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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 25, 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 (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
111 PACIFICA AVENUE, SUITE 300, IRVINE, CALIFORNIA 92618
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(949) 754-5300
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.03 PAR VALUE PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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The aggregate market value of the voting stock held by non-affiliates of the
registrant on December 29, 1999, based on the average of the bid and ask price
per share of the Common Stock as quoted on the Nasdaq OTC Bulletin Board on such
date was approximately $8,758,899.
Indicated below is the number of shares outstanding of each class of the
registrant's Common Stock, as of December 29, 1999.
TITLE OF EACH CLASS OF COMMON STOCK NUMBER OF OUTSTANDING
Common Stock, $.03 par value 7,375,915
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates information by reference from the
registrant's definitive Proxy Statement for the Annual Meeting of Stockholders,
to be filed within 120 days after the registrant's fiscal year ended September
25, 1999.
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THE CERPLEX GROUP, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 25, 1999
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Page
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PART I
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Item 1. Business.................................................................................................. 4
Item 2. Properties................................................................................................ 10
Item 3. Legal Proceedings......................................................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders....................................................... 11
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters..................................... 11
Item 6. Selected Financial Data................................................................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 14
Item 7A. Quantitative and Qualitative Disclosures About Market Risk................................................ 18
Item 8. Financial Statements and Supplementary Data............................................................... 19
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................... 19
PART III
Item 10. Directors and Executive Officers of the Registrant........................................................ 19
Item 11. Executive Compensation.................................................................................... 19
Item 12. Security Ownership of Certain Beneficial Owners and Management............................................ 19
Item 13. Certain Relationships and Related Transactions............................................................ 19
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................... 20
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PART I
ITEM 1. BUSINESS
OVERVIEW
The Cerplex Group, Inc., a Delaware corporation ("Cerplex" or the
"Company"), formerly known as Aurora Electronics, Inc., provides repair and
logistics services, and 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. Until November 1999, the Company operated
through its two principal subsidiaries, Cerplex, Inc. and Aurora Electronics
Group, Inc., and their subsidiaries. In connection with a bank financing
arrangement that closed in November 1999, the Company merged Aurora Electronics
Group, Inc. into Cerplex, Inc. Based in Irvine, California, the Company has
locations in the United States and the United Kingdom.
The Company entered the computer and electronics industry in 1992, and has
expanded its operations through the acquisition of companies that supply,
refurbish and recycle electronic parts and equipment. The Company's most recent
acquisition was completed on April 30, 1998, when the Company, then known as
Aurora Electronics, Inc., acquired The Cerplex Group, Inc., a publicly-held,
Tustin, California, based provider of electronic parts repair, spare parts sales
and service management ("Old Cerplex"). The acquisition was completed through a
merger of a wholly-owned subsidiary of the Company into Old Cerplex, in which
each share of Old Cerplex's Common Stock was converted into 1.070167 shares of
the Company's Common Stock (or .1070167 shares, after giving effect to the
Company's one-for-ten reverse stock split, discussed elsewhere herein). As a
result of the merger, Old Cerplex became a wholly-owned subsidiary of the
Company. The Company then changed its name to The Cerplex Group, Inc., and Old
Cerplex changed its name to Cerplex, Inc. Following the merger, the Company's
headquarters were relocated from San Diego, California, to the Tustin,
California, headquarters of Old Cerplex, and subsequent to that the Company's
headquarters were relocated to Irvine, California.
In connection with the merger with Old Cerplex, the Company obtained a new
bank line of credit from Greyrock Capital ("Greyrock") consisting of a $36.0
million term loan and a revolving line of credit (the "Greyrock Line of
Credit") and sold $15.0 million of newly issued 10% Series A and Series B Senior
Subordinated Notes and $21.55 million of newly issued 7% Senior Cumulative
Convertible Preferred Stock, primarily to its principal stockholder, an
investment fund managed by the investment firm of Welsh, Carson, Anderson &
Stowe ("WCAS"). Funds from the bank line of credit and the sale of the 10%
Series A and Series B Senior Subordinated Notes and the 7% Senior Cumulative
Convertible Preferred Stock were used to repay bank loans to the Company and Old
Cerplex, to repay certain other indebtedness of the Company and Old Cerplex and
to provide working capital to the Company.
On June 25, 1999 the Company consented to an assignment by Greyrock of its
rights and interests under the Greyrock Line of Credit to WCAS in return for
payment in full 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
was released; (iv) the negative pledge agreements covering assets owned by the
Company's subsidiaries in the UK and France were terminated; and (v) the
Company's obligations were 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
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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 by the holders upon a change of control of the Company.
