<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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.)
Delaware 75-1539534
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization.) Identification No.)
111 PACIFICA AVENUE SUITE 300,IRVINE, CALIFORNIA 92618
- -------------------------------------------------------------------------------
(Address of principal executive office.) (Zip Code)
(949) 754-5300
- -------------------------------------------------------------------------------
Registrant's telephone number, including area code.
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 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 [ ]
Indicated below is the number of shares outstanding of each class of the
registrant's Common Stock, as of August 11, 1999:
TITLE OF EACH CLASS OF COMMON STOCK NUMBER OUTSTANDING
----------------------------------- ------------------
Common Stock, $0.03 par value 7,367,518 shares
================================================================================
<PAGE> 2
THE CERPLEX GROUP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1999 and September 30, 1998 4
Condensed Consolidated Statements of Operations for the
Three Months and the Nine months Ended June 30, 1999 and
June 28, 1998 5
Condensed Consolidated Statements of Cash Flows for the
Nine months Ended June 30, 1999 and June 28, 1998 6
Notes to Unaudited Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II. OTHER INFORMATION 19
Signatures 22
Index to Exhibits 23
</TABLE>
2
<PAGE> 3
THE CERPLEX GROUP, INC.
PART I
FINANCIAL INFORMATION
3
<PAGE> 4
THE CERPLEX GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,998 $ 14,196
Accounts receivable, less allowance for doubtful accounts
of $1,438 ($2,511 in September, 1998) 13,915 12,416
Inventories 8,277 6,626
Other current assets 1,819 4,628
--------- ---------
Total current assets 31,009 37,866
Goodwill 9,722 37,202
Property, plant and equipment, net 21,982 25,021
Intangible and other assets 401 452
--------- ---------
$ 63,114 $ 100,541
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 4,973 $ 53,886
Accounts payable 10,540 9,903
Accrued expenses 3,879 14,165
Accrued interest expense 141 1,424
Current portion of reserve for discontinued operations 59 154
Income taxes payable 670 1,271
Other current liabilities 8,666 12,478
--------- ---------
Total current liabilities 28,928 93,281
Long-term debt 34,131 25,782
Reserve for discontinued operations -- 1,822
Other long-term liabilities 4,714 4,714
Commitments and contingencies
Redeemable convertible preferred stock, 216 shares issued (260 issued
at September 1998) 30,444 34,150
Stockholders' deficit:
Series B senior cumulative preferred stock, 58,643 shares issued 58,643 --
Common stock 75,000 shares authorized, 7,850 shares issued
(7,601 issued at September, 1998) 2,270 2,262
Additional paid-in capital 121,272 116,400
Treasury stock, at cost, 483 shares (16,675) (16,675)
Accumulated deficit (200,613) (161,232)
Cumulative translation adjustment -- 37
--------- ---------
Total stockholders' deficit (35,103) (59,208)
--------- ---------
$ 63,114 $ 100,541
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
THE CERPLEX GROUP, INC
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -----------------------
JUNE 30, JUNE 28, JUNE 30, JUNE 28,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $ 23,914 $ 23,691 $ 77,427 $ 40,885
Cost of sales 22,547 21,967 75,039 38,129
-------- -------- -------- --------
Gross profit 1,367 1,724 2,388 2,756
Selling, general and administrative expenses 5,811 7,099 16,837 17,770
Amortization of intangible assets 1,450 2,125 5,758 2,175
Write-off of goodwill 18,375 -- 18,375 --
Reduction in accruals (2,006) -- (2,006) --
-------- -------- -------- --------
Operating loss (22,263) (7,500) (36,576) (17,189)
Interest expense (1,622) (1,611) (5,760) (3,806)
Other income (expense), net 208 170 3,500 (1,878)
-------- -------- -------- --------
Loss before provision for
income taxes (23,677) (8,941) (38,836) (22,873)
Provision (benefit) for income taxes (646) 54 (631) 54
-------- -------- -------- --------
Net loss $(23,031) $ (8,995) $(38,205) $(22,927)
======== ======== ======== ========
Dividends on redeemable convertible
preferred stock (377) (576) (1,174) (2,210)
Net loss applicable to common -------- -------- -------- --------
stockholders $(23,408) $ (9,571) $(39,379) $(25,137)
======== ======== ======== ========
Basic and diluted loss
per common share $ (3.18) $ (0.22) $ (5.38) $ (1.20)
======== ======== ======== ========
Weighted average number of common shares
outstanding 7,368 44,406 7,322 20,872
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
THE CERPLEX GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------
JUNE 30, 1999 JUNE 28,1998
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(38,205) $(22,927)
Adjustments to reconcile net loss to net cash
used by operating activities
Depreciation and amortization 8,323 5,347
Non-cash interest expense 1,505
Loss on disposition of assets 32 224
Write-off of goodwill 18,375 --
Reduction in accruals (2,006) --
Changes in assets and liabilities:
Assets (392) 8,805
Liabilities 1,888 14
-------- --------
Net cash used by
operating activities: (10,480) (8,537)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (1,218) (1,107)
Acquisition of Old Cerplex, net -- (7,783)
-------- --------
Net cash used by investing activities (1,218) (8,890)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt -- (10,308)
Sale of redeemable convertible preferred shares -- 21,300
Proceeds from promissory note 4,600 --
Payment on capital leases (100) --
Changes in borrowings under line of credit -- --
Issue of senior subordinated debentures -- 15,000
Issue of common stock for Cerplex merger -- 7,783
Purchase of treasury stock -- (36)
-------- --------
Net cash from financing activities 4,500 33,739
-------- --------
Net change in cash and cash equivalents (7,198) 16,312
Cash and cash equivalents at beginning of period 14,196 323
-------- --------
Cash and cash equivalents at end of period $ 6,998 $ 16,635
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. CURRENT FINANCIAL CONDITION
During the three and nine months ended June 30, 1999 and the year ended
September 30, 1998, the Company experienced recurring operating losses. As a
result of these losses, at June 30, 1999 the company had a deficit of $35.1
million in stockholders' equity. In addition, the Company has relied upon the
financial support of its largest shareholder, an investment fund managed by the
investment firm of Welsh, Carson, Anderson & Stowe ("WCAS") for additional
capital. Currently, WCAS is the Company's sole senior credit lender (see Note E
- - WCAS Restructuring). At June 30, 1999 the Company had $25.0 million
outstanding under its senior secured long term debt facility with WCAS (see Note
H - Debt). Senior secured debt outstanding to WCAS is due in April 2001.
Additionally, as of June 30, 1999, the Company had $2.9 million outstanding
under a secured note payable to one of its customers. The $2.9 million
obligation matured on July 29, 1999. The Company received an extension from its
customer of the due date until September 1, 1999. Furthermore, the Company has
$10.5 million outstanding related to its 7 3/4% Convertible Subordinated
Debentures which mature on April 15, 2001. The Company also had $0.4 million
principal amount outstanding under the 10% Series B Senior Subordinated Notes.
Though the Company intends to increase revenues and decrease expenses to improve
operations, the Company's losses are expected to continue for the foreseeable
future. The Company will require additional funding 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 arranging financing required
for the repayment of the $2.9 million obligation owed to its customer on
September 1, 1999.
NOTE B. BASIS OF PRESENTATION
The accounting policies followed by the Company are set forth in Note B "Summary
of Significant Accounting Policies" of Notes to Consolidated Financial
Statements included in the 1998 Annual Report on Form 10-K for The Cerplex
Group, Inc.
In the opinion of management, the accompanying consolidated balance sheets and
related interim consolidated statements of operations and cash flows include all
adjustments (consisting only of normal recurring items) necessary for their fair
presentation. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues, and expenses. Actual results could differ from those estimates.
Interim results are not necessarily indicative of results for a full year.
Certain information in footnote disclosures normally included in financial
statements has been condensed or omitted in accordance with the rules and
regulations of the Securities and Exchange Commission. The information included
in this Form 10-Q should be read in conjunction with Management's Discussion and
Analysis and consolidated financial statements and notes thereto included in
the 1998 Annual Report on Form 10-K for The Cerplex Group, Inc.
NOTE C. EARNINGS PER SHARE OF COMMON STOCK
Basic loss per common share is computed by dividing net 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 loss available to common
stockholders by the sum of the weighted average number of common shares
outstanding and dilutive stock options. For all periods presented, common stock
equivalents (stock options) were excluded from the diluted calculations as they
were considered to be anti-dilutive.
The Company's 7% Senior Cumulative Convertible Preferred Stock and 10% Series B
Senior Subordinated Debentures due December 31, 2004, were not common stock
equivalents at the time of issuance and are therefore not included in the
calculation of diluted loss per share.
7
<PAGE> 8
NOTE D. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income", which establishes standards for
reporting and disclosure of comprehensive income and its components. SFAS No.
130 is effective for fiscal years beginning after December 15, 1997 and requires
classification of financial statements for earlier periods to be provided for
comparative purposes. As of June 30, 1999 and June 28, 1998, the Company did
not have any components of comprehensive income, therefore the Net Loss equals
the Comprehensive Loss.
NOTE E. WCAS Restructuring
On June 25, 1999 the Company consented to an assignment to WCAS by Greyrock
Capital ("Greyrock") of Greyrock's rights and interests under the Greyrock Line
of Credit to WCAS in return for payment in full by WCAS of all outstanding
balances of principal and interest thereunder. WCAS repaid principal and
interest outstanding under the Greyrock Line of Credit totaling $45.4 million.
Concurrent with the assignment, WCAS advanced to the Company an additional $4.6
million for working capital purposes, resulting in $50.0 million of total
indebtedness outstanding under the WCAS Senior Secured Notes as of June 25,
1999. The terms of the WCAS Senior Secured Notes are the same as those under the
Greyrock Line of Credit except i) the interest rate was reduced to LIBOR plus 1
3/4%; ii) principal and interest are due on April 1, 2001; iii) collateral
consisting of the stock of the Company's subsidiaries in the UK and France that
had secured the Greyrock Line of Credit were released; iv) a negative pledge
agreement covering assets owned by the Company's subsidiaries in the UK and
France was terminated; and v) the Company's obligations are no longer subject to
minimum collateral borrowing base requirements previously established in the
Greyrock Line of Credit. On June 30, 1999 the Company issued approximately
58,643 shares of Series B Preferred Stock at a price of $1,000 per share. The
Series B Preferred Stock was issued as repayment of various obligations owed to
WCAS which included $25.0 million of principal outstanding under the WCAS Senior
Secured Notes, $16.5 million of principal of the 10% unsecured promissory notes
( "WCAS Notes"), approximately $15.6 million of principal of the 10% Series A
Senior Subordinated Debentures, and approximately $1.5 million of accrued
interest owed to WCAS under these obligations. The Series B Preferred Stock
consists of 7% cumulative, non-convertible preferred shares that are redeemable
by the Company at its option and redeemable at the option of the holders only
upon a change of control of the Company.
8
<PAGE> 9
NOTE F. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
1999 1998
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Spare and repair parts $ 7,165 $ 5,569
Work in process 679 113
Finished goods and purchased product 433 944
-------- -------
Total inventories $ 8,277 $ 6,626
-------- -------
</TABLE>
NOTE G. 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 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 June 30, 1999, there
were 7,367,518 shares of the Company's Common Stock outstanding. On June 30,
1999, approximately 58,643 shares of Series B Preferred Stock were issued to
WCAS at a price of $1,000 per share. The shares are 7% cumulative,
non-convertible and are optionally redeemable by the Company and optionally
redeemable by the holders only upon a change of control of the Company. The
Series B Preferred Stock was issued to WCAS in exchange for the repayment of
$16.5 million of principal of the 10% WCAS Notes, approximately $15.6 million of
principal of the 10% Series A Senior Subordinated Debentures, $25.0 million of
principal of Senior Secured Debt purchased by WCAS from Greyrock Capital, and
$1.5 million of accrued interest owed to WCAS under these obligations (see Note
E - WCAS Restructuring).
