
security interest in, or lien or encumbrance upon, any property of Borrower or
any other person; (e) any defense based upon any failure of GBC to give
Guarantor notice of any sale or other disposition of any property securing any
or all of the Indebtedness, or any defects in any such notice that may be given,
or any failure of GBC to comply with any provision of applicable law in
enforcing any security interest in or lien upon any property securing any or all
of the Indebtedness including, but not limited to, any failure by GBC to dispose
of any property securing any or all of the Indebtedness in a commercially
reasonable manner; (f) any defense based upon or arising out of any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, liquidation or
dissolution proceeding commenced by or against Borrower or any other guarantor
or any endorser, co-maker or other person, including without limitation any
discharge of, or bar against collecting, any of the Indebtedness (including
without limitation any interest thereon), in or as a result of any such
proceeding; and (g) the benefit of any and all statutes of limitation with
respect to any action based upon, arising out of or related to this Guaranty.
Until all of the Indebtedness has been paid, performed, and discharged in full,
nothing shall discharge or satisfy the liability of Guarantor hereunder except
the full performance and payment of all of the Indebtedness. If any claim is
ever made upon GBC for repayment or recovery of any amount or amounts received
by GBC in payment of or on account of any of the Indebtedness, because of any
claim that any such payment constituted a preferential transfer or fraudulent
conveyance, or for any other reason whatsoever, and GBC repays all or part of
said amount by reason of any judgment, decree or order of any court or
administrative body having jurisdiction over GBC or any of its property, or by
reason of any settlement or compromise of any such claim effected by GBC with
any such claimant (including without limitation the Borrower), then and in any
such event, Guarantor agrees that any such judgment, decree, order, settlement
and compromise shall be binding upon Guarantor, notwithstanding any revocation
or release of this Guaranty or the cancellation of any note or other instrument
evidencing any of the Indebtedness, or any release of any of the Indebtedness,
and the Guarantor shall be and remain liable to GBC under this Guaranty for the
amount so repaid or recovered, to the same extent as if such amount had never
originally been received by GBC, and the provisions of this sentence shall
survive, and continue in effect, notwithstanding any revocation or release of
this Guaranty. Until all of the Indebtedness has been irrevocably paid and
performed in full, Guarantor hereby expressly and unconditionally waives all
rights of subrogation, reimbursement and indemnity of every kind against
Borrower, and all rights of recourse to any assets or property of Borrower, and
all rights to any collateral or security held for the payment and performance of
any Indebtedness, including (but not limited to) any of the foregoing rights
which Guarantor may have under any present or future document or agreement with
any Borrower or other person, and including (but not limited to) any of the
foregoing rights which Guarantor may have under any equitable doctrine of
subrogation, implied contract, or unjust enrichment, or any other equitable or
legal doctrine. Neither GBC, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing GBC shall
be liable for any claims, demands, losses or damages, of any kind whatsoever,
made, claimed, incurred or suffered by Guarantor or any other party through the
ordinary negligence of GBC, or any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing GBC.
3. CONSENTS. Guarantor hereby consents and agrees that, without notice to or by
Guarantor and without affecting or impairing in any way the obligations or
liability of
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<PAGE> 3
Guarantor hereunder, GBC may, from time to time before or after revocation of
this Guaranty, do any one or more of the following in GBC's sole and absolute
discretion: (a) accelerate, accept partial payments of, compromise or settle,
renew, extend the time for the payment, discharge, or performance of, refuse to
enforce, and release all or any parties to, any or all of the Indebtedness; (b)
grant any other indulgence to Borrower or any other person in respect of any or
all of the Indebtedness or any other matter; (c) accept, release, waive,
surrender, enforce, exchange, modify, impair, or extend the time for the
performance, discharge, or payment of, any and all property of any kind securing
any or all of the Indebtedness or any guaranty of any or all of the
Indebtedness, or on which GBC at any time may have a lien, or refuse to enforce
its rights or make any compromise or settlement or agreement therefor in respect
of any or all of such property; (d) substitute or add, or take any action or
omit to take any action which results in the release of, any one or more
endorsers or guarantors of all or any part of the Indebtedness, including,
without limitation one or more parties to this Guaranty, regardless of any
destruction or impairment of any right of contribution or other right of
Guarantor; (e) amend, alter or change in any respect whatsoever any term or
provision relating to any or all of the Indebtedness, including the rate of
interest thereon; (f) apply any sums received from Borrower, any other
guarantor, endorser, or co-signer, or from the disposition of any collateral or
security, to any indebtedness whatsoever owing from such person or secured by
such collateral or security, in such manner and order as GBC determines in its
sole discretion, and regardless of whether such indebtedness is part of the
Indebtedness, is secured, or is due and payable; (g) apply any sums received
from Guarantor or from the disposition of any collateral or security securing
the obligations of Guarantor, to any of the Indebtedness in such manner and
order as GBC determines in its sole discretion, regardless of whether or not
such Indebtedness is secured or is due and payable. Guarantor consents and
agrees that GBC shall be under no obligation to marshal any assets in favor of
Guarantor, or against or in payment of any or all of the Indebtedness. Guarantor
further consents and agrees that GBC shall have no duties or responsibilities
whatsoever with respect to any property securing any or all of the Indebtedness.
Without limiting the generality of the foregoing, GBC shall have no obligation
to monitor, verify, audit, examine, or obtain or maintain any insurance with
respect to, any property securing any or all of the Indebtedness.
4. ACCOUNT STATED. GBC's books and records showing the account between it and
the Borrower shall be admissible in evidence in any action or proceeding as
prima facie proof of the items therein set forth. GBC's monthly statements
rendered to the Borrower shall be binding upon the Guarantor (whether or not the
Guarantor receives copies thereof), and shall constitute an account stated
between GBC and the Borrower, unless GBC receives a written statement of the
Borrower's exceptions within 60 days after the statement was mailed to the
Borrower. The Guarantor assumes full responsibility for obtaining copies of such
monthly statements from the Borrower, if the Guarantor desires such copies.
5. EXERCISE OF RIGHTS AND REMEDIES; FORECLOSURE OF TRUST DEEDS. Guarantor hereby
waives all rights of subrogation, reimbursement, indemnification, and
contribution and any other rights and defenses that are or may become available
to the Guarantor or other surety by reason of California Civil Code Sections
2787 to 2855, inclusive. The Guarantor waives all rights and defenses that the
Guarantor may have because the Borrower's Indebtedness is secured by real
property. This means, among other things: (1) GBC may collect from the Guarantor
without first foreclosing on any real or personal property collateral pledged by
the Borrower. (2) If GBC forecloses on any real property collateral pledged by
the Borrower: (A) The amount of the Indebtedness may be reduced only by the
price for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price. (B) GBC may collect from the
Guarantor even if GBC, by foreclosing on the real property collateral, has
destroyed any right the Guarantor may have to collect from the Borrower. This is
an unconditional and irrevocable waiver of any rights and defenses the Guarantor
may have because the Borrower's Indebtedness is secured by real property. These
rights and defenses include, but are not limited to, any rights or defenses
based upon Section 580a, 580b, 580d, or 726 of the Code of Civil Procedure. The
Guarantor waives all rights and defenses arising out of an election of remedies
by GBC, even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for a guaranteed obligation, has destroyed the
Guarantor's rights of subrogation and reimbursement against the principal by the
operation of Section 580d of the Code of Civil Procedure or otherwise.
6. ACCELERATION. Notwithstanding the terms of all or any part of the
Indebtedness, the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall, at the option of GBC, immediately become due and
payable, without notice, and without regard to the expressed maturity of any of
the Indebtedness, in the event: (a) any "Event of Default" (as defined in the
Loan Agreement shall occur and be continuing); or (b) there shall occur the
dissolution, termination of existence, insolvency, or business failure of
Guarantor, or the appointment of a receiver, trustee or custodian for Guarantor
or all or any part of its property,
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<PAGE> 4
or the assignment for the benefit of creditors by Guarantor, or the commencement
of any proceeding by or against Guarantor under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any jurisdiction, now or hereafter in effect; or (c) Guarantor shall
revoke this Guaranty or contest or deny liability under this Guaranty. All of
the foregoing are hereinafter referred to as Events of Default.
7. RIGHT TO ATTACHMENT REMEDY. Guarantor agrees that, notwithstanding the
existence of any property securing any or all of the Indebtedness, GBC shall
have all of the rights of an unsecured creditor of Guarantor, including without
limitation the right to obtain a temporary protective order and writ of
attachment against Guarantor with respect to any sums due under this Guaranty.
Guarantor further agrees that in the event any property secures the obligations
of Guarantor under this Guaranty, to the extent that GBC, in its sole and
absolute discretion, determines prior to the disposition of such property that
the amount to be realized by GBC therefrom may be less than the indebtedness of
the Guarantor under this Guaranty, GBC shall have all the rights of an unsecured
creditor against Guarantor, including without limitation the right of GBC, prior
to the disposition of said property, to obtain a temporary protective order and
writ of attachment against Guarantor. Guarantor waives the benefit of Section
483.010(b) of the California Code of Civil Procedure and of any and all other
statutes and rules of law now or hereafter in effect requiring GBC to first
resort to or exhaust all such collateral before seeking or obtaining any
attachment remedy against Guarantor. GBC shall have no liability to Guarantor as
a result thereof, whether or not the actual deficiency realized by GBC is less
than the anticipated deficiency on the basis of which GBC obtains a temporary
protective order or writ of attachment.
8. SUBORDINATION. Any and all rights of Guarantor under any and all debts,
liabilities and obligations owing from Borrower to Guarantor, including any
security for and guaranties of any such obligations, whether now existing or
hereafter arising, are hereby subordinated in right of payment to the prior
payment in full of all of the Indebtedness to the extent provided in any
instrument or agreement evidencing or relating to the same.
9. REVOCATION. This is a Continuing Guaranty relating to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from time to time continue the Indebtedness or renew it after it has been
satisfied. Guarantor waives all benefits of California Civil Code Section 2815,
and agrees that the obligations of Guarantor hereunder may not be terminated or
revoked in any manner except by giving 90 days' advance written
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<PAGE> 5
notice of revocation to GBC at its address above by registered first-class U.S.
mail, postage prepaid, return receipt requested, and only as to new loans made
by GBC to Borrower more than 90 days after actual receipt of such written notice
by GBC. No termination or revocation of this Guaranty shall be effective until
90 days following the date of actual receipt of said written notice of
revocation by GBC. Notwithstanding such written notice of revocation or any
other act of Guarantor or any other event or circumstance, Guarantor agrees that
this Guaranty and all consents, waivers and other provisions hereof shall
continue in full force and effect as to any and all Indebtedness which is
outstanding on or before the 90th day following actual receipt of said written
notice of revocation by GBC, and all extensions, renewals and modifications of
said Indebtedness (including without limitation amendments, extensions, renewals
and modifications which are evidenced by new or additional instruments,
documents or agreements executed before or after expiration of said 90-day
period), and all interest thereon, accruing before or after expiration of said
90-day period, and all reasonable attorneys' fees, court costs and collection
charges, incurred before or after expiration of said 90-day period, in
endeavoring to collect or enforce any of the foregoing against Borrower or
Guarantor (whether or not suit be brought) and any other reasonable expenses of,
for or incidental to collection thereof.
10. INDEPENDENT LIABILITY. Guarantor hereby agrees that one or more successive
or concurrent actions may be brought hereon against Guarantor, in the same
action in which Borrower may be sued or in separate actions, as often as deemed
advisable by GBC. The liability of Guarantor hereunder is exclusive and
independent of any other guaranty of any or all of the Indebtedness whether
executed by Guarantor or by any other guarantor (including without limitation
any other persons signing this Guaranty). The liability of Guarantor hereunder
shall not be affected, revoked, impaired, or reduced by any one or more of the
following: (a) the fact that the Indebtedness exceeds the maximum amount of
Guarantor's liability, if any, specified herein or elsewhere (and no agreement
specifying a maximum amount of Guarantor's liability shall be enforceable unless
set forth in a writing signed by GBC or set forth in this Guaranty); or (b) any
direction as to the application of payment by Borrower or by any other party; or
(c) any other continuing or restrictive guaranty or undertaking or any
limitation on the liability of any other guarantor (whether under this Guaranty
or under any other agreement); or (d) any payment on or reduction of any such
other guaranty or undertaking; or (e) any revocation, amendment, modification or
release of any such other guaranty or undertaking; or (f) any dissolution or
termination of, or increase, decrease, or change in membership of any Guarantor
which is a partnership. Guarantor hereby expressly represents that he was not
induced to give this Guaranty by the fact that there are or may be other
guarantors either under this Guaranty or otherwise, and Guarantor agrees that
any release of any one or more of such other guarantors shall not release
Guarantor from his obligations hereunder either in full or to any lesser extent.