The terms of the merger, the related financing from WCAS, the old line of credit
and the WCAS Refinancing are described in greater detail in Item 1 of this
Annual Report under the heading "Merger with Old Cerplex, WCAS Financing and New
Senior Loans."
On July 20, 1999, the management of Cerplex S.A.S. ("SAS") requested
assistance from the Commercial Court of Lille, France to structure a social plan
for a portion of the work force. Upon review, the Commercial Court declared SAS
insolvent as of July 15, 1999 and opened bankruptcy proceedings with respect to
SAS. A judicial administrator was appointed by the Court to assist the
management of SAS in all its activities pending the Court's decision on the
development of the proceedings. The terms of assignment of the judicial
administrator included reviewing SAS's condition and prospects and issuing a
recommendation relating to a plan of reorganization developed by SAS management.
While the administrator was overseeing SAS's operations, the Company believed
that a plan of reorganization would be adopted. In the event that the
administrator could not support a plan of reorganization, it would become
necessary to refer the case to a liquidator pursuant to Commercial Court
guidelines.
On October 12, 1999, the Commercial Court, acting upon the recommendation
of the judicial administrator, ordered the liquidation of SAS. Prior to this
decision, management believed it would realize its investment in SAS through a
reorganization. However, after the liquidation of SAS was ordered, the Company
realized its investment in SAS was lost and should therefore be written off as
of July 20, 1999, the date Cerplex, Inc. effectively lost control of its
subsidiary. As a consequence of this order, the Company terminated the
operations of SAS, and the liquidator has laid off substantially all employees.
The liquidator is responsible for selling the company's assets and paying off
SAS's debts. As the result of the cost of laying-off all employees of SAS, the
value of the SAS assets may not exceed the value of its liabilities. There can
be no assurance that Cerplex, Inc., as shareholder, will receive any liquidation
proceeds. Accordingly, Cerplex, Inc. has written off its investment in SAS which
totaled $6.2 million at July 20, 1999. Since the Company effectively lost
management control as of July 20, 1999, Cerplex S.A.S. has been deconsolidated
from the Company's financial statements as of that date. Based on Management's
understanding and outside legal counsel's assessment of the situation in France,
the Company believes there is no additional financial exposure related to the
SAS liquidation, but there can be no assurances that a deficiency judgment will
not be entered against Cerplex, Inc., the parent company. This is further
described in Item 1 of this Annual Report under "European Operations."
SERVICES PROVIDED
Cerplex's lines of business include the following:
Repair Services. Through an infrastructure of specialized depot repair
facilities, Cerplex provides original equipment manufacturers ("OEMs") and
service providers a complete process for product repair, remanufacturing,
refurbishment, conversion and upgrades. Large manufacturers and multivendor
service organizations ("MVSOs") historically have maintained in-house repair
centers dedicated to servicing specific proprietary products or product lines.
Frequently, these repair centers are cost centers with dedicated resources.
Cerplex provides an outsourced solution for some or all of the repair
requirements of an OEM. To support and complement its repairs services, Cerplex
also provides a variety of other ancillary services, including exchange of
products to be repaired, product assembly and contract manufacturing.
Logistics Services. Cerplex provides outsourced logistics services,
including inventory and shipping control, order fulfillment, and returns to
ensure its OEM customers have the necessary parts and products at the right
place at the right time. Logistics management is critical in ensuring the
availability of spare parts and repaired products to meet the OEM's customer
demands.
Parts Business. Cerplex provides repaired, new and reclaimed parts to OEMs
and third-party maintainers ("TPMs") and other customers both as an independent
business and as a complement to its depot repair services. Cerplex provides
components, sub-systems and full systems for sale, lease or for use as spares in
repair programs. Cerplex provides full outsourcing solutions in this area giving
customers the benefit of reduced overhead and the ability to reallocate internal
resources toward their core capabilities. Cerplex has two main parts programs:
Parts Sales. The parts sales program provides multivendor parts sourcing
to the information technology industry. Upon receiving an order from a
customer, Cerplex will procure parts and provide for delivery through a
nationwide network of parts brokers and distributors, or will pick, pack and
ship parts consigned to Cerplex for warehousing and sale.