NOTE H. DEBT
In conjunction with the purchase on June 25, 1999 by WCAS of the $45.4 million
owed under the Greyrock Line of Credit and, concurrently, an additional $4.6
million loan from WCAS to the Company under the same terms, the Company owed
$50.0 million of Senior Secured Debt to WCAS. One June 30, 1999 $25.0 million of
principal was repaid through the issuance of Series B Preferred Stock (see Note
G - Capitalization). These transactions resulted in $25.0 million of principal
outstanding to WCAS as of June 30, 1999 ("WCAS Senior Secured Notes"). The WCAS
Senior Secured Notes, secured by substantially all of the assets of the Company,
accrue interest at LIBOR plus 1 3/4% payable at maturity. The WCAS Senior
Secured Notes mature on April 1, 2001. As of June 30, 1999 the Company had $10.5
million of indebtedness outstanding under the 7 3/4% Convertible Subordinated
Debenture. In addition, as of June 30, 1999, the Company had $2.9 million
outstanding under a secured note payable to one of its customers. The $2.9
million obligation matured on July 29, 1999. The Company received an extension
of the due date until September 1, 1999. Furthermore, as of June 30, 1999 the
Company had $0.4 million principal amount outstanding under the 10% Series B
Senior Subordinated Notes.
NOTE I. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
For the nine month period ended June 30, 1999, cash paid for interest and income
taxes was $1.9 million and $0 respectively.
Non-cash investing and financing activities for the nine month period ended June
30, 1999 included the conversion of the redeemable convertible preferred stock
into common stock of approximately $5.2 million, accretion of dividends on the
redeemable convertible preferred stock of approximately $1.2 million and
conversion of accrued interest into notes payable of approximately $1.5 million.
On June 30, 1999, the Company issued Series B Preferred Stock as repayment of
approximately $58.6 million of various obligations owed to WCAS (see Note E).
As of June 30, 1999, the Company revised the estimate for certain Old Cerplex
accruals in the amount of $3.7 million, which was considered an adjustment to
the fair value of the net assets acquired and accordingly was treated as a
reduction of goodwill, primarily due to new management estimates.
NOTE J. Goodwill Impairment
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
was being amortized over five years. 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 assets. 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."
In accordance with these policies, on April 30, 1998 following the merger of
Cerplex and Aurora Electronics, Inc. ("Merger"), the Company recorded an excess
of purchase price over net assets acquired totaling approximately $40.7 million
("Goodwill"). Management allocated Goodwill based on estimates of future cash
flows expected from the Company's operations at that time. Since that time, the
Company has closed and consolidated several of its operations, exited certain
lines of business and has revised its estimates for expected future cash flows
from the remaining continuing operations. During the quarter ended June 30,
1999, management, in accordance with the above policy, evaluated the
recoverability of Goodwill based on these revised estimates and the Goodwill
ascribed to closed and terminated operations. Based on this evaluation, the
Company has determined that an impairment charge of approximately $18.4 million
is necessary. The Company recorded this charge during the three months ended
June 30, 1999. The carrying value of Goodwill as of June 30, 1999 after the
impairment was approximately $9.7 million. This intangible asset will be
amortized over a remaining useful life of 15 years. The blended average life of
all operations originally acquired was five years. Subsequent to the write-off
of terminated operations, the remaining operations have a 15 year useful life.
NOTE K. REDUCTION IN ACCRUALS
During the quarter ended June 30, 1999, Management reviewed the appropriateness
of certain accrued liability accounts. Management revised the estimate for
certain Old Cerplex accruals made at the time of the merger. This reduced
Goodwill prior to the impairment charge by approximately $3.7 million.
Additionally, estimates related to certain Aurora accruals were reduced by
approximately $1.2 million. Accruals related to inventory and accounts payable
were analyzed and reduced by approximately $0.8 million. The estimates were
reduced based on the receipt of new information, negotiations and settlements,
which primarily became available or occurred in the quarter ended June 30, 1999.
NOTE L. Recent Developments
In May, 1996 the Company purchased the repair and assembly operations of Rank
Xerox in Neuville-en-Ferrain, France through Cerplex SAS. Under the sale and
purchase agreement, Rank Xerox guaranteed the Company a decreasing volume of
repair and assembly activity over a four year period ending May, 2000. Under
this arrangement, the Company sought customer activity other than that from
Rank Xerox to offset the declining base of business. As of September 30, 1998,
the Company had been successful in replacing the decreases in volume related to
Rank Xerox activity. However, as volume decreases accelerated during the first
half of fiscal 1999, it became apparent that the Company's development of new
business was not sufficient to replace the loss of business from Rank Xerox in
the short term. In response to the lower volume of business activity and the
corresponding need to seek funding for the implementation of a social plan that
is required in France for a significant reduction in force, management of the
Company's subsidiary in France was called to a meeting with the local
Commercial Court on July 20, 1999 to review a potential declaration by the
Commercial Court of a receivership procedure. After such review, the Commercial
Court started the receivership procedure and appointed a legal administrator.
During an initial observation period of six months, it is the responsibility of
the legal administrator to assess the options available to permit the recovery
of the Cerplex SAS activity. During this period he is empowered to monitor the
payments of amounts due to creditors. He also selects the plan for the
restoration of profitable trading for presentation to the Commercial Court for
approval. This plan could include proposals for the sale of assets, if
necessary, to fund Cerplex SAS operations and the implementation of a social
plan in connection with a reduction in force which, if accepted by the
Commercial Court, would be completed under the responsibility of the legal
administrator.
9
<PAGE> 10
ITEM 2. 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 Irvine, 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. ("Old Cerplex"). 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.
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.
On June 25, 1999, the Company completed a restructuring of $58.6 million of
its debt. $45.4 million of bank debt was assigned to WCAS by Greyrock of
Greyrock's rights and interests under the Greyrock Line of Credit in return for
payment in full by WCAS of all outstanding balances of principal and interest
thereunder. Concurrent with the assignment, WCAS advanced to the Company an
additional $4.6 million for working capital purposes. In a subsequent
transaction, WCAS converted to equity, $25.0 million of the WCAS Senior Secured
Notes in an exchange of debt for shares of 7% Series B Preferred Stock. In
addition, WCAS exchanged $16.5 million of principal of 10% unsecured promissory
notes, approximately $15.6 million of principal of the 10% Series A Senior
Subordinated Debentures, and approximately $1.5 million of accrued interest owed
to WCAS under these obligations for shares of 7% Series B Preferred Stock. In
aggregate, approximately 58,643 shares of Series B Preferred Stock were issued
at a price of $1,000 per share. This restructuring had the effect of increasing
equity by $58.6 million as of June 30, 1999.
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 has, 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 through the third quarter of fiscal
1999 on a pro forma basis. It is anticipated that revenues from Rank Xerox will
continue to 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.
On June 25, 1999 the Company consented to an assignment to WCAS by Greyrock
of Greyrock's rights and interests under the Greyrock Line of Credit to WCAS in
return for payment in full by WCAS of all outstanding balances of principal and
interest thereunder. WCAS repaid principal and interest outstanding under the
Greyrock Line of Credit totaling $45.4 million. Concurrent with the assignment,
WCAS advanced to the Company an additional $4.6 million for working capital
purposes, resulting in $50.0 million of total indebtedness outstanding under the
WCAS Senior Secured Notes as of June 25, 1999. The terms of the WCAS Senior
Secured Notes are the same as those under the Greyrock Line of Credit except i)
the interest rate was reduced to LIBOR plus 1 3/4%; ii) principal and interest
are due on April 1, 2001; iii) collateral consisting of the stock of the
Company's subsidiaries in the UK and France that had secured the Greyrock Line
of Credit were released; iv) a negative pledge agreement covering assets owned
by the Company's subsidiaries in the UK and France was terminated; and v) the
Company's obligations are no longer subject to minimum collateral borrowing base
requirements previously established in the Greyrock Line of Credit. On June 30,
1999 the Company issued approximately 58,643 shares of Series B Preferred Stock
at a price of $1,000 per share. The Series B Preferred Stock was issued as
repayment of various obligations owed to WCAS which included $25.0 million of
principal outstanding under the WCAS Senior Secured Notes, $16.5 million of
principal of the 10% unsecured promissory notes ( "WCAS Notes"), approximately
$15.6 million of principal of the 10% Series A Senior Subordinated Debentures,
and approximately $1.5 million of accrued interest owed to WCAS under these
obligations. The Series B Preferred Stock consist of 7% cumulative,
non-convertible preferred shares that are redeemable by the Company at its
option and redeemable at the option of the holders only upon a change of control
of the Company.
11
<PAGE> 11
COMPARATIVE RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1999 AND
JUNE 28, 1998
Net revenues for the third quarter of fiscal 1999 were $23.9 million, as
compared to $23.7 million in net revenues for the corresponding quarter in the
prior fiscal year.
Gross profit for the third quarter of fiscal 1999 was $1.4 million (5.7% of
net revenues), as compared to a gross profit of $1.7 million (7.3% of net
revenues) for the corresponding quarter in the prior fiscal year. The decrease
in gross profit was primarily due to increased material costs as a percent of
revenues in our parts division and increases in certain fixed costs as a
percent of revenues in our domestic repair operations.
Selling, general and administrative expenses for the third quarter of fiscal
1999 were $5.8 million (24.3% of net revenues), as compared to $7.1 million
(30.0% of net revenues) for the corresponding quarter in the prior fiscal year.
The decrease as a percentage of revenues was due to cost cutting measures.
Amortization expense for the third quarter of fiscal 1999 was $1.5 million
compared to $2.1 million for the corresponding quarter in the prior fiscal year.
The decrease was due to the reduced amortization of goodwill resulting from the
impairment analysis.
Net interest expense for the third quarter of fiscal 1999 was $1.6 million,
or 6.8% of revenues, essentially equal to the $1.6 million, or 6.8% of revenues,
for the corresponding quarter in the prior fiscal year.
Net loss applicable to common stockholders for the third quarter of fiscal
1999 was $23.4 million as compared to net loss of $9.6 million for the
corresponding quarter in the prior fiscal year. The primary reason for the
increased loss was the write-off of goodwill.
COMPARATIVE RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED JUNE 30, 1999 AND
JUNE 28, 1998
Net revenues for the first three quarters of fiscal 1999 were $77.4 million,
as compared to $40.9 million in net revenues for the corresponding period in the
prior fiscal year. The Company's increase in revenues was due principally to the
acquisition of Old Cerplex offset by the subsequent closing of this segment of
the Asset Recovery Division as well as the closure of PowerSource operation and
an overall decline in the prices and volumes of computer repair parts.
Gross profit for the first three quarters of fiscal 1999 was $2.4 million
(3.1% of net revenues), as compared to a gross profit of $2.8 million (6.7% of
net revenues) for the corresponding period in the prior fiscal year. Gross
profit was affected primarily by the acquisition of Old Cerplex. The decrease in
margin percentages is primarily due to the lower historical margins of the Old
Cerplex operations and the impact of declining revenues in the Southern
California operations which historically have had a higher margin.
Selling, general and administrative expenses for the first three quarters of
fiscal 1999 were $16.8 million (21.7% of net revenues), as compared to $17.8
million (43.5% of net revenues) for the corresponding period in the prior fiscal
year. The decrease as a percentage of revenues was due to the increase in
revenues noted above. Amortization expense for the first three quarters of
fiscal 1999 was $5.8 million compared to $2.2 for the corresponding period in
the prior fiscal year. The increase was due to the amortization of goodwill in
connection with the merger of Aurora and Old Cerplex, offset by reduced
amortization resulting from the impairment analysis.
Net interest expense for the first three quarters of fiscal 1999 was $5.8
million, or 7.4% of revenues, as compared to $3.8 million, or 9.3% of revenues,
for the corresponding period in the prior fiscal year. The increase in interest
expense is due to higher loan balances on the Company's revolving credit
facility and additional financing from the Company's major stockholder.
Net loss applicable to common stockholders for the first three quarters was
$39.4 million as compared to net loss of $25.1 million for the corresponding
period in the prior fiscal year. The primary reason for the increased loss was
the write-off of goodwill.