If Guarantor is a married person, Guarantor hereby expressly agrees that
recourse may be had against his or her separate property for all of his or her
obligations hereunder.
11. FINANCIAL CONDITION OF BORROWER. Guarantor is fully aware of the financial
condition of Borrower and is executing and delivering this Guaranty at
Borrower's request and based solely upon his own independent investigation of
all matters pertinent hereto, and Guarantor is not relying in any manner upon
any representation or statement of GBC with respect thereto. Guarantor
represents and warrants that he is in a position to obtain, and Guarantor hereby
assumes full responsibility for obtaining, any additional information concerning
Borrower's financial condition and any other matter pertinent hereto as
Guarantor may desire, and Guarantor is not relying upon or expecting GBC to
furnish to him any information now or hereafter in GBC's possession concerning
the same or any other matter. By executing this Guaranty, Guarantor knowingly
accepts the full range of risks encompassed within a contract of continuing
guaranty, which risks Guarantor acknowledges include without limitation the
possibility that Borrower will incur additional Indebtedness for which Guarantor
will be liable hereunder after Borrower's financial condition or ability to pay
such Indebtedness has deteriorated and/or after bankruptcy or insolvency
proceedings have been commenced by or against Borrower. Guarantor shall have no
right to require GBC to obtain or disclose any information with respect to the
Indebtedness, the financial condition or character of Borrower, the existence of
any collateral or security for any or all of the Indebtedness, the filing by or
against Borrower of any bankruptcy or insolvency proceeding, the existence of
any other guaranties of all or any part of the Indebtedness, any action or
non-action on the part of GBC, Borrower, or any other person, or any other
matter, fact, or occurrence.
12. REPORTS AND FINANCIAL STATEMENTS OF GUARANTOR. Guarantor shall, at its sole
cost and expense, at any time and from time to time, prepare or cause to be
prepared, and provide to GBC upon GBC's request (i) copies of Guarantor's annual
audited financial statements within 90 days after the end of Guarantor's fiscal
year. All reports and information furnished to GBC hereunder shall be complete,
accurate and correct in all material respects.
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<PAGE> 6
13. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents and warrants
that (i) it is in Guarantor's direct interest to assist Borrower in procuring
credit, because Borrower is an affiliate of Guarantor, furnishes goods or
services to Guarantor, purchases or acquires goods or services from Guarantor,
and/or otherwise has a direct or indirect corporate or business relationship
with Guarantor, (ii) this Guaranty has been duly and validly authorized,
executed and delivered and constitutes the valid and binding obligation of
Guarantor, enforceable in accordance with its terms (except as enforcement may
be limited by equitable principles, regardless of whether considered in a
proceeding at law or in equity, and by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), and (iii) the execution and delivery of this Guaranty does
not violate or constitute a default under (with or without the giving of notice,
the passage of time, or both) any order, judgment, decree, instrument or
agreement to which Guarantor is a party or by which it or its assets are
affected or bound.
14. COSTS. Whether or not suit be instituted, Guarantor agrees to reimburse GBC
on demand for all reasonable attorneys' fees and all other reasonable costs and
expenses incurred by GBC in enforcing this Guaranty, or arising out of or
relating in any way to this Guaranty, or in enforcing any of the Indebtedness
against Guarantor.
15. NOTICES. Any notice which a party shall be required or shall desire to give
to the other hereunder (except for notice of revocation, which shall be governed
by Section 10 of this Guaranty) shall be given by personal delivery or by
telecopier or by depositing the same in the United States mail, first class
postage pre-paid, addressed to GBC at its address set forth in the heading of
this Guaranty and to Guarantor at his address set forth under his signature
hereon, and such notices shall be deemed duly given on the date of personal
delivery or one day after the date telecopied or 3 business days after the date
of mailing as aforesaid. GBC and Guarantor may change their address for purposes
of receiving notices hereunder by giving written notice thereof to the other
party in accordance herewith. Guarantor shall give GBC immediate written notice
of any change in his address.
16. CONSTRUCTION; SEVERABILITY. If more than one person has executed this
Guaranty, the term Guarantor as used herein shall be deemed to refer to all and
any one or more such persons and their obligations hereunder shall be joint and
several. Without limiting the generality of the foregoing, if more than one
person has executed this Guaranty, this Guaranty shall in all respects be
interpreted as though each person signing this Guaranty had signed a separate
Guaranty, and references herein to other guarantors or words of similar effect
shall include without limitation other persons signing this Guaranty. As used in
this Guaranty, the term property is used in its most comprehensive sense and
shall mean all property of every kind and nature whatsoever, including without
limitation real property, personal property, mixed property, tangible property
and intangible property. Words used herein in the masculine gender shall include
the neuter and feminine gender, words used herein in the neuter gender shall
include the masculine and feminine, words used herein in the singular shall
include the plural and words used in the plural shall include the singular,
wherever the context so reasonably requires. If any provision of this Guaranty
or the application thereof to any party or circumstance is held invalid, void,
inoperative or unenforceable, the remainder of this Guaranty and the application
of such provision to other parties or circumstances shall not be affected
thereby, the provisions of this Guaranty being severable in any such instance.
17. GENERAL PROVISIONS. GBC shall have the right to seek recourse against
Guarantor to the full extent provided for herein (subject to the limitation on
liability herein set forth) and in any other instrument or agreement evidencing
obligations of Guarantor to GBC, and the right to seek recourse against
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<PAGE> 7
Borrower to the full extent of the Indebtedness. No election in one form of
action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of GBC's right to proceed in any other form of action or
proceeding or against any other party. The failure of GBC to enforce any of the
provisions of this Guaranty at any time or for any period of time shall not be
construed to be a waiver of any such provision or the right thereafter to
enforce the same. All remedies hereunder shall be cumulative and shall be in
addition to all rights, powers and remedies given to GBC by law or under any
other instrument or agreement. Time is of the essence in the performance by
Guarantor of each and every obligation under this Guaranty. If Borrower is a
corporation, partnership or other entity, Guarantor hereby agrees that GBC shall
have no obligation to inquire into the power or authority of Borrower or any of
its officers, directors, partners, or agents acting or purporting to act on its
behalf, and any Indebtedness made or created in reliance upon the professed
exercise of any such power or authority shall be included in the Indebtedness
guaranteed hereby. This Guaranty is the entire and only agreement between
Guarantor and GBC with respect to the guaranty of the Indebtedness of Borrower
by Guarantor, and all representations, warranties, agreements, or undertakings
heretofore or contemporaneously made, which are not set forth herein, are
superseded hereby. No course of dealings between the parties, no usage of the
trade, and no parol or extrinsic evidence of any nature shall be used or be
relevant to supplement or explain or modify any term or provision of this
Guaranty. There are no conditions to the full effectiveness of this Guaranty.
The terms and provisions hereof may not be waived, altered, modified, or amended
except in a writing executed by Guarantor and a duly authorized officer of GBC.
All rights, benefits and privileges hereunder shall inure to the benefit of and
be enforceable by GBC and its successors and assigns and shall be binding upon
Guarantor and his heirs, executors, administrators, personal representatives,
successors and assigns. Neither the death of Guarantor nor notice thereof to GBC
shall terminate this Guaranty as to his estate, and, notwithstanding the death
of Guarantor or notice thereof to GBC, this Guaranty shall continue in full
force and effect with respect to all Indebtedness, including without limitation
Indebtedness incurred or created after the death of Guarantor and notice thereof
to GBC. Section headings are used herein for convenience only. Guarantor
acknowledges that the same may not describe completely the subject matter of the
applicable Section, and the same shall not be used in any manner to construe,
limit, define or interpret any term or provision hereof.
18. GOVERNING LAW; VENUE AND JURISDICTION. This instrument and all acts and
transactions pursuant or relating hereto and all rights and obligations of the
parties hereto shall be governed, construed, and interpreted in accordance with
the internal laws of the State of California. In order to induce GBC to accept
this Guaranty, and as a material part of the consideration therefor, Guarantor
(i) agrees that all actions or proceedings relating directly or indirectly
hereto shall, at the option of GBC, be litigated in courts located within Los
Angeles County, California, (ii) consents to the jurisdiction of any such court
and consents to the service of process in any such action or proceeding by
personal delivery or any other method permitted by law; and (iii) waives any and
all rights Guarantor may have to transfer or change the venue of any such action
or proceeding.
19. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. GBC AND GUARANTOR HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS GUARANTEE OR ANY SUPPLEMENT
OR AMENDMENT THERETO; OR (ii) ANY BREACH, CONDUCT, ACTS OR OMISSIONS OF GBC OR
GUARANTOR OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING GBC OR GUARANTOR;
IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR
OTHERWISE.
20. RECEIPT OF COPY. Guarantor acknowledges receipt of a copy of this Guaranty.
Guarantor Signature:
Welsh, Carson, Anderson & Stowe VII, L.P.
By WCAS VII Partners, L.P.,
General Partner
By________________________
General Partner
Address: 320 Park Avenue, Suite 2500
New York, New York 10022
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<PAGE> 1
EXHIBIT 10.2.3
Streamlined Facility Agreement
April 30, 1998
The Cerplex Group, Inc.
Aurora Electronics Group, Inc.
Cerplex, Inc.
Cerplex Mass, Inc.
1283 Bell Avenue
Tustin, California 92780
Gentlemen:
Reference is made to the Loan and Security between us of even date (the
"Loan Agreement"). (This letter agreement, the Loan Agreement, and all other
written documents and agreements between us are referred to herein collectively
as the "Loan Documents". Capitalized terms used but not defined in this
agreement, shall have the meanings set forth in the Loan Agreement.)
This will confirm our agreement that the provisions of Sections 1 and 2
below (the "Streamlined Provisions") shall apply, effective on the date hereof,
until terminated as provided below:
1. Daily reporting of transactions and daily schedules and assignments
of Receivables and schedules of collections, called for by Section 4.3 of the
Loan Agreement, will not be required. Instead, the Borrowers will provide GBC
with a monthly Borrowing Base Certificate, in such form as GBC shall from time
to time reasonably specify, within 10 days after the end of each month. In the
event, as of the end of any month, the total of all Loans and all other
Obligations exceeds the Credit Limit, Borrowers shall immediately pay the amount
of the excess to GBC.
2. Delivery of the proceeds of Receivables and other Collateral within
one business day after receipt, as called for by Sections 4.4 and 5.4 of the
Loan Agreement will not be required.
3. GBC shall have the right to terminate the Streamlined Provisions,
upon seven Business Days prior written notice to the Borrowers. In addition, the
Streamlined Provisions shall immediately terminate if any Event of Default or
any event which, with notice or passage of time or both, would constitute an
Event of Default, occurs and is continuing. Upon termination of the Streamlined
Provisions, the Borrowers shall, then and thereafter, provide GBC with the daily
reporting of transactions and daily schedules and assignments of Receivables and
schedules of collections, as called for by Section 4.3 of the Loan Agreement,
and Borrowers shall deliver all proceeds of Receivables and other Collateral to
GBC, within one business day after receipt, as called for by Sections 4.4 and
5.4 of the Loan Agreement.
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<PAGE> 2
Sincerely yours,
GREYROCK BUSINESS CREDIT,
a Division of NationsCredit Commercial
Corporation
By___________________________
Title_______________________
Accepted and agreed:
Borrower: Borrower:
AURORA ELECTRONICS GROUP, INC. THE CERPLEX GROUP, INC.
By_______________________________ By_______________________________
President or Vice President President or Vice President
Borrower: Borrower:
CERPLEX, INC. CERPLEX MASS, INC.
By_______________________________ By_______________________________
President or Vice President President or Vice President
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<PAGE> 1
EXHIBIT 10.2.4
NEGATIVE PLEDGE AGREEMENT
April 30, 1998
Greyrock Business Credit
10880 Wilshire Blvd. Suite 950
Los Angeles, CA 90024
Gentlemen:
Reference is made to the Loan and Security Agreement between you ("GBC")
and us and certain of our affiliates dated of even date (the "Loan Agreement")
and the documents and instruments relating thereto (with the Loan Agreement,
collectively, the "Loan Documents"). (Capitalized terms used in this Letter
Agreement, which are not defined, shall have the meanings set forth in the Loan
Agreement.)
This will confirm our agreement that we shall not permit our subsidiary,
Cerplex SAS, a French "societe anonyme simplifiee" organized under the laws of
France (the "French Subsidiary"), to encumber or grant security interests in any
of its assets of any kind or to permit any of its assets to be subject to any
liens or charges, except for "Permitted Liens" (as defined in the Loan
Agreement). Without limiting the foregoing, within 30 days after the date
hereof, we shall cause the general assembly of shareholders of the French
Subsidiary to adopt appropriate resolutions or take other corporate action to
require that any encumbrance, grant of a security interest, lien or charge on
any of its assets (other than Permitted) will require the unanimous consent of
the shareholders, in order to implement this Agreement (but this Agreement shall
be fully effective notwithstanding any failure to adopt such resolutions), and
we shall provide you with written evidence of the same within said 30-day
period.