Advanced Exchange. An advanced exchange program offers OEMs and TPMs
fixed rate or lease programs on swaps for new and refurbished parts. Cerplex
provides same or next day shipping on most products, which are exchanged
with field replaceable units that are processed in Cerplex's depot repair
programs for repair, remanufacturing, conversion or upgrade.
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EUROPEAN OPERATIONS
Cerplex serves the European market through Cerplex Ltd., a United Kingdom
subsidiary. Through Cerplex Ltd. Cerplex offers its European customers an array
of repair and parts services similar to those that it offers domestically.
Cerplex's European operation also offers calibration services supporting the
telecommunications and service industries in the United Kingdom and in Western
Europe.
On October 12, 1999, the Commercial Court, acting upon the recommendation
of the judicial administrator, ordered the liquidation of SAS. After the
liquidation of SAS was ordered, the Company realized its investment in SAS was
lost and should therefore be written off as of July 20, 1999, the date Cerplex,
Inc. lost control of its subsidiary. As a consequence of this order, SAS
discontinued its operations, and the liquidator has laid off substantially all
employees of SAS. The liquidator is responsible for selling SAS's assets and
paying off SAS's debts. As the result of the cost of laying-off all employees,
the value of the SAS assets may not exceed the value of its liabilities. There
can be no assurance that Cerplex, Inc., as shareholder, will receive any
liquidation proceeds. Accordingly, Cerplex, Inc. has written off its investment
in Cerplex S.A.S. which totaled $6.2 million at July 20, 1999. Since the Company
effectively lost management control as of July 20, 1999, SAS has been
deconsolidated from the Company's financial statements as of that date. Based on
Management's understanding and outside legal counsel's assessment of the
situation in France, the Company believes there is no additional financial
exposure related to the SAS liquidation, but there can be no assurances that a
deficiency judgment will not be entered against Cerplex, Inc., the parent
company.
CUSTOMERS, SALES AND MARKETING
Cerplex markets primarily to large manufacturers and service providers in
the computer and peripheral, office automation and telecommunications
industries. Cerplex's direct sales teams are geographically located in the
United States and the United Kingdom. Cerplex's representative customers include
British Telecommunications plc ("BT"), Cisco Systems, Inc., Compaq,
Hewlett-Packard Company, IBM, Siemens-Nixdorf and Dell Financial Services.
For the fiscal year ended September 25, 1999, Cerplex's two largest
customers were Rank Xerox and BT. For the fiscal year ended September 25, 1999,
Rank Xerox and BT accounted for approximately 18% and 15% of net revenues,
respectively. These revenues were almost entirely attributable to the business
of Old Cerplex. The Rank Xerox business was terminated on July 20, 1999 when the
Company lost control of SAS.
COMPETITION
Cerplex competes with the in-house repair centers of OEMs, TPMs and certain
contract manufacturers for repair services. In certain instances, these entities
compete directly with Cerplex for the services of unrelated OEMs and TPMs. In
addition to competing with OEMs and TPMs, Cerplex also competes in the repair
business with a small number of independent organizations similar in size to
Cerplex and a large number of smaller companies. Cerplex believes that the key
competitive factors for the repair business include: (i) scope and quality of
service; (ii) price; and (iii) ability to offer rapid delivery and sophisticated
logistics programs. The parts business is fragmented with widespread competition
from a variety of small independent suppliers. Cerplex believes that the key
competitive factors for the parts business include: (i) breadth of parts
distributed; (ii) sophisticated search capabilities to enable customers to
locate parts; (iii) ability to offer rapid delivery and sophisticated logistics
programs; and (iv) price. Many of the companies with which Cerplex competes for
repair, parts and logistics services have significantly greater financial
resources than Cerplex.
REGULATION
Cerplex's business is subject to various federal, state and local laws,
including antitrust laws, occupational health and safety laws and environmental
laws relating to the disposal of waste material, as well laws of this nature in
the European countries in which Cerplex operates. Because Cerplex's business
includes handling, recycling and disposing of electronic parts which contain
hazardous materials, Cerplex's compliance with environmental laws and
regulations relating to the disposal of waste material is particularly
important. Such environmental laws and regulations are complex and may change
from time to time in a manner that imposes more stringent requirements on
Cerplex and imposes greater liability on Cerplex for violating such laws and
regulations. Cerplex believes that it is currently in material compliance with
such laws and is not aware of any current situation or condition that could
reasonably be expected to have a material adverse affect on Cerplex's financial
condition or competitive position.