12
<PAGE> 12
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 plant and
equipment and required debt principal and interest payments. After completion of
the restructuring of the Company's Greyrock Line of Credit and debt owed to
WCAS, the Company no longer has a working capital deficit. However, certain
obligations owed to its customers and working capital growth represent ongoing
capital requirements.
The Company's most immediate liquidity concern is the ability to repay a
deferred consideration obligation to British Telecom ("BT") under a sale and
purchase agreement. This obligation, totaling approximately $2.9 million as of
June 30, 1999, was originally due on July 29, 1999. The Company has received
from BT an extension of the due date of such deferred consideration until
September 1, 1999. The Company is currently in discussions with BT regarding a
further extension of the due date until November 1, 1999 and is seeking
replacement financing from commercial banks in the UK. There is no assurance,
however, that the further extension from BT will be obtained, or if obtained,
that the extension will give the Company sufficient time to obtain replacement
financing to repay BT. If satisfactory extension and/or additional funds are not
obtained, the Company will continue to experience severe liquidity problems. If
BT is not repaid, BT has foreclosure rights under the sale and purchase
agreement that would allow BT to exercise its rights in connection with the
Company's land and building located in the UK that has been pledged to it as
collateral to support this deferred consideration obligation.
Additionally, the Company expects that its Cerplex SAS operations will
experience cash flow shortfalls in the future as it conducts operations while
implementing a reduction of workforce. The appointed administrator is given
responsibility for generating funds necessary to meet cash flow requirements.
There is no assurance; however, that bank financing or asset sales can be
arranged in amounts sufficient or within the time required to meet such needs.
In addition to the fact that the Company has limited 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 1996. 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 $7.0 million at
June 30, 1999, the cash of Cerplex SAS of $1.9 million is generally not
available to the Company for financing operations outside of Cerplex SAS.
Management believes that the Company will continue to experience operating
losses and negative cash flow in fiscal 1999. Because the Company does not have
the ability to borrow additional amounts under bank lines of credit, management
anticipates that the only potential sources of additional working capital
available to the Company will be from WCAS or commercial bank financing, if
available. The Company has commenced discussions with a bank regarding future
working capital financing needs. There is no assurance, however, that the
Company will attain results that WCAS or a bank will regard as sufficient to
support the infusion of additional capital from WCAS or loans from banks.
The Company is highly leveraged and has significant debt repayment obligations
and preferred stock redemption obligations. As of June 30, 1999 the Company had
approximately $39.7 million principal amount of indebtedness outstanding, which
consisted of: i) $25.0 million indebtedness under the WCAS Senior Secured Notes;
ii) $10.5 million indebtedness under the Company's 7 3/4% Convertible
Subordinated Debentures; iii) $2.9 million indebtedness under a promissory note
to BT and iv) approximately $1.1 million of other indebtedness consisting
primarily of the 10% Series B Senior Subordinated Notes and equipment leases. In
addition, the Company also had as of June 30, 1999, $21.55 million outstanding
(excluding accrued dividends) of its redeemable 7% Convertible Preferred Stock.
13
<PAGE> 13
10% Series B Senior Subordinated Notes.
As of June 30, 1999, there was approximately $0.4 million principal amount
outstanding of the Company's 10% Senior Subordinated Notes. Series B notes were
sold to certain public stockholders. 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 June 30, 1999, there was approximately $10.5 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 a partial sinking fund payment of $1,826,000 in April 2000
on the Debentures. The Debentures bear interest at 7 3/4% payable on April 14
and October 14 of each year through maturity.
Secured Note Payable to BT.
In July, 1994, Old Cerplex purchased the operating assets of BT Repair
Services for cash and a promissory note in the original principal amount of 2.5
million pounds sterling (the "BT Note"). The BT Note is non-interest bearing and
is secured by a lien on land and buildings purchased from BT at that time. As of
June 30, 1999, approximately $2.9 million principal amount was outstanding under
the BT Note. The BT Note matured on July 29, 1999.
The Company has received from BT an extension of the due date of such deferred
consideration until September 1, 1999. The Company is currently in discussions
with BT regarding a further extension of the due date until November 1, 1999 and
is seeking replacement financing from commercial banks in the UK. There can be
no assurance that both parties will agree on the terms of the BT Note extension.
14
<PAGE> 14
Other Debt.
As of June 30, 1999, 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 June 30, 1999, 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).
WCAS Restructuring
On June 25, 1999 the Company consented to an assignment to WCAS by Greyrock of
Greyrock's rights and interests under the Greyrock Line of Credit in return for
payment in full by WCAS of all outstanding balances of principal and interest
thereunder. WCAS repaid principal and interest outstanding under the Greyrock
Line of Credit totaling $45.4 million. Concurrent with the assignment, WCAS
advanced to the Company an additional $4.6 million for working capital purposes,
resulting in $50.0 million of total indebtedness outstanding under the WCAS
Senior Secured Notes as of June 25, 1999. The terms of the WCAS Senior Secured
Notes are the same as those under the Greyrock Line of Credit except i) the
interest rate was reduced to LIBOR plus 1 3/4%; ii) principal and interest are
due on April 1, 2001; iii) collateral consisting of the stock of the Company's
subsidiaries in the UK and France that had secured the Greyrock Line of Credit
were released; iv) a negative pledge agreement covering assets owned by the
Company's subsidiaries in the UK and France was terminated; and v) the Company's
obligations are no longer subject to minimum collateral borrowing base
requirements previously established in the Greyrock Line of Credit. On June 30,
1999 the Company issued approximately 58,643 shares of Series B Preferred Stock
at a price of $1,000 per share. The Series B Preferred Stock was issued as
repayment of various obligations owed to WCAS which included $25.0 million of
principal outstanding under the WCAS Senior Secured Notes, $16.5 million of
principal of the 10% unsecured promissory notes ("WCAS Notes"), approximately
$15.6 million of principal of the 10% Series A Senior Subordinated Debentures,
and approximately $1.5 million of accrued interest owed to WCAS under these
obligations. The Series B Preferred Stock consist of 7% cumulative,
non-convertible preferred shares that are redeemable by the Company at its
option and redeemable at the option of holders only upon a change of control of
the Company.
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 has implemented a program intended to enable the Company to
become Year 2000 compliant. The Company used 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 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 obtained the source code for the Company's main operating systems
software that the Company modified 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 believes
that its internal systems, equipment and processes are substantially Year 2000
compliant as of August 13, 1999, and intends to complete the analysis and
remediation of potential Year 2000 problems with its significant suppliers and
customers by August 31, 1999. The Company estimates that the total dollar amount
that the Company will spend to remediate its Year 2000 issues will not exceed
$100. 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 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 established Year 2000 contingency plans in the event
15
<PAGE> 15
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 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 is effective for transactions
entered into after January 1, 2000. This statement requires that all derivative
instruments be recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and the type of hedge transaction. The ineffective portion
of all hedges will be recognized in earnings. The Company is in the process of
determining the impact that the adoption of SFAS No. 133 will have on its
results of operations and financial position. Application of the statement
requirements are not anticipated to have a material impact on the Company's
consolidated financial position, results of operations or loss per share as
currently reported.
In March 1998, the FASB Emerging Issues Task Force ("EITF") announced a
consensus on Issue No. 98-1, "Valuation of Debt Assumed in a Purchase Business
Combination." This EITF reached a consensus that the amount assigned to debt
assumed in a purchase business combination should be its fair value. Quoted
market prices, if available, are the best evidence of the fair value of the
debt. If quoted market prices are not available, management's best estimate of
fair value may be based on the quoted market price of debt with similar
characteristics or on valuation techniques. Therefore, if a present value
technique is used, the estimated future cash flows should not ignore relevant
provisions of the debt agreement (for example, the right of the issuer to
prepay). Application of the statement requirements are not anticipated to have a
material impact on the Company's consolidated financial position, results of
operations or loss per share as currently reported.
In May 1998, the FASB Emerging Issues Task Force ("EITF") announced issue No.
98-5, "Accounting for Convertible Securities with Beneficial Conversion Features
or Contingently adjustable Conversion Ratios." The EITF reached a tentative
conclusion that embedded beneficial conversion features present in convertible
securities should be separately valued at issuance. However, no consensus was
reached for this issue. Further discussion is expected at a future meeting.
Application of a consensus, once reached, is not anticipated to have a
material impact on the Company's consolidated financial position, results of
operations or loss per share as currently reported.
OUTLOOK AND UNCERTAINTIES
The following is a "safe harbor" statement under the Private Securities
Litigation Reform Act of 1995: the matters discussed in this Quarterly Report on
Form 10-Q contain statements that constitute forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934, as amended.
The words "expect," "estimate," "anticipate," "predict," "believe," and similar
expressions and variations thereof are intended to identify forward-looking
statements. Such statements appear in a number of places in this Quarterly
Report on Form 10-Q and include statements regarding the intent, belief or
current expectations of the Company, its directors or its officers with respect
to, among other things: (i) trends affecting the Company's financial condition
or results of operations; (ii) the Company's financing plans; and (iii) the
Company's business growth strategies. 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 materially from
those projected in the forward-looking statements as a result of various
factors. These risks and uncertainties include, but are not limited to, the
following:
Losses and Accumulated Deficit. For the quarter ended June 30, 1999, the Company
reported a net loss of $23.4 million and an operating loss of $22.3 million. As
of June 30, 1999, the Company has a stockholders' deficit of $35.1 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.
16
<PAGE> 16
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 85% 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 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 quarter ended June 30, 1999, Rank Xerox
and BT accounted for approximately 19.1% and 12.8% 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. Xerox remains the largest customer of
Cerplex, SAS. Sales from Xerox are expected to decline over the next 12 months
as the contract expires in May 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 quarter ended June 30, 1999,
approximately 51% of the Company's sales were outside of North America. There
can be no assurance that the Company will continue to 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 19.1% of the Company's revenues for the quarter, will be
phased out by May 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.
17
<PAGE> 17
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.
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 June 30, 1999, approximately
$9.7 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. However, management continues to
monitor goodwill in accordance with the provisions of Statement of Financial
Accounting Standard No. 121 "Accounting for the Impairment of Long Lived Assets
and Long Lived Assets to be Disposed of." 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.
Item 3. 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 $39.8 million principal amount of indebtedness at June
30, 1999, $25 million principal amount of such debt (which represents total
principal indebtedness under the WCAS Senior Secured Notes) bears interest at a
rate that fluctuate based on changes in the LIBOR rate. A 1% change in the
underlying LIBOR rate would result in a $250 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 net balances as of June 30, 1999 were $1.7 million. The
Company does not hedge these balances. See Note O to the Consolidated Financial
Statements --"Foreign Operations and Major Customers" in the Company's annual
report on form 10K.
18
<PAGE> 18
THE CERPLEX GROUP, INC.
PART II
OTHER INFORMATION
19
<PAGE> 19
THE CERPLEX GROUP, INC.
ITEM 1. LEGAL PROCEEDINGS
Inapplicable.
ITEM 2. CHANGES IN SECURITIES
Inapplicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Inapplicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable.
ITEM 5. OTHER INFORMATION
The Company's subsidiary, Cerplex, Ltd., has a deferred payment
obligation of approximately $2.9 million owed to one of its customers, which
payment obligation became due in July 1999. Cerplex, Ltd. is currently in
default on such payment obligation and is presently seeking to arrange a
financial guarantee of the deferred payment obligation which will be
satisfactory to its customer and thereby cure the event of default.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
3.1.1 The Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference from Exhibit 3.1
20
<PAGE> 20
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
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 (incorporated by
reference from Exhibit 3.1.4 of the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1998 and
filed on January 12, 1999).
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 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
(incorporated by reference from Exhibit 4.18 of the Company's
Annual Report on Form 10-K for the fiscal year ended September
30, 1998 and filed on January 12, 1999).
4.2 Certificate of Elimination of Convertible Preferred Stock
filed on December 15, 1998 (incorporated by reference from
Exhibit 4.19 of the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1998 and filed on January
12, 1999).