This Negative Pledge Agreement and the other Loan Documents set forth in
full all of the representations and agreements of the parties with respect to
the subject matter hereof and supersede all prior discussions, representations,
agreements and understandings between the parties. This Letter Agreement may not
be modified or amended, nor may any rights hereunder be waived, except in a
writing signed by the parties hereto. Upon termination of the Loan Agreement and
payment in full of all of the Obligations, this Negative Pledge Agreement shall
terminate and be of no further force or effect.
Sincerely yours,
Cerplex, Inc. (formerly The Cerplex Group, Inc.),
a Delaware corporation
By_____________________________________
Title__________________________________
Accepted and agreed:
Greyrock Business Credit, a Division of
NationsCredit Commercial Corporation
By____________________________________
Title_________________________________
<PAGE> 1
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EXHIBIT 10.2.5
[GREYROCK BUSINESS CREDIT LETTERHEAD]
SECURED PROMISSORY NOTE
$36,000,000 Los Angeles, California APRIL 30, 1998
FOR VALUE RECEIVED, the undersigned (jointly and severally, the
Borrower) promises to pay to the order of GREYROCK BUSINESS CREDIT (GBC), at
10880 Wilshire Blvd., Suite 950, Los Angeles, CA 90024, or at such other address
as the holder of this Note shall direct, the principal sum of $36,000,000,
payable on the earlier of the following dates (the Maturity Date): (i) APRIL 30,
1999, or (ii) the date the Loan and Security Agreement between the Borrower and
GBC dated APRIL 30, 1998 (the Loan Agreement) terminates by its terms or is
terminated by either party in accordance with its terms. On the Maturity Date
the entire remaining unpaid principal balance of this Note, plus any and all
accrued and unpaid interest, shall be due and payable.
This Note shall bear interest on the unpaid principal balance hereof
from time to time outstanding at a rate equal to the following: The interest
rate in effect throughout each calendar month during the term of this Note shall
be the highest LIBOR Rate in effect during such month, plus 4.50% per annum,
provided that the interest rate in effect in each month shall not be less than
9% per annum. Interest shall be calculated on the basis of a 360-day year for
the actual number of days elapsed. LIBOR Rate has the meaning set forth in the
Loan Agreement.
Accrued interest on this Note shall be payable monthly, in addition to
the principal payments provided above, commencing on MAY 31, 1998, and
continuing on the last day of each succeeding month. Any accrued interest not
paid when due shall bear interest at the same rate as the principal hereunder.
Principal of and interest on this Note shall be payable in lawful money
of the United States of America. If a payment hereunder becomes due and payable
on a Saturday, Sunday or legal holiday, the due date thereof shall be extended
to the next succeeding business day, and interest shall be payable thereon
during such extension.
In the event any payment of principal or interest on this Note is not
paid in full when due, or if any other Event of Default (as such term is defined
in the Loan Agreement) has occurred and is continuing, or if any other event of
default occurs and is continuing under any other present or future instrument,
document, or agreement between the Borrower and GBC (after expiration of any
applicable grace period set forth therein) which would entitle GBC to accelerate
the maturity of any indebtedness of Borrower to GBC (collectively, Events of
Default), GBC may, at its option, at any time thereafter, declare the entire
unpaid principal balance of this Note plus all accrued interest to be
immediately due and payable, without notice or demand. The acceptance of any
installment of principal or interest by GBC after the time when it becomes due,
as herein specified, shall not be held to establish a custom, or to waive any
rights of GBC to enforce payment when due of any further installments or any
other rights, nor shall any failure or delay to exercise any rights be held to
waive the same.
All payments hereunder are to be applied first to costs and fees
referred to hereunder, second to the payment of accrued interest and the
remaining balance to the payment of principal. Any principal prepayment
hereunder shall be applied against principal payments in the inverse order of
maturity. GBC shall have the continuing and exclusive right to apply or reverse
and reapply any and all payments hereunder.
The Borrower agrees to pay all reasonable costs and expenses (including
without limitation reasonable attorney's fees) incurred by GBC in connection
with or related to this Note, or its
<PAGE> 2
enforcement, whether or not suit be brought. The Borrower hereby waives
presentment, demand for payment, notice of dishonor, notice of nonpayment,
protest, notice of protest, and any and all other notices and demands in
connection with the delivery, acceptance, performance, default, or enforcement
of this Note, and the Borrower hereby waives the benefits of any statute of
limitations with respect to any action to enforce, or otherwise related to, this
Note.
This Note is secured by the Loan Agreement and all other present and
future security agreements between the Borrower and GBC. Nothing herein shall be
deemed to limit any of the terms or provisions of the Loan Agreement or any
other present or future document, instrument or agreement, between the Borrower
and GBC, and all of GBC's rights and remedies hereunder and thereunder are
cumulative.
In the event any one or more of the provisions of this Note shall for
any reason be held to be invalid, illegal or unenforceable, the same shall not
affect any other provision of this Note and the remaining provisions of this
Note shall remain in full force and effect.
No waiver or modification of any of the terms or provisions of this Note
shall be valid or binding unless set forth in a writing signed by a duly
authorized officer of GBC, and then only to the extent therein specifically set
forth. If more than one person executes this Note, their obligations hereunder
shall be joint and several.
GBC AND BORROWER EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS NOTE;
OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN GBC AND
BORROWER; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF GBC OR BORROWER OR ANY OF
THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS
AFFILIATED WITH GBC OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
This Note is payable in, and shall be governed by the laws of, the State
of California.
THE CERPLEX GROUP, INC. CERPLEX, INC.
By_______________________________ By_______________________________
President or Vice President President or Vice President
By_______________________________ By_______________________________
Secretary or Ass't Secretary Secretary or Ass't Secretary
AURORA ELECTRONICS GROUP, INC. CERPLEX MASS, INC.
By_______________________________ By_______________________________
President or Vice President President or Vice President
By_______________________________ By_______________________________
Secretary or Ass't Secretary Secretary or Ass't Secretary
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<PAGE> 1
EXHIBIT 10.2.6
[GREYROCK BUSINESS CREDIT LETTERHEAD]
CROSS-CORPORATE CONTINUING GUARANTY
BORROWERS: THE CERPLEX GROUP, INC. (FORMERLY AURORA ELECTRONICS, INC.)
AURORA ELECTRONICS GROUP, INC.
CERPLEX, INC. (FORMERLY THE CERPLEX GROUP, INC.)
CERPLEX MASS, INC.
GUARANTORS: THE CERPLEX GROUP, INC. (FORMERLY AURORA ELECTRONICS, INC.)
AURORA ELECTRONICS GROUP, INC.
CERPLEX, INC. (FORMERLY THE CERPLEX GROUP, INC.)
CERPLEX MASS, INC.
DATE: APRIL 30, 1998
THIS CROSS-CORPORATE CONTINUING GUARANTY is executed by the above-named
guarantors (jointly and severally, the "Guarantor"), as of the above date, in
favor of GREYROCK BUSINESS CREDIT, a Division of NationsCredit Commercial
Corporation ("GBC"), whose address is 10880 Wilshire Blvd. Suite 950, Los
Angeles, CA 90024 with respect to the Indebtedness of each and all of the
above-named borrowers (jointly and severally, the "Borrower").
1. CONTINUING GUARANTY. Guarantor hereby unconditionally guarantees and
promises to pay on demand to GBC in lawful money of the United States, and to
perform for the benefit of GBC, all of the Borrower's present and future
Indebtedness (as defined below) to GBC.
2. "INDEBTEDNESS." As used in this Guaranty, the term "Indebtedness" is used
in its most comprehensive sense and shall mean and include without limitation:
(a) any and all debts, duties, obligations, liabilities, representations,
warranties and guaranties of Borrower or any one or more of them, heretofore,
now, or hereafter made, incurred, or created, whether directly to GBC or
acquired by GBC by assignment or otherwise, or held by GBC on behalf of others,
however arising, whether voluntary or involuntary, due or not due, absolute or
contingent, liquidated or unliquidated, certain or uncertain, determined or
undetermined, monetary or nonmonetary, written or oral, and whether Borrower may
be liable individually or jointly with others, and regardless of whether
recovery thereon may be or hereafter become barred by any statute of
limitations, discharged or uncollectible in any bankruptcy, insolvency or other
proceeding, or otherwise unenforceable; and (b) any and all amendments,
modifications, renewals and extensions of any or all of the foregoing, including
without limitation amendments, modifications, renewals and extensions which are
evidenced by any new or additional instrument, document or agreement; and (c)
any and all attorneys' fees, court costs, and collection charges incurred in
endeavoring to collect or enforce any of the foregoing against Borrower,
Guarantor, or any other person liable thereon (whether or not suit be brought)
and any other expenses of, for or incidental to collection thereof.
3. WAIVERS. Guarantor hereby waives: (a) presentment for payment, notice of
dishonor, demand, protest, and notice thereof as to any instrument, and all
other notices and demands to which Guarantor might be entitled, including
without limitation notice of all of the following: the acceptance hereof; the
creation, existence, or acquisition of any Indebtedness; the amount of the
Indebtedness from time to time outstanding; any foreclosure sale or other
disposition of any property which secures any or all of the Indebtedness or
which secures the obligations of any other guarantor of any or all of the
Indebtedness; any adverse change in Borrower's financial position; any other
fact which might increase Guarantor's risk; any default, partial payment or
non-payment of all or any part of the Indebtedness; the occurrence of any other
Event of Default (as hereinafter defined); any and all agreements and
arrangements between GBC and Borrower and any changes, modifications, or
extensions thereof, and any revocation, modification or release of any guaranty
of any or all of the Indebtedness by any person (including without limitation
any other person signing this Guaranty); (b) any right to require GBC to
institute suit against, or to exhaust its rights and remedies against, Borrower
or any other person, or to proceed against any property of any kind which
secures all or any part of the Indebtedness, or to exercise any right of offset
or other right with respect to any reserves, credits or deposit accounts held by
or maintained with GBC or any indebtedness of GBC to Borrower, or to exercise
any other right or power, or pursue any other remedy GBC may have; (c) any
defense arising by reason of any disability or other defense of Borrower or any
other guarantor or any endorser, co-maker or other person, or by reason of the
cessation from
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<PAGE> 2
SILICON VALLEY BANK NOTES TO CROSS CORPORATE GUARANTY
- --------------------------------------------------------------------------------
any cause whatsoever of any liability of Borrower or any other guarantor or any
endorser, co-maker or other person, with respect to all or any part of the
Indebtedness, or by reason of any act or omission of GBC or others which
directly or indirectly results in the discharge or release of Borrower or any
other guarantor or any other person or any Indebtedness or any security
therefor, whether by operation of law or otherwise; (d) any defense arising by
reason of any failure of GBC to obtain, perfect, maintain or keep in force any
security interest in, or lien or encumbrance upon, any property of Borrower or
any other person; (e) any defense based upon any failure of GBC to give
Guarantor notice of any sale or other disposition of any property securing any
or all of the Indebtedness, or any defects in any such notice that may be given,
or any failure of GBC to comply with any provision of applicable law in
enforcing any security interest in or lien upon any property securing any or all
of the Indebtedness including, but not limited to, any failure by GBC to dispose
of any property securing any or all of the Indebtedness in a commercially
reasonable manner; (f) any defense based upon or arising out of any bankruptcy,
insolvency, reorganization, arrangement, readjustment of debt, liquidation or
dissolution proceeding commenced by or against Borrower or any other guarantor
or any endorser, co-maker or other person, including without limitation any
discharge of, or bar against collecting, any of the Indebtedness (including
without limitation any interest thereon), in or as a result of any such
proceeding; and (g) the benefit of any and all statutes of limitation with
respect to any action based upon, arising out of or related to this Guaranty.
Until all of the Indebtedness has been paid, performed, and discharged in full,
nothing shall discharge or satisfy the liability of Guarantor hereunder except
the full performance and payment of all of the Indebtedness. If any claim is
ever made upon GBC for repayment or recovery of any amount or amounts received
by GBC in payment of or on account of any of the Indebtedness, because of any
claim that any such payment constituted a preferential transfer or fraudulent
conveyance, or for any other reason whatsoever, and GBC repays all or part of
said amount by reason of any judgment, decree or order of any court or
administrative body having jurisdiction over GBC or any of its property, or by
reason of any settlement or compromise of any such claim effected by GBC with
any such claimant (including without limitation the Borrower), then and in any
such event, Guarantor agrees that any such judgment, decree, order, settlement
and compromise shall be binding upon Guarantor, notwithstanding any revocation
or release of this Guaranty or the cancellation of any note or other instrument
evidencing any of the Indebtedness, or any release of any of the Indebtedness,
and the Guarantor shall be and remain liable to GBC under this Guaranty for the
amount so repaid or recovered, to the same extent as if such amount had never
originally been received by GBC, and the provisions of this sentence shall
survive, and continue in effect, notwithstanding any revocation or release of
this Guaranty. Until all of the Indebtedness has been irrevocably paid and
performed in full, Guarantor hereby expressly and unconditionally waives all
rights of subrogation, reimbursement and indemnity of every kind against
Borrower, and all rights of recourse to any assets or property of Borrower, and
all rights to any collateral or security held for the payment and performance of
any Indebtedness, including (but not limited to) any of the foregoing rights
which Guarantor may have under any present or future document or agreement with
any Borrower or other person, and including (but not limited to) any of the
foregoing rights which Guarantor may have under any equitable doctrine of
subrogation, implied contract, or unjust enrichment, or any other equitable or
legal doctrine. Neither GBC, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing GBC shall
be liable for any claims, demands, losses or damages, of any kind whatsoever,
made, claimed, incurred or suffered by Guarantor or any other party through the
ordinary negligence of GBC, or any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing GBC.
4. CONSENTS. Guarantor hereby consents and agrees that, without notice to or
by Guarantor and without affecting or impairing in any way the obligations or
liability of Guarantor hereunder, GBC may, from time to time before or after
revocation of this Guaranty, do any one or more of the following in GBC's sole
and absolute discretion: (a) accelerate, accept partial payments of, compromise
or settle, renew, extend the time for the payment, discharge, or performance of,
refuse to enforce, and release all or any parties to, any or all of the
Indebtedness; (b) grant any other indulgence to Borrower or any other person in
respect of any or all of the Indebtedness or any other matter; (c) accept,
release, waive, surrender, enforce, exchange, modify, impair, or extend the time
for the performance, discharge, or payment of, any and all property of any kind
securing any or all of the Indebtedness or any guaranty of any or all of the
Indebtedness, or on which GBC at any time may have a lien, or refuse to enforce
its rights or make any compromise or settlement or agreement therefor in respect
of any or all of such property; (d) substitute or add, or take any action or
omit to take any action which results in the release of, any one or more
endorsers or guarantors of all or any part of the Indebtedness, including,
without limitation one or more parties to this Guaranty, regardless of any
destruction or impairment of any right of contribution or other right of
Guarantor; (e) amend, alter or change in any respect whatsoever any term or
provision relating to any or all of the Indebtedness, including the rate of
interest thereon; (f) apply any sums received from Borrower, any other
guarantor, endorser, or co-signer, or from the disposition of any collateral or
security, to any indebtedness whatsoever owing from such person or secured by
such collateral or security, in such manner and order as GBC determines in its
sole discretion, and regardless of whether such indebtedness is part of the
Indebtedness, is secured, or is due and payable; (g) apply any sums received
from Guarantor or from the disposition of any collateral or security securing
the obligations of Guarantor, to any of the Indebtedness in such manner and
order as GBC determines in its sole discretion, regardless of whether or not
such Indebtedness is secured or is due and payable. Guarantor consents and
agrees that GBC shall be under no obligation to marshal any assets in favor of
Guarantor, or against or in payment of any or all of the Indebtedness. Guarantor
further consents and agrees that GBC shall have no duties or responsibilities
whatsoever with respect to any property securing any or all of the Indebtedness.
Without limiting the generality of the foregoing, GBC shall have no obligation
to monitor, verify, audit, examine, or obtain or maintain any insurance with
respect to, any property securing any or all of the Indebtedness.
5. NO COMMITMENT. Guarantor acknowledges and agrees that acceptance by GBC of
this Guaranty shall not constitute a commitment of any kind by GBC to extend
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<PAGE> 3
such credit or other financial accommodation to Borrower or to permit Borrower
to incur Indebtedness to GBC.
6. EXERCISE OF RIGHTS AND REMEDIES; FORECLOSURE OF TRUST DEEDS. Guarantor
hereby waives all rights of subrogation, reimbursement, indemnification, and
contribution and any other rights and defenses that are or may become available
to the Guarantor or other surety by reason of California Civil Code Sections
2787 to 2855, inclusive. The Guarantor waives all rights and defenses that the
Guarantor may have because the Borrower's Indebtedness is secured by real
property. This means, among other things: (1) GBC may collect from the Guarantor
without first foreclosing on any real or personal property collateral pledged by
the Borrower. (2) If GBC forecloses on any real property collateral pledged by
the Borrower: (A) The amount of the Indebtedness may be reduced only by the
price for which that collateral is sold at the foreclosure sale, even if the
collateral is worth more than the sale price. (B) GBC may collect from the
Guarantor even if GBC, by foreclosing on the real property collateral, has
destroyed any right the Guarantor may have to collect from the Borrower. This is
an unconditional and irrevocable waiver of any rights and defenses the Guarantor
may have because the Borrower's Indebtedness is secured by real property. These
rights and defenses include, but are not limited to, any rights or defenses
based upon Section 580a, 580b, 580d, or 726 of the Code of Civil Procedure. The
Guarantor waives all rights and defenses arising out of an election of remedies
by GBC, even though that election of remedies, such as a nonjudicial foreclosure
with respect to security for a guaranteed obligation, has destroyed the
Guarantor's rights of subrogation and reimbursement against the principal by the
operation of Section 580d of the Code of Civil Procedure or otherwise.
7. ACCELERATION. Notwithstanding the terms of all or any part of the
Indebtedness, the obligations of the Guarantor hereunder to pay and perform all
of the Indebtedness shall, at the option of GBC, immediately become due and
payable, without notice, and without regard to the expressed maturity of any of
the Indebtedness, in the event: (a) Guarantor shall fail to pay or perform when
due any of its obligations under this Guaranty; or (b) any default or event of
default occurs under any present or future loan agreement or other instrument,
document, or agreement between GBC and Borrower or between GBC and Guarantor.
The foregoing are referred to in this Guaranty as "Events of Default".
8. INDEMNITY. Guarantor hereby agrees to indemnify GBC and hold GBC harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, causes of action, penalties, costs and expenses (including without
limitation attorneys' fees), of every nature, character and description, which
GBC may sustain or incur based upon or arising out of any of the Indebtedness,
any actual or alleged failure to collect and pay over any withholding or other
tax relating to Borrower or its employees, any relationship or agreement between
GBC and Borrower, any actual or alleged failure of GBC to comply with any writ
of attachment or other legal process relating to Borrower or any of its
property, or any other matter, cause or thing whatsoever occurred, done, omitted
or suffered to be done by GBC relating in any way to Borrower or the
Indebtedness (except any such amounts sustained or incurred as the result of the
gross negligence or willful misconduct of GBC or any of its directors, officers,
employees, agents, attorneys, or any other person affiliated with or
representing GBC). Notwithstanding any provision in this Guaranty to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination or revocation of this Guaranty and shall for all purposes continue
in full force and effect.
9. SUBORDINATION. Any and all rights of Guarantor under any and all debts,
liabilities and obligations owing from Borrower to Guarantor, including any
security for and guaranties of any such obligations, whether now existing or
hereafter arising, are hereby subordinated in right of payment to the prior
payment in full of all of the Indebtedness. No payment in respect of any such
subordinated obligations shall at any time be made to or accepted by Guarantor
if at the time of such payment any Indebtedness is outstanding. If any Event of
Default has occurred, Borrower and any assignee, trustee in bankruptcy,
receiver, or any other person having custody or control over any or all of
Borrower's property are hereby authorized and directed to pay to GBC the entire
unpaid balance of the Indebtedness before making any payments whatsoever to
Guarantor, whether as a creditor, shareholder, or otherwise; and insofar as may
be necessary for that purpose, Guarantor hereby assigns and transfers to GBC all
rights to any and all debts, liabilities and obligations owing from Borrower to
Guarantor, including any security for and guaranties of any such obligations,
whether now existing or hereafter arising, including without limitation any
payments, dividends or distributions out of the business or assets of Borrower.
Any amounts received by Guarantor in violation of the foregoing provisions shall
be received and held as trustee for the benefit of GBC and shall forthwith be
paid over to GBC to be applied to the Indebtedness in such order and sequence as
GBC shall in its sole discretion determine, without limiting or affecting any
other right or remedy which GBC may have hereunder or otherwise and without
otherwise affecting the liability of Guarantor hereunder. Guarantor hereby
expressly waives any right to set-off or assert any counterclaim against
Borrower.
10. REVOCATION. This is a Continuing Guaranty relating to all of the
Indebtedness, including Indebtedness arising under successive transactions which
from time to time continue the Indebtedness or renew it after it has been
satisfied. The obligations of Guarantor hereunder may be terminated only as to
future transactions and only by giving 90 days' advance written notice thereof
to GBC at its address above by registered first-class U.S. mail, postage
prepaid, return receipt requested. No such revocation shall be effective until
90 days following the date of actual receipt thereof by GBC. Notwithstanding
such revocation, this Guaranty and all consents, waivers and other provisions
hereof shall continue in full force and effect as to any and all Indebtedness
which is outstanding on the effective date of revocation and all extensions,
renewals and modifications of said Indebtedness (including without limitation
amendments, extensions, renewals and modifications which are evidenced by new or
additional instruments, documents or agreements executed after revocation), and
all interest thereon, then and thereafter accruing, and all attorneys' fees,
court costs and collection charges theretofore and thereafter incurred in
endeavoring to collect or enforce any of the foregoing against Borrower,
Guarantor or any other person liable thereon (whether or not suit be brought)
and any other expenses of, for or incidental to collection thereof.
11. INDEPENDENT LIABILITY. Guarantor hereby agrees that one or more
successive or concurrent actions may be brought hereon against Guarantor, in the
same action in
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<PAGE> 4
which Borrower may be sued or in separate actions, as often as deemed advisable
by GBC. The liability of Guarantor hereunder is exclusive and independent of any
other guaranty of any or all of the Indebtedness whether executed by Guarantor
or by any other guarantor (including without limitation any other persons
signing this Guaranty). The liability of Guarantor hereunder shall not be
affected, revoked, impaired, or reduced by any one or more of the following: (a)
the fact that the Indebtedness exceeds the maximum amount of Guarantor's
liability, if any, specified herein or elsewhere (and no agreement specifying a
maximum amount of Guarantor's liability shall be enforceable unless set forth in
a writing signed by GBC or set forth in this Guaranty); or (b) any direction as
to the application of payment by Borrower or by any other party; or (c) any
other continuing or restrictive guaranty or undertaking or any limitation on the
liability of any other guarantor (whether under this Guaranty or under any other
agreement); or (d) any payment on or reduction of any such other guaranty or
undertaking; or (e) any revocation, amendment, modification or release of any
such other guaranty or undertaking; or (f) any dissolution or termination of, or
increase, decrease, or change in membership of any Guarantor which is a
partnership. Guarantor hereby expressly represents that it was not induced to
give this Guaranty by the fact that there are or may be other guarantors either
under this Guaranty or otherwise, and Guarantor agrees that any release of any
one or more of such other guarantors shall not release Guarantor from its
obligations hereunder either in full or to any lesser extent.
12. FINANCIAL CONDITION OF BORROWER. Guarantor is fully aware of the
financial condition of Borrower and is executing and delivering this Guaranty at
Borrower's request and based solely upon its own independent investigation of
all matters pertinent hereto, and Guarantor is not relying in any manner upon
any representation or statement of GBC with respect thereto. Guarantor
represents and warrants that it is in a position to obtain, and Guarantor hereby
assumes full responsibility for obtaining, any additional information concerning
Borrower's financial condition and any other matter pertinent hereto as
Guarantor may desire, and Guarantor is not relying upon or expecting GBC to
furnish to him any information now or hereafter in GBC's possession concerning
the same or any other matter.
13. REPRESENTATIONS AND WARRANTIES. Guarantor hereby represents and warrants
that (i) it is in Guarantor's direct interest to assist Borrower in procuring
credit, because Borrower is an affiliate of Guarantor, furnishes goods or
services to Guarantor, purchases or acquires goods or services from Guarantor,
and/or otherwise has a direct or indirect corporate or business relationship
with Guarantor, (ii) this Guaranty has been duly and validly authorized,
executed and delivered and constitutes the valid and binding obligation of
Guarantor, enforceable in accordance with its terms, and (iii) the execution and
delivery of this Guaranty does not violate or constitute a default under (with
or without the giving of notice, the passage of time, or both) any order,
judgment, decree, instrument or agreement to which Guarantor is a party or by
which it or its assets are affected or bound.