*4.3 Certificate of Designations, Preferences and Rights of Series
B Senior Cumulative Preferred Stock filed on June 30, 1999
designating a series of 60,000 shares.
10.1 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 (incorporated by reference from Exhibit
10.3 of the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998 and filed on January 12,
1999).
10.2 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 (incorporated by reference from Exhibit
10.4 of the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1998 and filed on January 12,
1999).
10.3 10% Senior Subordinated Note for $1,000,000, due February 26,
2000, 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 $1,000,000, due February 26,
2000, between the Company, Aurora Electronics Group, Inc. and
Cerplex, Inc. as payors and Welsh, Carson, Anderson & Stowe
VII, L.P. as payee.
10.5 10% Senior Subordinated Note for $2,000,000, due March 25,
2000, between the Company, Aurora Electronics Group, Inc. and
Cerplex, Inc. as payors and Welsh, Carson, Anderson & Stowe
VII, L.P. as payee.
10.6 10% Senior Subordinated Note for $2,000,000, due April 21,
2000, between the Company, Aurora Electronics Group, Inc. and
Cerplex, Inc. as payors and Welsh, Carson, Anderson & Stowe
VII, L.P. as payee.
10.7 Lease of the Company's primary headquarters facility located
at 111 Pacifica Avenue, Suite 300, Irvine, CA 92618.
* 10.8 Consent and Amendment to the Loan and Security Agreement
dated June 25, 1999 between the Company, Aurora Electronics
Group, Inc., Cerplex, Inc. and Cerplex Mass., Inc. as payors
and Welsh, Carson, Anderson & Stowe VII, L.P. as successor
in interest to Greyrock Business Credit, a division of
NationsCredit Commercial Corporation as payee.
*10.9 Assignment of Loan dated June 25, 1999 between Greyrock
Capital, a division of NationsCredit Commercial
Corporation as assignor and Welsh, Carson, Anderson & Stowe
VII, L.P. as assignee.
*10.10 Acknowledgement, Consent and Release by the Company, Aurora
Electronics Group, Inc., Cerplex, Inc. and Cerplex Mass., Inc.
*10.11 Release by Welsh, Carson, Anderson & Stowe VII, L.P.
*10.12 Release of Continuing Guaranty by Greyrock Capital, a
division of NationsCredit Commercial Corporation.
*10.13 Consent by Silicon Valley Bank to the assignment documents
(incorporated by reference from Exhibit 10.8 and filed with
this Form 10-Q).
*10.14 Form of the Secured Promissory Note in the amount of
$25,000,000 originally issued on April 30, 1998 amended and
restated on June 25, 1999 between the Company, Aurora
Electronics Group, Inc., Cerplex Mass., Inc. and Cerplex, Inc.
as payors and Welsh, Carson, Anderson & Stowe VII, L.P.,
affiliates of Welsh, Carson, Anderson & Stowe VII, L.P. and
individual investors as payee.
*10.15 Amended and Restated Secured Promissory Note in the amount of
$9,024,896.72 issued on June 25, 1999 1999 between the
Company, Aurora Electronics Group, Inc., Cerplex Mass., Inc.
and Cerplex, Inc. as payors and Welsh, Carson, Anderson &
Stowe VII, L.P. as payee.
*10.16 Demand Promissory Note in the amount of $11,000,000 originally
issued on April 30, 1998 amended and restated on June 25, 1999
between the Company, Aurora Electronics Group, Inc. and
Cerplex, Inc. as payors and Welsh, Carson, Anderson & Stowe
VII, L.P. as payee.
*10.17 Demand Promissory Note in the amount of $4,975,103.28
originally issued on April 30, 1998 amended and restated on
June 25, 1999 between the Company, Aurora Electronics Group,
Inc. and Cerplex, Inc. as payors and Welsh, Carson, Anderson &
Stowe VII, L.P. as payee.
*27 Financial Data Schedule - Article 5 of Regulation S-X.
- ------------
* Filed herewith.
(b) Reports on Form 8-K
None
21
<PAGE> 21
THE CERPLEX GROUP, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Date: August 16, 1999
THE CERPLEX GROUP, INC.
/s/ Richard Alston
----------------------------------------
Richard Alston
President and Chief Operating Officer
/s/ Debbi Anders
----------------------------------------
Debbi Anders
Vice President of Finance
(Principal Financial Officer)
/s/ Anthony E. Palumbo
----------------------------------------
Anthony E. Palumbo
Corporate Controller
(Controller)
22
<PAGE> 22
THE CERPLEX GROUP, INC.
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
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 (incorporated by
reference from Exhibit 3.1.4 of the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1998
and filed on January 12, 1999).
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 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 (incorporated by reference from Exhibit 4.18 of the
Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1998 and filed on January 12, 1999).
4.2 Certificate of Elimination of Convertible Preferred Stock
filed on December 15, 1998 (incorporated by reference from
Exhibit 4.19 of the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1998 and filed on
January 12, 1999).
*4.3 Certificate of Designations, Preferences and Rights of
Series B Senior Cumulative Preferred Stock filed on
June 30, 1999 designating a series of 60,000 shares.
10.1 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 (incorporated by reference from
Exhibit 10.3 of the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1998 and filed on
January 12, 1999).
10.2 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 (incorporated by reference from
Exhibit 10.4 of the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1998 and filed on
January 12, 1999).
10.3 10% Senior Subordinated Note for $2,000,000, due January 26,
2000, 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 $1,000,000, due
February 26, 2000, between the Company, Aurora Electronics
Group, Inc. and Cerplex, Inc. as payors and Welsh, Carson,
Anderson & Stowe VII, L.P. as payee.
10.5 10% Senior Subordinated Note for $2,000,000, due March 25,
2000, between the Company, Aurora Electronics Group, Inc.
and Cerplex, Inc. as payors and Welsh, Carson, Anderson &
Stowe VII, L.P. as payee.
10.6 10% Senior Subordinated Note for $2,000,000, due April 21,
2000, between the Company, Aurora Electronics Group, Inc.
and Cerplex, Inc. as payors and Welsh, Carson, Anderson &
Stowe VII, L.P. as payee.
10.7 Lease of the Company's primary headquarters facility
located at 111 Pacifica Avenue, Suite 300, Irvine, CA 92618
* 10.8 Consent and Amendment to the Loan and Security Agreement
dated June 25, 1999 between the Company, Aurora Electronics
Group, Inc., Cerplex, Inc. and Cerplex Mass., Inc. as
payors and Welsh, Carson, Anderson & Stowe VII, L.P. as
successor in interest to Greyrock Business Credit, a
division of NationsCredit Commercial Corporation as payee.
*10.9 Assignment of Loan dated June 25, 1999 between Greyrock
Capital, a division of NationsCredit Commercial
Corporation as assignor and Welsh, Carson, Anderson & Stowe
VII, L.P. as assignee.
*10.10 Acknowledgement, Consent and Release by the Company, Aurora
Electronics Group, Inc., Cerplex, Inc. and Cerplex Mass.,
Inc.
*10.11 Release by Welsh, Carson, Anderson & Stowe VII, L.P.
*10.12 Release of Continuing Guaranty by Greyrock Capital, a
division of NationsCredit Commercial Corporation.
*10.13 Consent by Silicon Valley Bank to the assignment documents
(incorporated by reference from Exhibit 10.8 and filed with
this Form 10-Q).
*10.14 Form of the Secured Promissory Note in the amount of
$25,000,000 originally issued on April 30, 1998 amended and
restated on June 25, 1999 between the Company, Aurora
Electronics Group, Inc., Cerplex Mass., Inc. and Cerplex,
Inc. as payors and Welsh, Carson, Anderson & Stowe VII,
L.P., affiliates of Welsh, Carson, Anderson & Stowe VII,
L.P. and individual investors as payee.
*10.15 Amended and Restated Secured Promissory Note in the amount
of $9,024,896.72 issued on June 25, 1999 1999 between the
Company, Aurora Electronics Group, Inc., Cerplex Mass., Inc.
and Cerplex, Inc. as payors and Welsh, Carson, Anderson &
Stowe VII, L.P. as payee.
*10.16 Demand Promissory Note in the amount of $11,000,000
originally issued on April 30, 1998 amended and restated on
June 25, 1999 between the Company, Aurora Electronics Group,
Inc. and Cerplex, Inc. as payors and Welsh, Carson, Anderson
& Stowe VII, L.P. as payee.
*10.17 Demand Promissory Note in the amount of $4,975,103.28
originally issued on April 30, 1998 amended and restated on
June 25, 1999 between the Company, Aurora Electronics Group,
Inc. and Cerplex, Inc. as payors and Welsh, Carson, Anderson
& Stowe VII, L.P. as payee.
27 Financial Data Schedule - Article 5 of Regulation S-X.
- ------------
* Filed herewith.
23
<PAGE> 1
EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B SENIOR CUMULATIVE PREFERRED STOCK
OF
THE CERPLEX GROUP, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
-------------------------------------------
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 resolution was adopted as of by the Board of
Directors of the Corporation pursuant to Section 141 of the Delaware General
Corporation Law:
"RESOLVED that, pursuant to authority vested in the Board of
Directors of the Corporation by Article Fourth of the Corporation's Restated
Certificate of Incorporation, as amended, of the total authorized number of
1,000,000 shares of Preferred Stock, par value $.01 per share, of the
Corporation, there shall be designated a series of 60,000 shares which shall be
issued in and constitute a single series to be known as "Series B Senior
Cumulative Preferred Stock" (hereinafter called the "Series B Senior Preferred
Stock"). The shares of Series B Senior Preferred Stock shall have the voting
powers, designations, preferences and other special rights, and qualifications,
limitations and restrictions thereof set forth below:
1. DIVIDENDS. (a) The holders of shares of Series B Senior
Preferred Stock shall be entitled to receive, out of funds legally available for
such purpose, cash dividends at the rate of 7% per share per annum, and no more,
payable as and when declared by the Board of Directors of the Corporation. Such
dividends shall be cumulative and shall accrue from and after the date of issue
whether or not declared and whether or not there are any funds of the
Corporation legally available for the payment of dividends. Accrued but unpaid
dividends shall not bear interest. The Board of Directors of the Corporation may
fix a record date
<PAGE> 2
for the determination of holders of Series B Senior Preferred Stock entitled to
receive payment of a dividend declared thereon, which record date shall be no
more than 60 days prior to the date fixed for the payment thereof.
(b) As long as any shares of Series B Senior Preferred Stock
shall remain outstanding, in no event shall any dividend be declared or paid
upon, nor shall any distribution be made upon, any Junior Capital Stock (as
defined herein), other than a dividend or distribution payable solely in shares
of common stock of the Corporation, nor shall any shares of Junior Capital Stock
be purchased or redeemed by the Corporation, nor shall any moneys be paid to or
made available for a sinking fund for the purchase or redemption of shares of
any Junior Capital Stock, unless, in each such case, (i) full cumulative
dividends on the outstanding shares of Series B Senior Preferred Stock shall
have been declared and paid and (ii) any arrears or defaults in any redemption
of shares of Series B Senior Preferred Stock shall have been cured. The term
"Junior Capital Stock" as used herein means any shares of capital stock of the
Corporation, including without limitation the Corporation's Common Stock, par
value $.03 per share (the "Common Stock"), and the Corporation's Senior
Cumulative Convertible Series, par value $.01 per share (the "Existing Preferred
Stock"), other than shares of the Corporation's capital stock permitted to rank
on a parity with or senior to the Series B Senior Preferred Stock pursuant to
paragraph 5 hereof.
2. REDEMPTION. The shares of Series B Senior Preferred Stock
may be redeemed as follows:
(a) REDEMPTION AT THE OPTION OF THE COMPANY. Except as and to
the extent expressly prohibited by applicable law, the Corporation may, at its
option, redeem any number of shares of Series B Senior Preferred Stock at any
time (in the manner and with the effect provided in subparagraphs 2(c) through
2(e) below).