14. COSTS; INTEREST. Whether or not suit be instituted, Guarantor agrees to
reimburse GBC on demand for all reasonable attorneys' fees and all other
reasonable costs and expenses incurred by GBC in enforcing this Guaranty, or
arising out of or relating in any way to this Guaranty, or in enforcing any of
the Indebtedness against Borrower, Guarantor, or any other person, or in
connection with any property of any kind securing all or any part of the
Indebtedness. Without limiting the generality of the foregoing, and in addition
thereto, Guarantor shall reimburse GBC on demand for all reasonable attorneys'
fees and costs GBC incurs in any way relating to Guarantor, Borrower or the
Indebtedness, in order to: obtain legal advice; enforce or seek to enforce any
of its rights; commence, intervene in, respond to, or defend any action or
proceeding; file, prosecute or defend any claim or cause of action in any action
or proceeding (including without limitation any probate claim, bankruptcy claim,
third-party claim, secured creditor claim, reclamation complaint, and complaint
for relief from any stay under the Bankruptcy Code or otherwise); protect,
obtain possession of, sell, lease, dispose of or otherwise enforce any security
interest in or lien on any property of any kind securing any or all of the
Indebtedness; or represent GBC in any litigation with respect to Borrower's or
Guarantor's affairs. In the event either GBC or Guarantor files any lawsuit
against the other predicated on a breach of this Guaranty, the prevailing party
in such action shall be entitled to recover its attorneys' fees and costs of
suit from the non-prevailing party. All sums due under this Guaranty shall bear
interest from the date due until the date paid at the highest rate charged with
respect to any of the Indebtedness.
15. NOTICES. Any notice which a party shall be required or shall desire to
give to the other hereunder (except for notice of revocation, which shall be
governed by Section 10 of this Guaranty) shall be given by personal delivery or
by telecopier or by depositing the same in the United States mail, first class
postage pre-paid, addressed to GBC at its address set forth in the heading of
this Guaranty and to Guarantor at its address provided by Guarantor to GBC in
writing, and such notices shall be deemed duly given on the date of personal
delivery or one day after the date telecopied or 3 business days after the date
of mailing as aforesaid. GBC and Guarantor may change their address for purposes
of receiving notices hereunder by giving written notice thereof to the other
party in accordance herewith. Guarantor shall give GBC immediate written notice
of any change in its address.
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<PAGE> 5
16. CONSTRUCTION; SEVERABILITY. The term "Guarantor" as used herein shall be
deemed to refer to all and any one or more such persons and their obligations
hereunder shall be joint and several. As used in this Guaranty, the term
"property" is used in its most comprehensive sense and shall mean all property
of every kind and nature whatsoever, including without limitation real property,
personal property, mixed property, tangible property and intangible property. If
any provision of this Guaranty or the application thereof to any party or
circumstance is held invalid, void, inoperative or unenforceable, the remainder
of this Guaranty and the application of such provision to other parties or
circumstances shall not be affected thereby, the provisions of this Guaranty
being severable in any such instance.
17. GENERAL PROVISIONS. GBC shall have the right to seek recourse against
Guarantor to the full extent provided for herein and in any other instrument or
agreement evidencing obligations of Guarantor to GBC, and against Borrower to
the full extent of the Indebtedness. No election in one form of action or
proceeding, or against any party, or on any obligation, shall constitute a
waiver of GBC's right to proceed in any other form of action or proceeding or
against any other party. The failure of GBC to enforce any of the provisions of
this Guaranty at any time or for any period of time shall not be construed to be
a waiver of any such provision or the right thereafter to enforce the same. All
remedies hereunder shall be cumulative and shall be in addition to all rights,
powers and remedies given to GBC by law or under any other instrument or
agreement. Time is of the essence in the performance by Guarantor of each and
every obligation under this Guaranty. GBC shall have no obligation to inquire
into the power or authority of Borrower or any of its officers, directors,
employees, or agents acting or purporting to act on its behalf, and any
Indebtedness made or created in reliance upon the professed exercise of any such
power or authority shall be included in the Indebtedness guaranteed hereby. This
Guaranty is the entire and only agreement between Guarantor and GBC with respect
to the guaranty of the Indebtedness of Borrower by Guarantor, and all
representations, warranties, agreements, or undertakings heretofore or
contemporaneously made, which are not set forth herein, are superseded hereby.
No course of dealings between the parties, no usage of the trade, and no parol
or extrinsic evidence of any nature shall be used or be relevant to supplement
or explain or modify any term or provision of this Guaranty. There are no
conditions to the full effectiveness of this Guaranty. The terms and provisions
hereof may not be waived, altered, modified, or amended except in a writing
executed by Guarantor and a duly authorized officer of GBC. All rights, benefits
and privileges hereunder shall inure to the benefit of and be enforceable by GBC
and its successors and assigns and shall be binding upon Guarantor and its
successors and assigns. Section headings are used herein for convenience only.
Guarantor acknowledges that the same may not describe completely the subject
matter of the applicable Section, and the same shall not be used in any manner
to construe, limit, define or interpret any term or provision hereof.
18. GOVERNING LAW; VENUE AND JURISDICTION. This instrument and all acts and
transactions pursuant or relating hereto and all rights and obligations of the
parties hereto shall be governed, construed, and interpreted in accordance with
the internal laws of the State of California. In order to induce GBC to accept
this Guaranty, and as a material part of the consideration therefor, Guarantor
(i) agrees that all actions or proceedings relating directly or indirectly
hereto shall, at the option of GBC, be litigated in courts located within Los
Angeles County, California, (ii) consents to the jurisdiction of any such court
and consents to the service of
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<PAGE> 6
process in any such action or proceeding by personal delivery or any other
method permitted by law; and (iii) waives any and all rights Guarantor may have
to transfer or change the venue of any such action or proceeding.
19. RECEIPT OF COPY. Guarantor acknowledges receipt of a copy of this
Guaranty.
20. MUTUAL WAIVER OF RIGHT TO JURY TRIAL. GBC AND GUARANTOR HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, CLAIM, LAWSUIT OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS GUARANTEE OR ANY SUPPLEMENT
OR AMENDMENT THERETO; OR (ii) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN GBC AND GUARANTOR ; OR (iii) ANY BREACH, CONDUCT, ACTS OR
OMISSIONS OF GBC OR GUARANTOR OR ANY OF THEIR RESPECTIVE DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH OR REPRESENTING
GBC OR GUARANTOR; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
Guarantor Signature:
THE CERPLEX GROUP, INC.
BY_______________________________
President or Vice President
BY_______________________________
Secretary or Ass't Secretary
AURORA ELECTRONICS GROUP, INC.
BY_______________________________
President or Vice President
BY_______________________________
Secretary or Ass't Secretary
CERPLEX, INC.
BY_______________________________
President or Vice President
BY_______________________________
Secretary or Ass't Secretary
CERPLEX MASS, INC.
BY_______________________________
President or Vice President
BY_______________________________
Secretary or Ass't Secretary
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<PAGE> 1
EXHIBIT 10.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NEITHER
THE SECURITIES EVIDENCED HEREBY, NOR ANY INTEREST THEREIN,
MAY BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED OR OTHERWISE
DISPOSED OF UNLESS EITHER (I) THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT AND LAWS RELATING
THERETO OR (II) THE BORROWERS HAVE RECEIVED AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY IN FORM AND SUBSTANCE
TO THE BORROWERS, STATING THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE CERPLEX GROUP, INC.
CERPLEX, INC.
AURORA ELECTRONICS GROUP, INC.
10% Senior Subordinated Note
$5,000,000 September 30, 1998
THE CERPLEX GROUP, INC., a Delaware corporation ("Parent"),
CERPLEX, INC., a Delaware corporation and wholly-owned subsidiary of Parent
("Cerplex"), and AURORA ELECTRONICS GROUP, INC., a California corporation and
wholly-owned subsidiary of Parent ("AEG," and collectively with Parent and
Cerplex, the "Borrowers"), for value received, hereby jointly and severally
promise to pay to Welsh, Carson, Anderson & Stowe VII, L.P. or its registered
assigns, the principal sum of FIVE MILLION DOLLARS ($5,000,000) on SEPTEMBER 30,
1999 (subject to applicable restrictions set forth in Section 15 hereof), and to
pay interest (computed on the basis of a 360-day year consisting of twelve
30-day months) from the date hereof on the unpaid principal amount hereof at the
rate of 10% per annum on March 30, 1999 and on the date the outstanding
principal amount hereof shall have become due and payable in full, whether at
maturity or by acceleration or otherwise. If the principal amount hereof shall
not be paid when the same shall have become due and payable in full, whether at
maturity or by acceleration or otherwise, then such overdue principal amount and
(to the extent permitted by applicable law) any overdue interest shall thereupon
bear interest at the rate of 12% per annum until paid in full.
All payments of principal and interest on this Note shall be
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for
<PAGE> 2
payment of public and private debts, and shall be made at the offices of the
person deemed the holder hereof in accordance with Section 4 below.
For purposes of this Note, "Business Day" shall mean any day
other than a Saturday, Sunday or a legal holiday under the laws of the State of
New York or the State of California.
1. UNSECURED NOTE. The indebtedness evidenced by this Note
shall at all times be unsecured.
2. TRANSFER, ETC. OF NOTES. The Borrowers shall keep at the
office or agency maintained as provided in paragraph (a) of Section 9 a register
in which the Borrowers shall provide for the registration of this Note and for
the registration of transfer and exchange of this Note. The holder of this Note
may, at its option, and either in person or by duly authorized attorney,
surrender the same for registration of transfer or exchange at the office or
agency of the Borrowers maintained as provided in paragraph (a) of Section 9,
and, without expense to such holder (except for taxes or governmental charges
imposed in connection therewith), receive in exchange therefor a Note or Notes
each in such denomination or denominations as such holder may request, dated as
of the date to which interest has been paid on the Note or Notes so surrendered
for transfer or exchange, for the same aggregate principal amount as the then
unpaid principal amount of the Note or Notes so surrendered for transfer or
exchange, and registered in the name of such person or persons as may be
designated by such holder. Every Note presented or surrendered for registration
of transfer or exchange shall be duly endorsed, or shall be accompanied by a
written instrument of transfer, satisfactory in form to the Borrowers, duly
executed by the holder of such Note or his attorney duly authorized in writing.
Every Note so made and delivered in exchange for this Note shall in all other
respects be in the same form and have the same terms as this Note. No transfer
or exchange of any Note shall be valid unless made in the foregoing manner at
such office or agency.
3. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE. Upon
receipt of evidence satisfactory to the Borrowers of the loss, theft,
destruction or mutilation of this Note, and, in the case of any such loss, theft
or destruction, upon receipt of an affidavit of loss and indemnity from the
holder hereof reasonably satisfactory to the Borrowers, or, in the case of any
such mutilation, upon surrender and cancellation of this Note, the Borrowers
will make and deliver, in lieu of this Note, a new Note of like tenor and unpaid
principal amount and dated as of the date to which interest has been paid on
this Note.
4. PERSONS DEEMED OWNERS; HOLDERS. The Borrowers may deem and
treat the person in whose name this Note is registered as the owner and holder
of this Note for the purpose of receiving payment of principal of and interest
on this Note and for all other purposes whatsoever, whether or not this Note
shall be overdue. With respect to any Note at any time outstanding, the term
"holder", as used herein, shall be deemed to mean the person in whose name such
Note is registered as aforesaid at such time.
<PAGE> 3
5. PREPAYMENTS. Subject to any applicable restrictions
contained in the Loan Agreement (as hereinafter defined), upon notice given as
provided in Section 6 the Borrowers may, at their option, prepay all or any
portion of this Note, at the principal amount thereof so to be prepaid, together
with interest accrued thereon to the date fixed for such prepayment.
6. NOTICE OF PREPAYMENT AND OTHER NOTICES. The Borrowers shall
give written notice to the holder of this Note of any prepayment of this Note or
any portion hereof pursuant to Section 5 not less than 10 nor more than 60 days
prior to the date fixed for such prepayment. Such notice of prepayment and all
other notices to be given to any holder of this Note shall be given by
registered or certified mail to the person in whose name this Note is registered
at its address designated on the register maintained by the Borrowers on the
date of mailing such notice of prepayment or other notice. Upon notice of
prepayment being given as aforesaid, the Borrowers covenant and agree that they
will, subject to obtaining the prior written consent referred to in Section 5,
prepay, on the date therein fixed for prepayment, this Note or the portion
hereof, as the case may be, so called for prepayment, at the principal amount
thereof so called for prepayment together with interest accrued thereon to the
date fixed for such prepayment.
7. INTEREST AFTER DATE FIXED FOR PREPAYMENT. If this Note or a
portion hereof is called for prepayment as herein provided, this Note or such
portion shall cease to bear interest on and after the date fixed for such
prepayment unless, upon presentation for such purpose, the Borrowers shall fail
to pay this Note or such portion, as the case may be, in which event this Note
or such portion, as the case may be, and, so far as may be lawful, any overdue
installment of interest, shall bear interest on and after the date fixed for
such prepayment and until paid at the rate per annum provided herein for overdue
principal.