(b) REDEMPTION AT THE OPTION OF THE HOLDER. Upon the
occurrence of any of the following (each a "Change of Control"):
(i) the sale, lease or transfer, whether direct or indirect,
of all or substantially all the assets of the Corporation and its
subsidiaries, taken as a whole, in one transaction or a series of
related transactions, to any person or group other than the WCAS Group
(as hereinafter defined), or
(ii) the acquisition of beneficial ownership by any person or
group other than the WCAS Group, of voting stock of the Corporation
representing more than 50% of the voting
2
<PAGE> 3
power of all outstanding shares of such voting stock, whether by way
of merger or consolidation or otherwise,
then each holder of any share or shares of Series B Senior Preferred Stock shall
have the right, at such holder's option, to require the Corporation to redeem (a
"Redemption at the Option of the Holder"), any or all of such holder's shares of
Series B Senior Preferred Stock (any such redemption of less than all a holder's
shares to be in integral multiples of 1,000 shares) on or prior to the effective
date of such Change of Control, at a redemption price of $1,000 plus all accrued
but unpaid dividends to which the holders of the Series B Senior Preferred Stock
are then entitled pursuant to paragraph 1 above as of such date. Such option
shall be exercised by written notice to the Corporation given within fifteen
days of the date of receipt of the Redemption Notice (as defined herein) to be
delivered pursuant to paragraph 2(c) below.
For purposes of this Certificate of Designations: (i) the
terms "person" and "group" shall have the meaning set forth in paragraph
13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), whether or not applicable, (ii) the term "beneficial owner" shall have
the meaning set forth in Rules 13d-3 and 13d-5 under the Exchange Act, whether
or not applicable, except that a person shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time or upon
the occurrence of certain events, (iii) any "person" or "group" will be deemed
to beneficially own any voting stock of the Corporation so long as such person
or group beneficially owns, directly or indirectly, in the aggregate a majority
of the voting stock of a registered holder of the voting stock of the
Corporation, and (iv) the term "WCAS Group" shall mean Welsh, Carson, Anderson &
Stowe VII, L.P., a Delaware limited partnership ("WCAS VII"), WCAS Capital
Partners II, L.P., a Delaware limited partnership ("WCAS CP II"), any general
partners thereof and any other investment limited partnerships or other
investment entities under common control therewith.
Any date on which any shares of Series B Senior Preferred
Stock are to be redeemed as provided in this paragraph 2 is hereinafter called a
"Senior Preferred Redemption Date." The price at which any shares of Series B
Senior Preferred Stock are to be redeemed as herein provided is hereinafter
called the "Senior Preferred Redemption Price."
(c) NOTICE OF REDEMPTION. At least 20 days (and not more than
60 days) prior to any Senior Preferred Redemption Date (which in the case of any
Redemption at the Option of the Holder shall be prior to the effective date of
any Change of Control),
3
<PAGE> 4
written notice thereof (a "Senior Preferred Redemption Notice") shall be mailed,
by first class or registered mail, postage prepaid, to each holder of record of
Series B Senior Preferred Stock, at his, her or its address last shown on the
records of the transfer agent of the Series B Senior Preferred Stock (or the
records of the Corporation, if it serves as its own transfer agent). The Senior
Preferred Redemption Notice shall set forth (i) the Senior Preferred Redemption
Date, (ii) the Senior Preferred Redemption Price, (iii) in the case of a
Redemption at the Option of the Company, the total number of shares to be
redeemed from all holders and the number of shares to be redeemed from such
holder, and (iv) in the case of a Redemption at the Option of the Holder, a
description of the events which will, upon the occurrence thereof, constitute a
Change of Control, including a summary description of the terms thereof, and
such holder's right to exercise its option to require a redemption under
paragraph 2(b) hereof. In the case of a Redemption at the Option of the Company,
the Senior Preferred Redemption Notice shall call upon such holder to surrender
to the Corporation, in the manner and at the place designated, his, her or its
certificate or certificates representing any shares of Series B Senior Preferred
Stock to be redeemed.
(d) REDEEMED OR OTHERWISE ACQUIRED SHARES TO BE RETIRED. On or
prior to a Senior Preferred Redemption Date, all holders of shares of Series B
Senior Preferred Stock to be redeemed shall surrender their certificates
representing such shares to the Corporation, in the manner and at the place
designated in the Senior Preferred Redemption Notice, and against such surrender
the Senior Preferred Redemption Price of such shares shall be paid to the order
of the person whose name appears on each such certificate as the owner thereof.
Each surrendered certificate shall be canceled. From and after the Senior
Preferred Redemption Date, unless there shall have been a default in payment of
the Senior Preferred Redemption Price, and notwithstanding that any certificate
for shares of Series B Senior Preferred Stock to be redeemed shall not have been
surrendered for cancellation, all rights of the holders of the shares of
redeemed Series B Senior Preferred Stock as holders of such shares of Series B
Senior Preferred Stock (except the right to receive the Senior Preferred
Redemption Price without interest against surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation (or its transfer
agent, if any) or be deemed to be outstanding for any purpose whatsoever.
(e) SHARES TO BE REDEEMED OR PURCHASED. If the funds of the
Corporation legally available for redemption of Series B Senior Preferred Stock
on any Senior Preferred Redemption Date are insufficient, after redemption of
any other shares ranking
4
<PAGE> 5
senior thereto, to redeem the full number of shares of Series B Senior Preferred
Stock to be redeemed on such date, those funds which are legally available shall
be used to redeem the maximum possible number of such shares of Series B Senior
Preferred Stock ratably from each holder whose shares are otherwise required to
be redeemed. At any time thereafter when additional funds of the Corporation
become legally available for the redemption of Series B Senior Preferred Stock,
such funds will be used, at the end of the next succeeding fiscal quarter, to
redeem the balance of the shares which the Corporation was theretofore obligated
to redeem, ratably on the basis set forth in the preceding sentence.
3. LIQUIDATION, DISSOLUTION OR WINDING UP. (a) In the event of
any voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, the holders of shares of Series B Senior Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its stockholders, before any payment shall be made
to the holders of any shares of Junior Capital Stock by reason of their
ownership thereof, an amount equal to $1,000 per share of Series B Senior
Preferred Stock, plus all accrued but unpaid dividends to which the holders of
the Series B Senior Preferred Stock are then entitled pursuant to paragraph 1
above as of such date, and no more. If upon any such liquidation, dissolution or
winding up of the Corporation the remaining assets of the Corporation available
for distribution to its stockholders (after making all distributions to which
holders of capital stock ranking senior to the Series B Senior Preferred Stock
shall be entitled) shall be insufficient to pay the holders of shares of Series
B Senior Preferred Stock the full amount to which they shall be entitled
pursuant to this paragraph 3(a), the holders of shares of Series B Senior
Preferred Stock, and any other shares ranking on a parity therewith, shall share
ratably in any distribution of the remaining assets and funds of the Corporation
in proportion to the respective amounts which would otherwise be payable in
respect of the shares of Series B Senior Preferred Stock held by them upon such
distribution if all amounts payable on or with respect to such shares were paid
in full. Written notice of such liquidation, dissolution or winding up, stating
a payment date, the amount of payment upon liquidation, dissolution or winding
up and the place where said sums shall be payable shall be given by mail,
postage prepaid, not less than 30 days prior to the payment date stated therein,
to the holders of record of the Series B Senior Preferred Stock, such notice to
be addressed to each stockholder at his post office address as shown by the
records of the Corporation, PROVIDED, HOWEVER that failure to give notice
pursuant to this sentence shall not invalidate the action involved.
(b) After the payment of all amounts required to be paid
pursuant to paragraph 3(a) to the holders of shares of
5
<PAGE> 6
Series B Senior Preferred Stock, and any other shares ranking on a parity
therewith, upon the dissolution, liquidation or winding up of the Corporation,
the holders of shares of Junior Capital Stock then outstanding shall share in
any distribution of the remaining assets and funds of the Corporation in the
manner provided by law, in the Restated Certificate of Incorporation of the
Corporation, as amended, or as provided in any pertinent Certificate of
Designations of the Corporation, as the case may be.
(c) No Change of Control shall be deemed to be a liquidation,
dissolution or winding up of the Corporation for purposes of this paragraph 3.
4. VOTING. Except as otherwise provided by law or herein, the
holders of Series B Senior Preferred Stock shall have no vote on any matters to
be voted on by the stockholders of the Corporation.
5. RESTRICTIONS. So long as any shares of Series B Senior
Preferred Stock are outstanding (except, with respect to clause (i) below, so
long as at least 5,000 shares of Series B Senior Preferred Stock are
outstanding), without the consent of the holders of a majority of the Series B
Senior Preferred Stock at the time outstanding given in person or by proxy,
either in writing or at a special meeting called for that purpose at which the
holders of the Series B Senior Preferred Stock shall vote separately as a class,
the Corporation may not (i) effect or validate the amendment, alteration or
repeal of any provision hereof which would amend or repeal the dividend, voting,
conversion, redemption or liquidation rights of the Series B Senior Preferred
Stock set forth herein; (ii) effect or validate the amendment, alteration or
repeal of any provision of the Restated Certificate of Incorporation or the
By-laws of the Corporation; or (iii) (A) create or authorize any additional
class or series of stock ranking senior to or on a parity with the Series B
Senior Preferred Stock as to dividends or as to rights upon redemption,
liquidation, dissolution or winding up, or (B) increase the authorized number of
shares of the Series B Senior Preferred Stock or of any other class or series of
capital stock of the Corporation ranking senior to or on a parity with the
Series B Senior Preferred Stock as to dividends or as to rights upon redemption,
liquidation, dissolution or winding up, whether any such creation or
authorization or increase shall be by means of amendment hereof, amendment of
the Restated Certificate of Incorporation of the Corporation, Certificate of
Designations or amendment thereof, merger, consolidation or otherwise.
6. REACQUIRED SHARES. Any shares of Series B Senior Preferred
Stock, which are redeemed or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and can-
6
<PAGE> 7
celed promptly after the acquisition thereof and the number of authorized shares
of Series B Senior Preferred Stock shall be reduced accordingly.
7
<PAGE> 8
IN WITNESS WHEREOF, this Certificate of Designations has been
executed by the Corporation by its Executive Vice President and Chief Financial
Officer this 30th day of June, 1999.
THE CERPLEX GROUP, INC.
By /s/ RICHARD ALSTON
--------------------------
Richard Alston
Executive Vice President and
Chief Financial Officer
<PAGE> 1
Exhibit 10.8
CONSENT AND AMENDMENT
TO THE
LOAN AND SECURITY AGREEMENT
This AMENDMENT, dated as of June 25, 1999 (the "Amendment"),
to the Loan and Security Agreement, dated April 30, 1998 (the "Agreement"), by
and among The Cerplex Group, Inc., Aurora Electronics Group, Inc., Cerplex, Inc.
and Cerplex Mass, Inc. (jointly and severally, the "Borrower") and Welsh,
Carson, Anderson & Stowe VII, L.P. ("WCAS VII") as successor in interest to the
predecessor lender party, Greyrock Business Credit, a division of NationsCredit
Commercial Corporation. The terms used herein, including in the preamble and
recitals hereto, not otherwise defined herein or otherwise amended hereby shall
have the meanings ascribed thereto in the Agreement.
RECITALS:
WHEREAS, the Borrower hereby requests the consent of WCAS VII to the
amendment set forth herein; and
WHEREAS, WCAS VII has agreed, subject to the terms and conditions of
this Agreement, to such amendment.
NOW, THEREFORE, in consideration of the premises and agreements,
provisions and covenants herein contained, the Borrower and WCAS VII agree as
follows:
1. The introduction paragraph of the Agreement shall be amended
to add the following after the last sentence:
"In the event that GBC sells and assigns its rights under this
Agreement, the party succeeding to GBC's rights and powers
hereunder shall be referred to as "GBC" or the "Lender"; it
being understood and agreed that the use of the term "Lender"
in lieu of the term "GBC" to refer to any successor party
shall in no manner be construed to divest such party of any
rights or powers of GBC hereunder."
2. Section 1.1 of the Agreement shall be amended to add the
following phrase to the end of the section:
"As of the Amendment Effective Date, and notwithstanding
anything to the contrary expressed or implied herein, in the
Schedule hereto or in any other
<PAGE> 2
document executed at any time and from time to time and
delivered in connection herewith, Lender shall have no
further commitment to extend sums under the Revolving Loans
and the Revolving Loans will be terminated on the Amendment
Effective Date; PROVIDED; HOWEVER, that any amounts
outstanding under the Revolving Loans shall, as of the
Amendment Effective Date, be converted into a term loan (the
"Additional Term Loan"), subject to those terms and
conditions set forth in Section 1.1 of the Schedule. It is
the intention of the Borrower and the Lender that any and
all advances heretofore made as Revolving Loans shall,
notwithstanding the conversion of the Revolving Loans into
the Additional Term Loan, once so converted, be, and for all
purposes be deemed to be, one and the same loan extended to
the Borrower."
3. Section 1.2 of the Agreement shall be amended such that the
last two sentences of Section 1.2 are deleted and replaced by
the following:
"Commencing on May 31, 1998, and continuing on the
last day of each succeeding month, accrued interest
on all Loans and other monetary Obligations shall be
payable monthly; PROVIDED, HOWEVER, that, commencing
with accrued interest payable on July 31, 1999, and
in the case of all accrued interest payable with
respect to periods occurring thereafter, accrued
interest on all Loans and other monetary Obligations
shall be payable "in kind"; that is to say, interest
shall be paid by the addition to the principal amount
of all Loans and other monetary Obligations of an
amount equal to the amount of such accrued interest.
Any accrued interest so added to principal shall bear
interest at the same rate as the principal under any
Loan or other monetary Obligation."
4. Section 8 of the Agreement shall be amended to include the
following definitions:
(a) "Amendment" shall refer to the Amendment, dated as of
June 25, 1999, to this Agreement, by and among the
Borrower and the Lender.
(b) "Amendment Effective Date" shall mean the date on
which the Amendment shall be executed by all parties
thereto.
5. The Schedule to the Agreement shall be amended as follows:
(a) section 1.1 shall be amended such that:
(1) the phrase "to GBC concurrently herewith" on the
fourth and fifth lines is deleted and replaced by the
phrase: "to the Lender on the Amendment Effective
Date" and;
2
<PAGE> 3
(2) the first full paragraph on the second page
(beginning with "Borrower may borrow") is amended and
restated in its entirety as follows:
"ADDITIONAL TERM LOAN. As a result of the Revolving
Loans having been converted into the Additional Term
Loan as of the Amendment Effective Date and Lender no
longer being required to extend loans pursuant to the
terms and conditions of the Revolving Loans, an
additional term loan (the "Additional Term Loan"),
consisting of $9,024,896.72, being the entire amount
outstanding under the Revolving Loans as of the
Amendment Effective Date, which shall be payable at
the Maturity Date and bear interest at the Interest
Rate. The Additional Term Loan shall be evidenced by
a promissory note (the "Additional Promissory Note")
in the form attached to this Schedule as Exhibit B.
The Term Loan and the Additional Term Loan shall
constitute "Loans" for all purposes of this
Agreement."
(b) section 1.2 shall be amended and restated in its
entirety as follows:
"The interest rate (the "Interest Rate") in effect
throughout each calendar month during the term of
this agreement shall be the thirty day LIBOR Rate in
effect on the first day of each month, plus 1.75% 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 Section 8
above."
(c) section 6.1 shall be amended as follows:
"APRIL 30, 1999" shall be replaced by "The maturity
date of the Loans (the "Maturity Date") shall be
APRIL 1, 2001"
6. The parties hereto consent and agree to the following: (i) on
the Amendment Effective Date, Lender will surrender for cancellation the
Promissory Note, dated April 30, 1998 (the "Promissory Note"), issued by
Borrower in favor of GBC for $36 million, and endorsed by GBC to WCAS VII and
(ii) upon its receipt of the Promissory Note as aforesaid, on the Amendment
Effective Date, Borrower will execute, deliver and issue to Lender, two amended
and restated promissory notes, dated as of the Amendment Effective Date and in
principal amount of $25 million and $11 million, respectively, and, except for
making provision for such principal amounts, substantially in the form attached
to this Amendment as Exhibits A.1 and A.2 (together, the "Amended and Restated
Promissory Notes"). The parties hereto further agree that from and after the
Amendment Effective Date, all references in the Agreement and each of the other
Loan Documents (as defined below) to the Promissory Note shall be deemed to be
references to the Amended and Restated Promissory Notes. (For purposes of this
Amendment, "Loan Documents"
3
<PAGE> 4
shall refer to the Agreement, the Promissory Note, the Amended and Restated
Promissory Notes, the Additional Promissory Note and any and all documents and
instruments executed at any time, and from time to time, in connection with any
of the foregoing.
7. WCAS VII, in its capacity as Lender, hereby consents to the
issuance by Borrower of the Demand Promissory Note, dated June 25, 1999, in the
amount of $4,975,103.28, to WCAS VII .
8. Except as expressly provided herein, all of the terms and
conditions of the Agreement and each of the other Loan Documents shall remain in
full force and effect. In furtherance of, but not in limitation of, the
preceding sentence of this paragraph, it is acknowledged and agreed that this
Amendment is limited strictly to its terms the Lender shall not have any
obligation to issue any further amendment with respect to the Agreement or any
other matter. Except as expressly provided herein, nothing contained herein
shall be, or be deemed to be, a waiver of, or shall in any way impair or
prejudice, any rights or powers of the Lender set forth in the Agreement or any
of the other Loan Documents.
9. In order to induce Lenders to enter into this Agreement, the
Borrower represents and warrants to the Lender, as of the date hereof and upon
giving effect to this Amendment, that the representations and warranties
contained in the Agreement are true, correct and complete in all respects on and
as of the date hereof to the same extent as though made on and as of that date,
except to the extent such representations and warranties specifically relate to
an earlier date, in which case such representations and warranties shall have
been true, correct and complete in all respects on and as of such earlier date.
10. This Amendment shall be binding upon the parties hereto and
their respective successors and assigns and shall inure to the benefit of the
parties hereto and the successors and assigns of Lender. The rights and
obligations of the Borrower hereunder and any interest therein may not be
assigned or delegated by any Borrower without the prior written consent of the
Lender.
11. In case any provision in or obligation hereunder shall be
invalid, illegal or unenforceable in any jurisdiction, the validity, legality
and enforceability of the remaining provisions or obligations, or of such
provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
12. At any time or from time to time upon the request of WCAS VII,
the Borrower will, at its expense, promptly execute, acknowledge and deliver
such other documents and do such other acts and things as WCAS VII may
reasonably request in order to effect fully the purposes of this Amendment and
Loan Documents and to provide for payment of the Obligations in accordance with
the terms of this Amendment and the other Loan Documents. In furtherance and not
in limitation of the foregoing, the Borrower shall take, and cause each of its
subsidiaries to take, such actions as WCAS VII may reasonably request from time
to time (including, without
4
<PAGE> 5
limitation, the execution and delivery of guaranties, security agreements,
pledge agreements, mortgages, deeds of trust, landlord's consents and estoppels,
stock powers, financing statements and other documents, the filing or recording
of any of the foregoing, title insurance with respect to any of the foregoing
that relates to an interest in real property, and the delivery of stock
certificates and other collateral with respect to which perfection is obtained
by possession) to ensure that the Obligations are secured by the Collateral.
13. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
14. This Amendment may be executed in any number of counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument.
As set forth herein, this Amendment shall become effective upon the execution of
a counterpart hereof by each of the parties hereto and receipt by each of the
Borrower and the Lender of written or telephonic notification of such execution
and authorization of delivery thereof.
[The remainder of this page is intentionally left blank.]
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
THE CERPLEX GROUP, INC. CERPLEX, INC.
By /s/ RICHARD ALSTON By /s/ RICHARD ALSTON
-------------------------------- --------------------------------
AURORA ELECTRONICS GROUP, INC. CERPLEX MASS, INC.
By /s/ RICHARD ALSTON By /s/ RICHARD ALSTON
-------------------------------- --------------------------------
WELSH, CARSON, ANDERSON
& STOWE VII, L.P.
By /s/ RUSSELL L. CARSON
--------------------------------
Russell L. Carson
General Partner
<PAGE> 1
EXHIBIT 10.9
ASSIGNMENT OF LOAN
IN CONSIDERATION FOR the sum of $45,399,718.10 (plus $12,050.63 per day
for each day after June 25, 1999), to be paid concurrently herewith to GREYROCK
CAPITAL, A DIVISION OF NATIONSCREDIT COMMERCIAL CORPORATION (the "Existing
Lender"), by wire transfer, the Existing Lender, effective immediately upon: (i)
the payment of said sum, (ii) the execution and delivery of this Assignment of
Loan, (iii) the execution and delivery of the Acknowledgment, Consent and
Release referred to below by The Cerplex Group, Inc, Aurora Electronics Group,
Inc., Cerplex, Inc. and Cerplex Mass, Inc. (collectively, the "Borrowers") and
(iv) the execution and delivery of the Release referred to below by Buyer (as
defined herein), hereby sells, assigns and transfers to Welsh, Carson, Anderson
& Stowe VII, L.P. ("Buyer") the following (collectively, the "Loan Document
Obligations"): All of the Existing Lender's right, title and interest in, to and
under the indebtedness (including, without limitation, under and with respect to
the Term Loan and the Revolving Loans (as such terms are defined in the Loan and
Security Agreement, dated April 30, 1998, and the Schedule thereto, between the
Existing Lender and the Borrowers); said Term Loan and Revolving Loans being
herein called, collectively, the "Loans"; said Loan and Security Agreement,
together with the Schedule thereto, being herein called, collectively, the "Loan
Agreement"; and capitalized terms used in this Assignment of Loan and not
otherwise herein defined having the meanings ascribed to them under the Loan
Agreement), liabilities and obligations of the Borrowers to the Existing Lender,
and all of the Existing Lender's rights, claims and remedies (collectively, the
"Assigned Rights"), under the Loan Agreement, the Secured Promissory Note dated
April 30, 1998, in the original principal amount of $36,000,000 made by the
Borrowers to the Existing Lender (the "Promissory Note") and any and all other
documents and instruments executed and delivered by any of the Borrowers and
their respective Affiliates relating to the Loan Agreement and the transactions
contemplated thereby (herein collectively called, together with the Loan
Agreement and the Promissory Note, the "Loan Documents"), including without
limitation all UCC-1 Financing Statements executed by the Existing Lender and
the Borrowers (collectively, the "Financing Statements"). This Assignment is
conditioned on the execution and delivery by the Borrowers of the
Acknowledgment, Consent And Release set forth at the end of the Assignment and
on the execution and delivery by Buyer of the Release set forth at the end of
the Assignment.
It is understood and agreed by the Existing Lender and Buyer that, upon
the effectiveness of this Assignment, the Existing Lender is terminating that
certain Continuing Guaranty issued by Buyer, as guarantor thereunder, in favor
of the Existing Lender and, except as otherwise provided for herein, is
releasing and discharging Buyer from any and all obligations and liabilities
thereunder. The Existing Lender hereby agrees that, except as otherwise provided
for herein, upon the effectiveness of this Assignment: (i) all liens, charges
(whether floating, fixed or otherwise), security interests and similar interests
of any kind, nature or description which the Existing Lender has in any of the
assets and property, real or personal, tangible or intangible, of Cerplex
Limited (UK), are terminated and released and (ii) the Continuing Guaranty and
Security Agreement, each dated April 30, 1998, granted by Cerplex Limited (UK)
in favor of the Existing Lender are terminated and rendered of no further force
and effect.