8. SURRENDER OF NOTES; NOTATION THEREON. Upon any prepayment
of a portion of the principal amount of this Note, the holder hereof, at its
option, may require the Borrowers to execute and deliver at the expense of the
Borrowers (except for taxes or governmental charges imposed in connection
therewith), upon surrender of this Note, a new Note registered in the name of
such person or persons as may be designated by such holder for the principal
amount of this Note then remaining unpaid, dated as of the date to which
interest has been paid on the principal amount of this Note then remaining
unpaid, or may present this Note to the Borrowers for notation hereon of the
payment of the portion of the principal amount of this Note so prepaid.
9. COVENANTS. The Borrowers covenant and agree that, so long
as this Note shall be outstanding:
(a) Maintenance of Office. The Borrowers will maintain an
office or agency in such place in the United States of America as the
Borrowers may designate in writing to the registered holder hereof,
where this Note may be presented for registration of
3
<PAGE> 4
transfer and exchange as herein provided, where notices and demands to
or upon the Borrowers in respect of this Note may be served and where,
at the option of the holder thereof, this Note may be presented for
payment. Until the Borrowers otherwise notify the holder of this Note,
said office shall be the principal office of Parent at 1382 Bell
Avenue, Tustin, California 92780.
(b) Corporate Existence. Each of the Borrowers will do or
cause to be done all things necessary and lawful to preserve and keep
in full force and effect its corporate existence, rights and franchises
and the corporate or partnership existence, rights and franchises of
each of its subsidiaries; provided, however, that nothing in this
paragraph (b) shall prevent the abandonment or termination of any
rights or franchises of any Borrower, 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 or partnership 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 Borrowers, in the best interests of the
Borrowers and is not disadvantageous in any material respect to the
holder of this Note.
(c) Notice of Default. If any one or more events which
constitute, or which with notice or lapse of time or both would
constitute, an Event of Default under Section 11 of this Note shall
occur, or if the holder of this Note shall demand payment or take any
other action permitted upon the occurrence of any such Event of
Default, the Borrowers shall, immediately after they become aware that
any such event has occurred or that such demand has been made or that
any such action has been taken, give notice to the holder of this Note,
specifying the nature of such event or of such demand or action, as the
case may be; provided, however, that if such event, in the good faith
judgment of the Borrowers, will be cured within ten days after the
Borrowers have knowledge that such event would, with or without notice
or lapse of time or both, constitute such an Event of Default, no such
notice need be given if such Event of Default shall be cured within
such ten-day period.
(d) Merger or Consolidation. If any Borrower shall effect a
merger or consolidation in which it is not the surviving entity, then
the Borrowers shall take such action as may be necessary, as a
condition to consummating such transaction, to cause the surviving
entity to assume all of such Borrower's obligations under this Note, as
if such entity had been the original issuer thereof, and such entity
shall acknowledge in writing its obligation to fully and timely honor
such Borrower's obligations under this Note.
(e) Optional Prepayments of Debt. Other than with respect to
Senior Indebtedness (as hereinafter defined), the Borrowers will not
make any optional prepayment of any indebtedness for borrowed money,
prior to the repayment in full of this Note.
4
<PAGE> 5
10. MODIFICATION; WAIVER. The Borrowers may, with the written
consent of the holder of this Note, modify the terms and provisions of this Note
or the rights of the holder of this Note or the obligations of the Borrowers
thereunder, and the observance by the Borrowers of any term or provision of this
Note may be waived with the written consent of the holder of this Note. Any such
modification or waiver shall be binding upon any future holder of this Note and
upon the Borrowers, whether or not this Note shall have been marked to indicate
such modification or waiver, but any Note issued thereafter shall bear a
notation referring to any such modification or waiver.
11. 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 Borrowers or any
subsidiary, 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:
(a) default shall be made in the payment of the principal when
and as the same shall become due and payable, whether on demand (to the
extent demand is permitted to be made under Section 15 hereof) or at a
date fixed for prepayment or by acceleration or otherwise; or
(b) default shall be made in the due observance or performance
of any other covenant, condition or agreement on the part of the
Borrowers to be observed or performed pursuant to the terms hereof and
such default shall continue for 30 days after written notice thereof,
specifying such default and requesting that the same be remedied, shall
have been given to the Borrowers by the holder of this Note; or
(c) the entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of any Borrower or any
subsidiary in an 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 any Borrower or any subsidiary or 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 90 consecutive
days; or
(d) the commencement by any Borrower or any subsidiary 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 any Borrower or any Subsidiary or for any substantial part of their
property, or the making by any of them of any
5
<PAGE> 6
assignment for the benefit of creditors, or the failure of the
Borrowers or any Subsidiary generally to pay its debts as such debts
become due;
then the holder of this Note may, at its option, by notice to the Borrowers,
declare this Note to be forthwith due and payable together with interest accrued
thereon without presentment, demand, protest or further notice of any kind, all
of which are expressly waived to the extent permitted by law.
At any time after any declaration of acceleration as to this
Note has been made as provided in this Section 11, the holder of this Note may
rescind such declaration and its consequences, if (i) the Borrowers have paid
all overdue installments of interest on this Note and all principal that has
become due otherwise than by such declaration of acceleration and (ii) all other
defaults and Events of Default (other than nonpayments of principal and interest
that have become due solely by reason of acceleration) shall have been remedied
or cured or shall have been waived pursuant to this paragraph; provided,
however, that no such rescission shall extend to or affect any subsequent
default or Event of Default or impair any right consequent thereon.
12. SUITS FOR ENFORCEMENT. Subject to the provisions of
Section 15 of this Note, in case any one or more of the Events of Default
specified in Section 11 of this Note shall occur and be continuing, the holder
of this Note may proceed to protect and enforce its rights by suit in equity,
action at law and/or by other appropriate proceeding, whether for the specific
performance of any covenant or agreement contained in this Note or in aid of the
exercise of any power granted in this Note, or may proceed to enforce the
payment of this Note or to enforce any other legal or equitable right of the
holder of this Note.
In case of any default under this Note, the Borrowers will pay
to the holder thereof such amounts as shall be sufficient to cover the
reasonable costs and expenses of such holder due to said default, including,
without limitation, collection costs and reasonable attorneys' fees, to the
extent actually incurred.
13. REMEDIES CUMULATIVE. No remedy herein conferred upon the
holder of this Note is intended to be exclusive of any other remedy and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
14. REMEDIES NOT WAIVED. No course of dealing between the
Borrowers and the holder of this Note or any delay on the part of the holder
hereof in exercising any rights hereunder shall operate as a waiver of any right
of any holder of this Note.
15. SUBORDINATION. (a) Anything contained in this Note to the
contrary notwithstanding, the indebtedness evidenced by this Note shall be
subordinate and junior, to the extent set forth in the following paragraphs (A),
(B), (C) and (D), to all Senior Indebtedness of the Borrowers. "Senior
Indebtedness" shall mean the principal of, premium, if any, and interest
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<PAGE> 7
(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 and
including any loans made to any Borrower as a debtor in possession in any
bankruptcy proceeding by any persons who were the holders of any Senior
Indebtedness on the date such bankruptcy proceeding was commenced) on, and all
reasonable fees, reimbursement and indemnity obligations, and all other
obligations arising in connection with, any indebtedness for borrowed money of
any Borrower, contingent or otherwise, now outstanding or created, incurred,
issued, assumed or guaranteed in the future, except for all indebtedness of any
Borrower due to Cerplex SAS. Without limiting the generality of the foregoing,
Senior Indebtedness shall include all Obligations (under and as defined in the
Loan Agreement), including, without limitation, any obligations of any of the
Borrowers under any guaranties in favor of the Senior Lender (as hereinafter
defined); notwithstanding the foregoing, Senior Indebtedness shall include only
such Obligations until such time as the same are paid in full in cash and all
obligations to provide financial accommodations under the Loan Agreement have
terminated. For purposes of this Note, "Loan Agreement" shall mean the Loan and
Security Agreement, dated as of April 30, 1998, as amended or otherwise
modified, among the Borrowers, the other borrowers named therein and Greyrock
Business Credit, a Division of NationsCredit Commercial Corporation (the "Senior
Lender"), together with any agreement entered into in connection with the
restatement, renewal, extension, restructuring, refunding or refinancing of the
obligations under such loan agreement. Notwithstanding anything herein to the
contrary (and without limiting any of the other provisions hereof),
notwithstanding any default or event of default with respect to the subordinated
debt evidenced by this Note, the holder of this Note will take no action to
accelerate or enforce this Note or any rights or remedies relating thereto
against the Borrowers (including without limitation the commencement of, or
joining in, any involuntary bankruptcy petition or similar judicial proceeding
against the Borrowers) until the expiration of six months after written notice
of default is given by the holder to the Senior Lender.
(A) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to the Borrowers or their
respective creditors or property, and in the event of any proceedings
for voluntary liquidation, dissolution or other winding up of the
Borrowers, 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 Loan 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 Loan Agreement have terminated.
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<PAGE> 8
(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 be paid in
full in cash and all obligations to provide financial accommodations
under the Loan 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 for prepayment or by declaration or otherwise (a
"Senior Payment Default"), unless and until such Senior Payment Default
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 Loan
Agreement, the Senior Lender) 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 occurrence of (i) receipt by the
holder of this Note of written notice from the holders of said Senior
Indebtedness (or, in the case of the Loan Agreement, the Senior Lender)
of a Nonmonetary Default (any such notice, a "Blockage Notice"), or
(ii) if such Nonmonetary Default results from the acceleration of this
Note, the date of such acceleration; then (x) the Borrowers will not
make, directly or indirectly, to the holder of this Note any payment of
any kind of or on account of this Note; (y) the holder of this Note
will not accept from the Borrowers any payment of any kind of or on
account of this Note and (z) the holder of this Note may not take,
demand, receive, sue for, accelerate or commence any remedial
proceedings with respect to any amount payable under this Note, 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 Loan
Agreement have terminated; provided, however, that if such Nonmonetary
Default shall have occurred and be continuing for a period (a "Blockage
Period") commencing on the earlier of the date of receipt of such
Blockage Notice or the date of the acceleration of this Note and ending
179 days thereafter (it being understood that not more than one
Blockage Period may be commenced with respect to this Note during any
period of 360 consecutive days), and during such Blockage Period (i)
such Nonmonetary Default shall not have been cured or waived, (ii) the
holder of such Senior Indebtedness (or, in the case of the Loan
Agreement, the Senior Lender) shall not have made a demand for payment
and commenced an action, suit or other proceeding against the Borrowers
and (iii) none of the events described in subsection (A) above shall
have occurred, then (to the extent not otherwise prohibited by
subsections (A), (B) or (C) above) the Borrowers may, not less than 10
days after receipt by the holders of such Senior Indebtedness or the
Senior Lender, as the case may be, of written notice to such effect
from the holder of this Note, make and the holder of this Note may
accept from the Borrowers all past due and current payments of any kind
of or on account of this Note,
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<PAGE> 9
and such holder may demand, receive, retain, sue for or otherwise seek
enforcement or collection of all amounts payable on account of
principal of or interest on this Note.
(b) 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 Loan Agreement, the holder of this Note 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, this Note shall be
paid in full in cash, and, as between the Borrowers, their creditors other than
the holders of Senior Indebtedness, and the holders of this Note, no such
payment or distribution made to the holders of Senior Indebtedness by virtue of
this Section 15 which otherwise would have been made to the holder of this Note
shall be deemed a payment by the Borrowers on account of the Senior
Indebtedness, it being understood that the provisions of this Section 15 are and
are intended solely for the purposes of defining the relative rights of the
holder of this Note, on the one hand, and the holder of the Senior Indebtedness,
on the other hand. Subject to the rights, if any, under this Section 15 of
holders of Senior Indebtedness to receive cash, property, stock or obligations
otherwise payable or deliverable to the holder of this Note, nothing herein
shall either impair, as between the Borrowers and the holder of this Note, the
obligation of the Borrowers, 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 holder of this Note
from exercising all remedies otherwise permitted by applicable law or hereunder
upon default hereunder.
(c) If any payment or distribution of any character or any
security, whether in cash, securities or other property, shall be received by
any holder of this Note 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 Loan 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 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.
(d) The rights under these subordination provisions of the
holders of any Senior Indebtedness as against any holders of the Notes 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 Borrowers; or
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<PAGE> 10
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
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 any Borrower 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 any Borrower 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 (1) through (5);
or
7. any other circumstance.