Notwithstanding this Assignment or anything herein to the contrary, the
Existing Lender retains all of its rights under all guarantees (including,
without limitation, the Guaranties described in the foregoing paragraph),
security agreements and other Loan Documents which apply in the event any claim
is ever made upon the Existing Lender for repayment or recovery of any amount or
amounts received by the Existing Lender in payment of or on account of any
indebtedness, liabilities or obligations to the Existing Lender because of any
claim that any such payment constituted a preferential transfer or fraudulent
conveyance or for any other reason.
1
<PAGE> 2
This sale and assignment is made without recourse to the Existing
Lender and without any representation or warranty by the Existing Lender of any
kind, except (such exception being called the Existing Lender's "Title
Representation") that the Existing Lender represents and warrants to Buyer that
it has and is conveying to Buyer good title to the Loan Document Obligations
(including, without limitation, the Loans), the Assigned Rights and the Loan
Documents, free and clear of all transfers, liens, claims and encumbrances
created by the Existing Lender. Without limiting the generality of the
foregoing, the Existing Lender makes no representation or warranty as to the
Borrower or as to the validity, perfection, priority, enforceability or value of
any of the Loan Document Obligations (including, without limitation, the Loans),
the Assigned Rights, the Loan Documents or any security interests or liens of
the Existing Lender. Buyer hereby assumes and agrees to perform all obligations
of the Existing Lender under the Loan Documents arising in connection with
matters or circumstances occurring on or after the effectiveness of this
Assignment. Buyer agrees to indemnify and hold harmless the Existing Lender from
and against any and all claims, debts, liabilities, demands, obligations,
actions, costs and expenses (including, without limitation, reasonable
attorneys' fees), which it may sustain or incur, based upon, arising out of, or
relating to the Loan Documents, including, without limitation, any such amounts
sustained or incurred as of the result of the gross negligence or willful
misconduct of the Existing Lender and any such amounts sustained or incurred by
the Existing Lender resulting from Silicon Valley Bank's participation in the
Loans and Loan Documents.
The Existing Lender shall concurrently deliver to Buyer (i) copies of
the Loan Documents, (ii) the original of the Promissory Note, endorsed by the
Existing Lender to Buyer, without recourse warranty or representation (except as
expressly set forth herein), and (iii) Assignments of the Financing Statements
in the form previously agreed between the Existing Lender and Buyer. The
Existing Lender shall, in the future, execute and deliver to Buyer such other
documents and instruments, and take such other actions, as Buyer shall
reasonably request in order to transfer the Loans and the Loan Documents to
Buyer and otherwise carry out the purposes of this Assignment (including,
without limitation, with respect to any release or termination of any negative
pledge or liens encumbering the assets, property or capital stock of Cerplex
SAS), but without cost or expense to the Existing Lender.
This Assignment may not be modified or amended, nor may any rights
hereunder be waived, except in a writing signed by the parties hereto. In the
event of any litigation between the parties based upon, arising out of, or in
any way relating to this Assignment, the prevailing party shall be entitled to
recover all of its costs and expenses (including, without limitation,
[The rest of this page intentionally left blank]
2
<PAGE> 3
reasonable attorneys' fees) from the non-prevailing party. This Assignment shall
be governed by the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed and delivered this
Assignment on June 25, 1999.
EXISTING LENDER:
GREYROCK CAPITAL, A DIVISION OF NATIONSCREDIT
COMMERCIAL CORPORATION
By /s/ ILLEGIBLE
--------------------------------
Title President
---------------------------
ACCEPTED AND AGREED:
Buyer:
Welsh, Carson, Anderson & Stowe VII, L.P.
By: WCAS VII Partners, L.P., its General Partner
By /s/ Russell L. Carson
--------------------------------
Title General Partner
---------------------------
3
<PAGE> 1
Exhibit 10.10
ACKNOWLEDGMENT, CONSENT AND RELEASE
The undersigned Borrowers hereby acknowledge the foregoing Assignment,
and acknowledge and agree that the present unpaid principal balance of the Loan
Document Obligations (including, without limitation, the Loans) plus all accrued
interest through June 25, 1999 is $45,399,718.10 (plus $12,050.63 per day for
each day after June 25, 1999). The undersigned further acknowledge that the
Existing Lender shall have no further liability or obligation to the Borrowers
under, or in connection with, the Loan Documents, and Borrowers hereby release
and forever discharge the Existing Lender, and the Existing Lender's successors,
assigns, agents, shareholders, directors, officers, employees, agents,
attorneys, parent corporations, subsidiary corporations, affiliated
corporations, affiliates, participants and each of them, from any and all
claims, debts, liabilities, demands, obligations, costs, expenses, actions and
causes of action, of every nature and description, known and unknown, which
Borrowers now have or at any time may hold, by reason of any matter, cause or
thing occurred, done, omitted or suffered to be done prior to the date of this
Agreement. Borrowers each waive the benefits of California Civil Code Section
1542 which provides: "A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the time of executing
the release, which if known by him must have materially affected his settlement
with the debtor."
Borrowers:
The Cerplex Group, Inc.
By /s/ Richard Alston
--------------------------------
Title EVP & CEO
---------------------------
Aurora Electronics Group, Inc.
By /s/ Richard Alston
--------------------------------
Title EVP & CEO
---------------------------
Cerplex, Inc.
By /s/ Richard Alston
--------------------------------
Title EVP & CEO
---------------------------
Cerplex Mass, Inc.
By /s/ Richard Alston
--------------------------------
Title EVP & CEO
---------------------------
4
<PAGE> 1
EXHIBIT 10.11
RELEASE
-------
Except for the Existing Lender's Title Representation (as defined in
the Assignment) and its obligations under the fifth paragraph of the Assignment
to execute and/or deliver certain documents and instruments and to take other
action in connection with the Assignment, the undersigned acknowledges and
agrees that the Existing Lender shall have no further liability or obligation to
the Buyer under, or in connection with, the Loan Documents, and Buyer hereby
releases and forever discharges the Existing Lender, and the Existing Lender's
successors, assigns, agents, shareholders, directors, officers, employees,
agents, attorneys, parent corporations, subsidiary corporations, affiliated
corporations, affiliates, participants and each of them, from any and all
claims, debts, liabilities, demands, obligations, costs, expenses, actions and
causes of action, of every nature and description, known and unknown, which
Buyer now has or at any time may hold, by reason of any matter, cause or thing
occurred, done, omitted or suffered to be done prior to the date of this
Agreement relating in any manner to the Loan Document Obligations (including,
without limitation, the Loans), the Assigned Rights, the Loan Documents or
Borrowers. Buyer waives the benefits of California Civil Code Section 1542 which
provides: "A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the release,
which if known by him must have materially affected his settlement with the
debtor."
Buyer:
Welsh, Carson, Anderson & Stowe VII, L.P.
By: WCAS VII Partners, L.P.,
its General Partner
By /s/ Russell L. Carson
--------------------------------
Title General Partner
---------------------------
5
<PAGE> 1
EXHIBIT 10.12
RELEASE OF CONTINUING GUARANTY
------------------------------
Reference is made to that certain Continuing Guaranty (the "Continuing
Guaranty") delivered in April 1998 and executed by Welsh, Carson, Anderson &
Stowe VII, L.P. (the "Guarantor") in favor of the undersigned, in connection
with the Loan and Security Agreement dated April 30, 1998 between the
undersigned and the Borrowers (as defined in the Assignment to which this
Release of Continuing Guaranty is attached).
Except as otherwise provided for below, the undersigned acknowledges
and agrees that the Continuing Guaranty is terminated and rendered of no further
force and effect. Furthermore, the undersigned hereby releases and forever
discharges Guarantor and Guarantor's successors, assigns, agents, shareholders,
directors, officers, employees, agents, attorneys, parent corporations,
subsidiary corporations, affiliated corporations, affiliates, participants and
each of them, from any and all claims, debts, liabilities, demands, obligations,
costs, expenses, actions and causes of action, of every nature and description,
known and unknown, which the undersigned now has or at any time may hold, by
reason of any matter, cause or thing occurred, done, omitted or suffered to be
done prior to the date of this Agreement relating in any manner to the
Continuing Guaranty. The undersigned waives the benefits of California Civil
Code Section 1542 which provides: "A general release does not extend to claims
which the creditor does not know or suspect to exist in his favor at the time of
executing the release, which if known by him must have materially affected his
settlement with the debtor."
The foregoing release does not extend to any of the Guarantor's (as
Buyer) obligations under the Assignment. The foregoing release also does not
extend to the undersigned's rights under the Continuing Guaranty (or any other
Loan Documents) and the Guarantor's obligations, waivers and/or consents which
apply in the event any claim is ever made upon the undersigned for repayment or
recovery of any amount or amounts received by the undersigned in payment of or
on account of any indebtedness, liabilities or obligations to the undersigned
because of any claim that any such payment constituted a preferential transfer
or fraudulent conveyance or for any other reason.
Greyrock Capital, a Division of NationsCredit
Commercial Corporation
By /s/ ILLEGIBLE
--------------------------------
Title President
---------------------------
6
<PAGE> 1
EXHIBIT 10.13
CONSENT
Reference is made to that certain Participation Agreement dated April
27, 1998 between Greyrock Capital, a Division of NationsCredit Commercial
Corporation ("Greyrock"), and Silicon Valley Bank ("Silicon") with respect to
the Borrowers and the Loan Documents (each as defined in the Assignment of Loan
to which this Consent is attached) (the "Participation Agreement").
Reference is also made to the following: (i) the Assignment of Loan (to
which this Consent is attached), (ii) the Acknowledgment, Consent and Release
(attached to the Assignment of Loan), (iii) Release (attached to the Assignment
of Loan) and (iv) Release of Continuing Guaranty (attached to the Assignment of
Loan) (collectively, the "Assignment Documents").
Silicon hereby consents to the Assignment Documents, Greyrock's
execution thereof and such actions as Greyrock deems necessary in order to carry
out the purpose of the Assignment Documents. Silicon also understands that the
Assignment Documents will be binding upon Silicon as if Silicon were a named
party in and signatory to the Assignment Documents.
Silicon:
Silicon Valley Bank
By /s/ ILLEGIBLE
--------------------------------
Title VP
---------------------------
7
<PAGE> 1
Exhibit 10.14
AMENDED AND RESTATED SECURED PROMISSORY NOTE
Originally issued on
April 30, 1998
$25,000,000 New York, New York Amended and Restated
on June 25, 1999
FOR VALUE RECEIVED, the undersigned (jointly and severally,
the Borrower) promises to pay to the order of WELSH, CARSON, ANDERSON & STOWE
VII, L.P. ("WCAS VII"), at 320 Park Avenue, Suite 2500, New York, NY, 10022 or
at such other address as the holder of this Note shall direct, the principal sum
of $25,000,000, payable on the earlier of the following dates (the Maturity
Date): (i) April 1, 2001, or (ii) the date the Loan and Security Agreement
between the Borrower and Lender, 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 thirty day LIBOR Rate in effect on the first day of each
month, plus 1.75% 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.
In addition to the principal payments provided above,
commencing on May 31, 1998, and continuing on the last day of each succeeding
month, accrued interest on this Note shall be payable monthly; provided,
however, that, commencing with accrued interest payable on July 31, 1999, and in
the case of all accrued interest payable with respect to periods occurring
thereafter, accrued interest on this Note shall be payable "in kind"; that is to
say, interest shall be paid by the addition to the principal hereof of an amount
equal to the amount of such accrued interest. Any accrued interest so added to
principal 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 hereof shall be
extended to the next succeeding business day, and interest shall be payable
thereon during such extension.
<PAGE> 2
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 in
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 Lender (after
expiration of any applicable grace period set forth therein) which would entitle
Lender to accelerate the maturity of any indebtedness of Borrower to Lender
(collectively, Events of Default), Lender 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 Lender after the
time when it becomes due, as herein specified, shall not be held to establish a
custom, or to waive any rights of Lender 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. Lender 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 Lender in
connection with or related to this Note, or its 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 Lender. Nothing
herein shall be deemed to limit any of the terms or provisions of the Loan
Agreement or any other present and future document, instrument or agreement,
between the Borrower and Lender, and all of Lender'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 Lender, 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.