(e) The holder of this Note unconditionally waives (i) notice
of any of the matters referred to in Section 15(d); (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 Loan Agreement, and notice of any failure
on the part of the Borrowers 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.
(f) The obligations of the holder under these subordination
provisions shall continue to be effective, or be reinstated, as the case may be,
if at any time any payment in respect of any Senior Indebtedness, or any other
payment to any holder of any Senior
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<PAGE> 11
Indebtedness in its capacity as such, is rescinded or must otherwise be restored
or returned by the holder of such Senior Indebtedness upon the occurrence of any
proceeding referred to in paragraph 15(a)(A) or upon or as a result of the
appoint of a receiver, intervenor or conservator of, or trustee or similar
officer for, the Borrowers or any substantial part of their property or
otherwise, all as though such payment had not been made.
(g) Notwithstanding anything to the contrary herein, the
Borrowers shall not at any time offer (and the holder hereof shall not at any
time accept) (i) any pledge of collateral or (ii) any guaranty by any parent or
subsidiary of any Borrower, in each case with respect to the obligations of any
Borrower under this Note.
16. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Borrowers shall bind their respective successors and assigns, whether so
expressed or not.
17. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
18. HEADINGS. The headings of the Sections and paragraphs of
this Note are inserted for convenience only and do not constitute a part of this
Note.
[Remainder of page intentionally left blank.]
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<PAGE> 12
IN WITNESS WHEREOF, each of the Borrowers has caused this Note
to be signed in its corporate name by one of its officers thereunto duly
authorized and to be dated as of the day and year first above written.
THE CERPLEX GROUP, INC.
By:_________________________________
Name:
Title:
CERPLEX, INC.
By:_________________________________
Name:
Title:
AURORA ELECTRONICS GROUP, INC.
By:_________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. NEITHER
THE SECURITIES EVIDENCED HEREBY, NOR ANY INTEREST THEREIN,
MAY BE OFFERED, SOLD, TRANSFERRED, ENCUMBERED OR OTHERWISE
DISPOSED OF UNLESS EITHER (I) THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT AND LAWS RELATING
THERETO OR (II) THE BORROWERS HAVE RECEIVED AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY IN FORM AND SUBSTANCE
TO THE BORROWERS, STATING THAT SUCH REGISTRATION IS NOT
REQUIRED.
THE CERPLEX GROUP, INC.
CERPLEX, INC.
AURORA ELECTRONICS GROUP, INC.
10% Senior Subordinated Note
$2,500,000 December 9, 1998
THE CERPLEX GROUP, INC., a Delaware corporation ("Parent"),
CERPLEX, INC., a Delaware corporation and wholly-owned subsidiary of Parent
("Cerplex"), and AURORA ELECTRONICS GROUP, INC., a California corporation and
wholly-owned subsidiary of Parent ("AEG," and collectively with Parent and
Cerplex, the "Borrowers"), for value received, hereby jointly and severally
promise to pay to Welsh, Carson, Anderson & Stowe VII, L.P. or its registered
assigns, the principal sum of TWO MILLION FIVE HUNDRED THOUSAND DOLLARS
($2,500,000) on DECEMBER 9, 1999 (subject to applicable restrictions set forth
in Section 15 hereof), and to pay interest (computed on the basis of a 360-day
year consisting of twelve 30-day months) from the date hereof on the unpaid
principal amount hereof at the rate of 10% per annum on March 30, 1999 and on
the date the outstanding principal amount hereof shall have become due and
payable in full, whether at maturity or by acceleration or otherwise. If the
principal amount hereof shall not be paid when the same shall have become due
and payable in full, whether at maturity or by acceleration or otherwise, then
such overdue principal amount and (to the extent permitted by applicable law)
any overdue interest shall thereupon bear interest at the rate of 12% per annum
until paid in full.
All payments of principal and interest on this Note shall be
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for
<PAGE> 2
payment of public and private debts, and shall be made at the offices of the
person deemed the holder hereof in accordance with Section 4 below.
For purposes of this Note, "Business Day" shall mean any day
other than a Saturday, Sunday or a legal holiday under the laws of the State of
New York or the State of California.
1. UNSECURED NOTE. The indebtedness evidenced by this Note
shall at all times be unsecured.
2. TRANSFER, ETC. OF NOTES. The Borrowers shall keep at the
office or agency maintained as provided in paragraph (a) of Section 9 a register
in which the Borrowers shall provide for the registration of this Note and for
the registration of transfer and exchange of this Note. The holder of this Note
may, at its option, and either in person or by duly authorized attorney,
surrender the same for registration of transfer or exchange at the office or
agency of the Borrowers maintained as provided in paragraph (a) of Section 9,
and, without expense to such holder (except for taxes or governmental charges
imposed in connection therewith), receive in exchange therefor a Note or Notes
each in such denomination or denominations as such holder may request, dated as
of the date to which interest has been paid on the Note or Notes so surrendered
for transfer or exchange, for the same aggregate principal amount as the then
unpaid principal amount of the Note or Notes so surrendered for transfer or
exchange, and registered in the name of such person or persons as may be
designated by such holder. Every Note presented or surrendered for registration
of transfer or exchange shall be duly endorsed, or shall be accompanied by a
written instrument of transfer, satisfactory in form to the Borrowers, duly
executed by the holder of such Note or his attorney duly authorized in writing.
Every Note so made and delivered in exchange for this Note shall in all other
respects be in the same form and have the same terms as this Note. No transfer
or exchange of any Note shall be valid unless made in the foregoing manner at
such office or agency.
3. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE. Upon
receipt of evidence satisfactory to the Borrowers of the loss, theft,
destruction or mutilation of this Note, and, in the case of any such loss, theft
or destruction, upon receipt of an affidavit of loss and indemnity from the
holder hereof reasonably satisfactory to the Borrowers, or, in the case of any
such mutilation, upon surrender and cancellation of this Note, the Borrowers
will make and deliver, in lieu of this Note, a new Note of like tenor and unpaid
principal amount and dated as of the date to which interest has been paid on
this Note.
4. PERSONS DEEMED OWNERS; HOLDERS. The Borrowers may deem and
treat the person in whose name this Note is registered as the owner and holder
of this Note for the purpose of receiving payment of principal of and interest
on this Note and for all other purposes whatsoever, whether or not this Note
shall be overdue. With respect to any Note at any time
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<PAGE> 3
outstanding, the term "holder", as used herein, shall be deemed to mean the
person in whose name such Note is registered as aforesaid at such time.
5. PREPAYMENTS. Subject to any applicable restrictions
contained in the Loan Agreement (as hereinafter defined), upon notice given as
provided in Section 6 the Borrowers may, at their option, prepay all or any
portion of this Note, at the principal amount thereof so to be prepaid, together
with interest accrued thereon to the date fixed for such prepayment.
6. NOTICE OF PREPAYMENT AND OTHER NOTICES. The Borrowers shall
give written notice to the holder of this Note of any prepayment of this Note or
any portion hereof pursuant to Section 5 not less than 10 nor more than 60 days
prior to the date fixed for such prepayment. Such notice of prepayment and all
other notices to be given to any holder of this Note shall be given by
registered or certified mail to the person in whose name this Note is registered
at its address designated on the register maintained by the Borrowers on the
date of mailing such notice of prepayment or other notice. Upon notice of
prepayment being given as aforesaid, the Borrowers covenant and agree that they
will, subject to obtaining the prior written consent referred to in Section 5,
prepay, on the date therein fixed for prepayment, this Note or the portion
hereof, as the case may be, so called for prepayment, at the principal amount
thereof so called for prepayment together with interest accrued thereon to the
date fixed for such prepayment.
7. INTEREST AFTER DATE FIXED FOR PREPAYMENT. If this Note or a
portion hereof is called for prepayment as herein provided, this Note or such
portion shall cease to bear interest on and after the date fixed for such
prepayment unless, upon presentation for such purpose, the Borrowers shall fail
to pay this Note or such portion, as the case may be, in which event this Note
or such portion, as the case may be, and, so far as may be lawful, any overdue
installment of interest, shall bear interest on and after the date fixed for
such prepayment and until paid at the rate per annum provided herein for overdue
principal.
8. SURRENDER OF NOTES; NOTATION THEREON. Upon any prepayment
of a portion of the principal amount of this Note, the holder hereof, at its
option, may require the Borrowers to execute and deliver at the expense of the
Borrowers (except for taxes or governmental charges imposed in connection
therewith), upon surrender of this Note, a new Note registered in the name of
such person or persons as may be designated by such holder for the principal
amount of this Note then remaining unpaid, dated as of the date to which
interest has been paid on the principal amount of this Note then remaining
unpaid, or may present this Note to the Borrowers for notation hereon of the
payment of the portion of the principal amount of this Note so prepaid.
9. COVENANTS. The Borrowers covenant and agree that, so long
as this Note shall be outstanding:
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<PAGE> 4
(a) Maintenance of Office. The Borrowers will maintain an
office or agency in such place in the United States of America as the
Borrowers may designate in writing to the registered holder hereof,
where this Note may be presented for registration of transfer and
exchange as herein provided, where notices and demands to or upon the
Borrowers in respect of this Note may be served and where, at the
option of the holder thereof, this Note may be presented for payment.
Until the Borrowers otherwise notify the holder of this Note, said
office shall be the principal office of Parent at 1382 Bell Avenue,
Tustin, California 92780.
(b) Corporate Existence. Each of the Borrowers will do or
cause to be done all things necessary and lawful to preserve and keep
in full force and effect its corporate existence, rights and franchises
and the corporate or partnership existence, rights and franchises of
each of its subsidiaries; provided, however, that nothing in this
paragraph (b) shall prevent the abandonment or termination of any
rights or franchises of any Borrower, 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 or partnership 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 Borrowers, in the best interests of the
Borrowers and is not disadvantageous in any material respect to the
holder of this Note.
(c) Notice of Default. If any one or more events which
constitute, or which with notice or lapse of time or both would
constitute, an Event of Default under Section 11 of this Note shall
occur, or if the holder of this Note shall demand payment or take any
other action permitted upon the occurrence of any such Event of
Default, the Borrowers shall, immediately after they become aware that
any such event has occurred or that such demand has been made or that
any such action has been taken, give notice to the holder of this Note,
specifying the nature of such event or of such demand or action, as the
case may be; provided, however, that if such event, in the good faith
judgment of the Borrowers, will be cured within ten days after the
Borrowers have knowledge that such event would, with or without notice
or lapse of time or both, constitute such an Event of Default, no such
notice need be given if such Event of Default shall be cured within
such ten-day period.
(d) Merger or Consolidation. If any Borrower shall effect a
merger or consolidation in which it is not the surviving entity, then
the Borrowers shall take such action as may be necessary, as a
condition to consummating such transaction, to cause the surviving
entity to assume all of such Borrower's obligations under this Note, as
if such entity had been the original issuer thereof, and such entity
shall acknowledge in writing its obligation to fully and timely honor
such Borrower's obligations under this Note.
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<PAGE> 5
(e) Optional Prepayments of Debt. Other than with respect to
Senior Indebtedness (as hereinafter defined), the Borrowers will not
make any optional prepayment of any indebtedness for borrowed money,
prior to the repayment in full of this Note.
10. MODIFICATION; WAIVER. The Borrowers may, with the written
consent of the holder of this Note, modify the terms and provisions of this Note
or the rights of the holder of this Note or the obligations of the Borrowers
thereunder, and the observance by the Borrowers of any term or provision of this
Note may be waived with the written consent of the holder of this Note. Any such
modification or waiver shall be binding upon any future holder of this Note and
upon the Borrowers, whether or not this Note shall have been marked to indicate
such modification or waiver, but any Note issued thereafter shall bear a
notation referring to any such modification or waiver.
11. 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 Borrowers or any
subsidiary, 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:
(a) default shall be made in the payment of the principal when
and as the same shall become due and payable, whether on demand (to the
extent demand is permitted to be made under Section 15 hereof) or at a
date fixed for prepayment or by acceleration or otherwise; or
(b) default shall be made in the due observance or performance
of any other covenant, condition or agreement on the part of the
Borrowers to be observed or performed pursuant to the terms hereof and
such default shall continue for 30 days after written notice thereof,
specifying such default and requesting that the same be remedied, shall
have been given to the Borrowers by the holder of this Note; or
(c) the entry of a decree or order for relief by a court
having jurisdiction in the premises in respect of any Borrower or any
subsidiary in an 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 any Borrower or any subsidiary or 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 90 consecutive
days; or
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<PAGE> 6
(d) the commencement by any Borrower or any subsidiary 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 any Borrower or any Subsidiary or for any substantial part of their
property, or the making by any of them of any assignment for the
benefit of creditors, or the failure of the Borrowers or any Subsidiary
generally to pay its debts as such debts become due;
then the holder of this Note may, at its option, by notice to the Borrowers,
declare this Note to be forthwith due and payable together with interest accrued
thereon without presentment, demand, protest or further notice of any kind, all
of which are expressly waived to the extent permitted by law.