<PAGE> 3
LENDER 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 LENDER
AND BORROWER; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR BORROWER OR
ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH LENDER 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 New York.
THE CERPLEX GROUP, INC. CERPLEX, INC.
By /s/ RICHARD ALSTON By /s/ RICHARD ALSTON
---------------------------- -----------------------------
President or Vice President President or Vice President
By /s/ PHILIP E. PIETROWSKI By /s/ PHILIP E. PIETROWSKI
---------------------------- -----------------------------
Secretary or Ass't Secretary Secretary or Ass't Secretary
AURORA ELECTRONICS GROUP, INC. CERPLEX MASS, INC.
By /s/ RICHARD ALSTON By /s/ RICHARD ALSTON
---------------------------- -----------------------------
President or Vice President President or Vice President
By /s/ PHILIP E. PIETROWSKI By /s/ PHILIP E. PIETROWSKI
---------------------------- -----------------------------
Secretary or Ass't Secretary Secretary or Ass't Secretary
<PAGE> 1
Exhibit 10.15
SECURED PROMISSORY NOTE
$9,024,896.72 New York, New York June 25, 1999
FOR VALUE RECEIVED, the undersigned (jointly and severally,
the Borrower) promises to pay to the order of WELSH, CARSON, ANDERSON & STOWE
VII, L.P. ("WCAS VII"), at 320 Park Avenue, Suite 2500, New York, NY, 10022 or
at such other address as the holder of this Note shall direct, the principal sum
of $9,024,896.72, payable on the earlier of the following dates (the Maturity
Date): (i) April 1, 2001, or (ii) the date the Loan and Security Agreement
between the Borrower and Lender, 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 thirty day LIBOR Rate in effect on the first day of each
month, plus 1.75% 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 "in kind"
monthly, in addition to principal payments provided above, commencing on July
31, 1999, and continuing on the last day of each succeeding month; that is to
say, interest shall be paid by the addition to the principal hereof of an amount
equal to the amount of such accrued interest. Any accrued interest so added to
principal 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 hereof 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 in
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 Lender
<PAGE> 2
(after expiration of any applicable grace period set forth therein) which would
entitle Lender to accelerate the maturity of any indebtedness of Borrower to
Lender (collectively, Events of Default), Lender 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 Lender after the
time when it becomes due, as herein specified, shall not be held to establish a
custom, or to waive any rights of Lender 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. Lender 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 Lender in
connection with or related to this Note, or its 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 Lender. Nothing
herein shall be deemed to limit any of the terms or provisions of the Loan
Agreement or any other present and future document, instrument or agreement,
between the Borrower and Lender, and all of Lender'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 Lender, 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.
<PAGE> 3
LENDER 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 LENDER
AND BORROWER; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR BORROWER OR
ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH LENDER 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 New York.
THE CERPLEX GROUP, INC. CERPLEX, INC.
By /s/ RICHARD ALSTON By /s/ RICHARD ALSTON
--------------------------------- ---------------------------------
President or Vice President President or Vice President
By /s/ PHILIP E. PIETROWSKI By /s/ PHILIP E. PIETROWSKI
--------------------------------- ---------------------------------
Secretary or Ass't Secretary Secretary or Ass't Secretary
AURORA ELECTRONICS GROUP, INC. CERPLEX MASS, INC.
By /s/ RICHARD ALSTON By /s/ RICHARD ALSTON
--------------------------------- ---------------------------------
President or Vice President President or Vice President
By /s/ PHILIP E. PIETROWSKI By /s/ PHILIP E. PIETROWSKI
--------------------------------- ---------------------------------
Secretary or Ass't Secretary Secretary or Ass't Secretary
<PAGE> 1
Exhibit 10.16
AMENDED AND RESTATED SECURED PROMISSORY NOTE
Originally issued on
$11,000,000 New York, New York April 30, 1998
Amended and Restated
on June 25, 1999
FOR VALUE RECEIVED, the undersigned (jointly and severally,
the Borrower) promises to pay to the order of WELSH, CARSON, ANDERSON & STOWE
VII, L.P. ("WCAS VII"), at 320 Park Avenue, Suite 2500, New York, NY, 10022 or
at such other address as the holder of this Note shall direct, the principal sum
of $11,000,000, payable on the earlier of the following dates (the Maturity
Date): (i) April 1, 2001, or (ii) the date the Loan and Security Agreement
between the Borrower and Lender, 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 thirty day LIBOR Rate in effect on the first day of each
month, plus 1.75% 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.
In addition to the principal payments provided above,
commencing on May 31, 1998, and continuing on the last day of each succeeding
month, accrued interest on this Note shall be payable monthly; provided,
however, that, commencing with accrued interest payable on July 31, 1999, and in
the case of all accrued interest payable with respect to periods occurring
thereafter, accrued interest on this Note shall be payable "in kind"; that is to
say, interest shall be paid by the addition to the principal hereof of an amount
equal to the amount of such accrued interest. Any accrued interest so added to
principal 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 hereof shall be
extended to the next succeeding business day, and interest shall be payable
thereon during such extension.
<PAGE> 2
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 in
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 Lender (after
expiration of any applicable grace period set forth therein) which would entitle
Lender to accelerate the maturity of any indebtedness of Borrower to Lender
(collectively, Events of Default), Lender 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 Lender after the
time when it becomes due, as herein specified, shall not be held to establish a
custom, or to waive any rights of Lender 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. Lender 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 Lender in
connection with or related to this Note, or its 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 Lender. Nothing
herein shall be deemed to limit any of the terms or provisions of the Loan
Agreement or any other present and future document, instrument or agreement,
between the Borrower and Lender, and all of Lender'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 Lender, 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.
<PAGE> 3
LENDER 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 LENDER
AND BORROWER; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF LENDER OR BORROWER OR
ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH LENDER 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 New York.
THE CERPLEX GROUP, INC. CERPLEX, INC.
By /s/ RICHARD ALSTON By /s/ RICHARD ALSTON
------------------------------ ------------------------------
President or Vice President President or Vice President
By /s/ PHILIP E. PIETROWSKI By /s/ PHILIP E. PIETROWSKI
------------------------------ ------------------------------
Secretary or Ass't Secretary Secretary or Ass't Secretary
AURORA ELECTRONICS GROUP, INC. CERPLEX MASS, INC.
By /s/ RICHARD ALSTON By /s/ RICHARD ALSTON
------------------------------ ------------------------------
President or Vice President President or Vice President
By /s/ PHILIP E. PIETROWSKI By /s/ PHILIP E. PIETROWSKI
------------------------------ ------------------------------
Secretary or Ass't Secretary Secretary or Ass't Secretary
<PAGE> 1
Exhibit 10.17
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS IT IS REGISTERED UNDER THAT
ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
THE CERPLEX GROUP, INC.
AURORA ELECTRONICS GROUP, INC.
CERPLEX, INC.
CERPLEX MASS, INC.
Demand Promissory Note
$4,975,103.28 June 25, 1999
FOR VALUE RECEIVED, each of the undersigned, THE CERPLEX
GROUP, INC., a Delaware corporation (the "Parent"), AURORA ELECTRONICS GROUP,
INC., a California corporation, CERPLEX, INC., a Delaware corporation, and
CERPLEX MASS, INC., a Massachusetts corporation (collectively, the
"Co-Borrowers"), hereby promises, jointly and severally, to pay to Welsh,
Carson, Anderson & Stowe VII, L.P., a Delaware limited partnership ("WCAS VII"),
or registered assigns, the principal sum of FOUR MILLION NINE HUNDRED SEVENTY
FIVE THOUSAND ONE HUNDRED AND THREE DOLLARS AND TWENTY EIGHT CENTS
($4,975,103.28), together with any interest on the unpaid principal amount
hereof, ON DEMAND. This note shall bear interest on the unpaid balance hereof
from time to time outstanding at a rate (computed on the basis of a 360-day year
consisting of twelve 30-day months) of 6.75% per annum from the date hereof.
Accrued interest on this Note shall be payable "in kind"; that is to say,
interest shall be paid by the addition to the principal hereof of an amount
equal to the amount of such accrued interest. Any accrued interest so added to
principal shall bear interest at the same rate as the principal hereunder.
Demand for payment shall be in writing, mailed by first class registered or
certified mail, postage prepaid, or sent by recognized courier service to the
Co-Borrowers addressed to them at the office of Parent at 111 Pacifica Avenue,
Suite 300, Irvine, CA 92618, attention Richard Alston, or sent by facsimile to
Richard Alston at (949) 585-0209, confirmed by mail or courier as aforesaid.
All payments of principal and interest on this Note shall be
made in lawful money of the United States of America at the offices of WCAS VII
located at 320 Park Avenue, Suite 2500, New York, NY 10022-6815, or such other
place as shall be designated by the holder hereof to the Co-Borrowers in
writing.
<PAGE> 2
The Co-Borrowers hereby waive presentment, demand for payment,
protest and notice of protest, notice of dishonor and all other notices in
connection with this Note.
The Co-Borrowers shall have the right to prepay all or any
part of this Note at any time without penalty or premium.
All judicial proceedings brought against the Co-Borrowers with
respect to this Note may be brought in any state or federal court of competent
jurisdiction in the State of New York, and, by their execution and delivery of
this Note, the Co-Borrowers accept, for themselves and in connection with their
respective properties, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts and irrevocably agree to be bound by any
final judgment rendered thereby in connection with this Note from which no
appeal has been taken or is available. The Co-Borrowers irrevocably consent to
the service of process of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to Parent's address specified above, such service to become
effective five days after such mailing. The Co-Borrowers irrevocably waive (a)
trial by jury in any action or proceeding with respect to this Note, and (b) any
objection (including, without limitation, any objection to the laying of venue
or based on the grounds of forum non conveniens) that they may now or hereafter
have to the bringing of any such action or proceeding with respect to this Note
in any jurisdiction set forth above. Nothing herein shall affect the right to
serve process in any other manner permitted by law or shall limit the right of
WCAS VII to bring proceedings against the Co-Borrowers in the courts of any
other jurisdiction.
Should the indebtedness evidenced by this Note or any part
thereof be collected in any proceeding at law, or this Note be placed in the
hands of attorneys for collection after dishonor, the Co-Borrowers hereby agree
to pay all costs of collecting this Note, including reasonable attorneys' fees
and expenses and court costs, if any.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF.
<PAGE> 3
IN WITNESS WHEREOF, each of the Co-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: /s/ RICHARD ALSTON
---------------------------------------
Name: Richard Alston
Title: Executive Vice President and
Chief Financial Officer
AURORA ELECTRONICS GROUP, INC.
By: /s/ RICHARD ALSTON
---------------------------------------
Name: Richard Alston
Title: Executive Vice President and
Chief Financial Officer
CERPLEX, INC.
By: /s/ RICHARD ALSTON
---------------------------------------
Name: Richard Alston
Title: Executive Vice President and
Chief Financial Officer
CERPLEX MASS, INC.
By: /s/ RICHARD ALSTON
---------------------------------------
Name: Richard Alston
Title: Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 6,998
<SECURITIES> 0
<RECEIVABLES> 15,353
<ALLOWANCES> 1,438
<INVENTORY> 8,277
<CURRENT-ASSETS> 31,009
<PP&E> 35,154
<DEPRECIATION> 13,172
<TOTAL-ASSETS> 63,114
<CURRENT-LIABILITIES> 27,873
<BONDS> 0
30,444
58,643
<COMMON> 2,270
<OTHER-SE> (96,016)
<TOTAL-LIABILITY-AND-EQUITY> 63,114
<SALES> 23,914
<TOTAL-REVENUES> 23,914
<CGS> 22,547
<TOTAL-COSTS> 22,547
<OTHER-EXPENSES> 25,044
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,622
<INCOME-PRETAX> (23,677)
<INCOME-TAX> (646)
<INCOME-CONTINUING> (23,031)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (23,031)
<EPS-BASIC> (3.18)
<EPS-DILUTED> (3.18)
</TABLE>