At any time after any declaration of acceleration as to this
Note has been made as provided in this Section 11, the holder of this Note may
rescind such declaration and its consequences, if (i) the Borrowers have paid
all overdue installments of interest on this Note and all principal that has
become due otherwise than by such declaration of acceleration and (ii) all other
defaults and Events of Default (other than nonpayments of principal and interest
that have become due solely by reason of acceleration) shall have been remedied
or cured or shall have been waived pursuant to this paragraph; provided,
however, that no such rescission shall extend to or affect any subsequent
default or Event of Default or impair any right consequent thereon.
12. SUITS FOR ENFORCEMENT. Subject to the provisions of
Section 15 of this Note, in case any one or more of the Events of Default
specified in Section 11 of this Note shall occur and be continuing, the holder
of this Note may proceed to protect and enforce its rights by suit in equity,
action at law and/or by other appropriate proceeding, whether for the specific
performance of any covenant or agreement contained in this Note or in aid of the
exercise of any power granted in this Note, or may proceed to enforce the
payment of this Note or to enforce any other legal or equitable right of the
holder of this Note.
In case of any default under this Note, the Borrowers will pay
to the holder thereof such amounts as shall be sufficient to cover the
reasonable costs and expenses of such holder due to said default, including,
without limitation, collection costs and reasonable attorneys' fees, to the
extent actually incurred.
13. REMEDIES CUMULATIVE. No remedy herein conferred upon the
holder of this Note is intended to be exclusive of any other remedy and each and
every such remedy shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute or otherwise.
6
<PAGE> 7
14. REMEDIES NOT WAIVED. No course of dealing between the
Borrowers and the holder of this Note or any delay on the part of the holder
hereof in exercising any rights hereunder shall operate as a waiver of any right
of any holder of this Note.
15. SUBORDINATION. (a) Anything contained in this Note to the
contrary notwithstanding, the indebtedness evidenced by this Note shall be
subordinate and junior, to the extent set forth in the following paragraphs (A),
(B), (C) and (D), to all Senior Indebtedness of the Borrowers. "Senior
Indebtedness" shall mean 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 and
including any loans made to any Borrower as a debtor in possession in any
bankruptcy proceeding by any persons who were the holders of any Senior
Indebtedness on the date such bankruptcy proceeding was commenced) on, and all
reasonable fees, reimbursement and indemnity obligations, and all other
obligations arising in connection with, any indebtedness for borrowed money of
any Borrower, contingent or otherwise, now outstanding or created, incurred,
issued, assumed or guaranteed in the future, except for all indebtedness of any
Borrower due to Cerplex SAS. Without limiting the generality of the foregoing,
Senior Indebtedness shall include all Obligations (under and as defined in the
Loan Agreement), including, without limitation, any obligations of any of the
Borrowers under any guaranties in favor of the Senior Lender (as hereinafter
defined); notwithstanding the foregoing, Senior Indebtedness shall include only
such Obligations until such time as the same are paid in full in cash and all
obligations to provide financial accommodations under the Loan Agreement have
terminated. For purposes of this Note, "Loan Agreement" shall mean the Loan and
Security Agreement, dated as of April 30, 1998, as amended or otherwise
modified, among the Borrowers, the other borrowers named therein and Greyrock
Business Credit, a Division of NationsCredit Commercial Corporation (the "Senior
Lender"), together with any agreement entered into in connection with the
restatement, renewal, extension, restructuring, refunding or refinancing of the
obligations under such loan agreement. Notwithstanding anything herein to the
contrary (and without limiting any of the other provisions hereof),
notwithstanding any default or event of default with respect to the subordinated
debt evidenced by this Note, the holder of this Note will take no action to
accelerate or enforce this Note or any rights or remedies relating thereto
against the Borrowers (including without limitation the commencement of, or
joining in, any involuntary bankruptcy petition or similar judicial proceeding
against the Borrowers) until the expiration of six months after written notice
of default is given by the holder to the Senior Lender.
(A) In the event of any insolvency, bankruptcy, liquidation,
reorganization or other similar proceedings, or any receivership
proceedings in connection therewith, relative to the Borrowers or their
respective creditors or property, and in the event of any proceedings
for voluntary liquidation, dissolution or other winding up of the
Borrowers, 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
7
<PAGE> 8
accommodations under the Loan 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 Loan 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 be paid in
full in cash and all obligations to provide financial accommodations
under the Loan 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 for prepayment or by declaration or otherwise (a
"Senior Payment Default"), unless and until such Senior Payment Default
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 Loan
Agreement, the Senior Lender) 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 occurrence of (i) receipt by the
holder of this Note of written notice from the holders of said Senior
Indebtedness (or, in the case of the Loan Agreement, the Senior Lender)
of a Nonmonetary Default (any such notice, a "Blockage Notice"), or
(ii) if such Nonmonetary Default results from the acceleration of this
Note, the date of such acceleration; then (x) the Borrowers will not
make, directly or indirectly, to the holder of this Note any payment of
any kind of or on account of this Note; (y) the holder of this Note
will not accept from the Borrowers any payment of any kind of or on
account of this Note and (z) the holder of this Note may not take,
demand, receive, sue for, accelerate or commence any remedial
proceedings with respect to any amount payable under this Note, 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 Loan
Agreement have terminated; provided, however, that if such Nonmonetary
Default shall have occurred and be continuing for a period (a "Blockage
Period") commencing on the earlier of the date of receipt of such
Blockage Notice or the date of the acceleration of this Note and ending
179 days thereafter (it being understood that not more than one
Blockage Period may be commenced with respect to
8
<PAGE> 9
this Note during any period of 360 consecutive days), and during such
Blockage Period (i) such Nonmonetary Default shall not have been cured
or waived, (ii) the holder of such Senior Indebtedness (or, in the case
of the Loan Agreement, the Senior Lender) shall not have made a demand
for payment and commenced an action, suit or other proceeding against
the Borrowers and (iii) none of the events described in subsection (A)
above shall have occurred, then (to the extent not otherwise prohibited
by subsections (A), (B) or (C) above) the Borrowers may, not less than
10 days after receipt by the holders of such Senior Indebtedness or the
Senior Lender, as the case may be, of written notice to such effect
from the holder of this Note, make and the holder of this Note may
accept from the Borrowers all past due and current payments of any kind
of or on account of this Note, and such holder may demand, receive,
retain, sue for or otherwise seek enforcement or collection of all
amounts payable on account of principal of or interest on this Note.
(b) 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 Loan Agreement, the holder of this Note 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, this Note shall be
paid in full in cash, and, as between the Borrowers, their creditors other than
the holders of Senior Indebtedness, and the holders of this Note, no such
payment or distribution made to the holders of Senior Indebtedness by virtue of
this Section 15 which otherwise would have been made to the holder of this Note
shall be deemed a payment by the Borrowers on account of the Senior
Indebtedness, it being understood that the provisions of this Section 15 are and
are intended solely for the purposes of defining the relative rights of the
holder of this Note, on the one hand, and the holder of the Senior Indebtedness,
on the other hand. Subject to the rights, if any, under this Section 15 of
holders of Senior Indebtedness to receive cash, property, stock or obligations
otherwise payable or deliverable to the holder of this Note, nothing herein
shall either impair, as between the Borrowers and the holder of this Note, the
obligation of the Borrowers, 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 holder of this Note
from exercising all remedies otherwise permitted by applicable law or hereunder
upon default hereunder.
(c) If any payment or distribution of any character or any
security, whether in cash, securities or other property, shall be received by
any holder of this Note 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 Loan 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 among such holders for application to the payment
of all Senior Indebtedness remaining unpaid, to the extent necessary
9
<PAGE> 10
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.
(d) The rights under these subordination provisions of the
holders of any Senior Indebtedness as against any holders of the Notes 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 Borrowers; 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
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 any Borrower 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 any Borrower 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 (1) through (5);
or
7. any other circumstance.
(e) The holder of this Note unconditionally waives (i) notice
of any of the matters referred to in Section 15(d); (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 Loan Agreement, and notice of any failure
on the part of the
10
<PAGE> 11
Borrowers 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.
(f) The obligations of the holder under these subordination
provisions shall continue to be effective, or be reinstated, as the case may be,
if at any time any payment in respect of any Senior Indebtedness, or any other
payment to any holder of any Senior Indebtedness in its capacity as such, is
rescinded or must otherwise be restored or returned by the holder of such Senior
Indebtedness upon the occurrence of any proceeding referred to in paragraph
15(a)(A) or upon or as a result of the appoint of a receiver, intervenor or
conservator of, or trustee or similar officer for, the Borrowers or any
substantial part of their property or otherwise, all as though such payment had
not been made.
(g) Notwithstanding anything to the contrary herein, the
Borrowers shall not at any time offer (and the holder hereof shall not at any
time accept) (i) any pledge of collateral or (ii) any guaranty by any parent or
subsidiary of any Borrower, in each case with respect to the obligations of any
Borrower under this Note.
16. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Borrowers shall bind their respective successors and assigns, whether so
expressed or not.
17. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
18. HEADINGS. The headings of the Sections and paragraphs of
this Note are inserted for convenience only and do not constitute a part of this
Note.
[Remainder of page intentionally left blank.]
11
<PAGE> 12
IN WITNESS WHEREOF, each of the Borrowers has caused this Note
to be signed in its corporate name by one of its officers thereunto duly
authorized and to be dated as of the day and year first above written.
THE CERPLEX GROUP, INC.
By:____________________________________
Name:
Title:
CERPLEX, INC.
By:____________________________________
Name:
Title:
AURORA ELECTRONICS GROUP, INC.
By:____________________________________
Name:
Title:
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE CERPLEX GROUP, INC.
<TABLE>
<CAPTION>
JURISDICTION OF
ORGANIZATION AND
ENTITY TYPE OF ENTITY OWNERSHIP
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Aurora Electronics Group, Inc. California corporation The Cerplex Group, Inc.
Aurora Electronics Limited Wales corporation
Cerplex, Inc Delaware corporation The Cerplex Group, Inc.
Cerplex Limited England and Wales corporation
Cerplex SAS French corporation
CERTECH Technology, Inc. Texas corporation
Cerplex Mass, Inc. Massachusetts corporation
Apex Computer Company Washington corporation
Cerplex Subsidiary II, Inc. Delaware corporation
Modcomp/Cerplex L.P. Delaware Ltd. Partnership 44% by Cerplex Sub and 51% by
("Modcomp") MJVI
Modcomp Canada Ltd. Canada corporation Modcomp
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
The Cerplex Group, Inc.:
We consent to incorporation by reference in the registration statement (No.
333-60027) on Form S-8, of The Cerplex Group, Inc. (formerly known as Aurora
Electronics, Inc.) of our report dated December 28, 1998, relating to the
consolidated balance sheet of The Cerplex Group, Inc. and subsidiaries as of
September 30, 1998, the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the year then ended and
related schedule, which report appears in the September 30, 1998 annual report
on Form 10-K of The Cerplex Group, Inc.
Our report dated December 28, 1998, contains an explanatory paragraph that
states that the Company has suffered recurring losses from operations, has net
stockholders' and working capital deficiencies and does not have the necessary
funds to pay certain debt obligations, which mature in fiscal 1999, which raise
substantial doubt about the Company's ability to continue as a going concern.
The consolidated financial statements and financial statement schedule do not
include any adjustments that might result from the outcome of this uncertainty.
KPMG LLP
Orange County, California
January 11, 1999
<PAGE> 1
EXHIBIT 23.2
[ARTHUR ANDERSEN LLP LETTERHEAD]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated January 12, 1998
included in Aurora Electronics, Inc. Form 10-K for the year ended September 30,
1997 and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Orange County, California
January 11, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 14,246
<SECURITIES> 0
<RECEIVABLES> 14,927
<ALLOWANCES> (2,511)
<INVENTORY> 6,626
<CURRENT-ASSETS> 37,866
<PP&E> 29,018
<DEPRECIATION> (3,997)
<TOTAL-ASSETS> 100,541
<CURRENT-LIABILITIES> 93,281
<BONDS> 0
34,150
0
<COMMON> 2,262
<OTHER-SE> (61,470)
<TOTAL-LIABILITY-AND-EQUITY> 100,541
<SALES> 66,423
<TOTAL-REVENUES> 66,423
<CGS> 61,554
<TOTAL-COSTS> 61,554
<OTHER-EXPENSES> 33,964
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,465
<INCOME-PRETAX> (29,095)
<INCOME-TAX> 0
<INCOME-CONTINUING> (29,095)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29,095)
<EPS-PRIMARY> 8.26
<EPS-DILUTED> 8.26
</TABLE>