EMPLOYEES
As of September 25, 1999, Cerplex had a work force of approximately 579
employees, of which 215 were employees of Cerplex Ltd. The approximately 215
employees of Cerplex Ltd. are currently covered by collective bargaining
agreements. Almost all recruitment activity is focused locally in the
surrounding communities, representing all skill levels and positions ranging
from entry-level trainee to skilled professional and senior-level management.
MERGER WITH OLD CERPLEX, WCAS FINANCING AND NEW SENIOR LOANS
On April 30, 1998, Holly Acquisition Corp. ("Merger Sub"), a wholly-owned
subsidiary of the Company, merged with and into Old Cerplex (the "Merger"). As a
result of the Merger, Old Cerplex became a wholly-owned subsidiary of the
Company. The Company changed its name to The Cerplex Group, Inc., and Old
Cerplex changed its name to Cerplex, Inc. Following the Merger, the Company's
headquarters were relocated from San Diego, California, to the Tustin,
California, headquarters of Old Cerplex, and subsequently to the current
headquarters in Irvine, California. On November 24, 1999, the Company merged
Aurora Electronics Group, Inc. into Cerplex, Inc. and the Company now conducts
its operations through its wholly-owned subsidiary, Cerplex, Inc. and its
subsidiaries.
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The Merger occurred pursuant to an Agreement and Plan of Merger, dated as
of January 30, 1998 (the "Merger Agreement"), among the Company, Merger Sub and
Old Cerplex. As a result of the Merger, each share of Old Cerplex's Common Stock
was converted into the right to receive 1.070167 shares of the Company's Common
Stock (or .1070167 shares, after giving effect to the Company's one-for-ten
reverse stock split, discussed elsewhere herein). Old Cerplex stockholders who
otherwise were entitled to fractional shares of the Company's Common Stock
received cash in lieu thereof. Old Cerplex stockholders received in the
aggregate approximately 38.9 million shares of the Company's Common Stock as a
result of the Merger (or 3.89 million shares, after giving effect to the
Company's one-for-ten reverse stock split, discussed elsewhere herein). The
stock received by the Old Cerplex stockholders constituted approximately 25% of
the Company's Common Stock on a fully diluted basis after giving effect to the
Merger and related financings. The ratio used to exchange Old Cerplex Common
Stock for the Company's Common Stock was determined through negotiations between
Old Cerplex and the Company, and was approved by the respective Board of
Directors of the Company and Old Cerplex. The Merger was approved at a special
meeting of Old Cerplex's stockholders. An increase in the number of authorized
shares of the Company's Common Stock necessary to enable the Company to issue
stock in the Merger to the Old Cerplex stockholders, and the name change to The
Cerplex Group, Inc., was approved at a special meeting of the Company's
stockholders.
In connection with the Merger, the Company received a line of credit from
Greyrock. The Greyrock Line of Credit consisted of a $36.0 million term loan,
the proceeds of which were advanced to the Company in full at the closing of the
Merger, and a revolving line of credit with borrowings of up to $10.0 million
depending on certain financial conditions of the Company. WCAS had guaranteed
the repayment of $25.0 million of the principal amount owing by the Company at
any time under the Greyrock Line of Credit. In addition, in connection with the
Merger, the Company sold an aggregate of $15.0 million of newly issued 10%
Series A Senior Subordinated Notes and 10% Series B Senior Subordinated Notes
(collectively, the "10% Senior Subordinated Notes") and $21.55 million of newly
issued 7% Senior Cumulative Convertible Preferred Stock (the "7% Convertible
Preferred Stock") primarily to its principal stockholder, WCAS (the "WCAS
Financing"). The aggregate consideration paid by WCAS and other purchasers for
the 10% Senior Subordinated Notes and the 7% Convertible Preferred Stock
consisted of approximately $12.0 million in cash, the cancellation of $21.0
million of combined indebtedness of Old Cerplex and the Company to WCAS, and the
surrender of warrants held by WCAS to purchase capital stock of Old Cerplex. The
cash proceeds from the WCAS Financing (approximately $12.0 million) and from
borrowings under the Greyrock Line of Credit upon the closing of the Merger
(approximately $38.5 million) totaled approximately $50.5 million. The $50.5
million was used in full to repay $30.0 million of indebtedness of Old Cerplex
under a line of credit from Citibank, N.A., to repay $16.5 million of the
Company's indebtedness under a line of credit with The Chase Manhattan Bank,
N.A., and the balance to pay investment banking and other transactional fees in
connection with the Merger. In addition, subsequent to the Merger, WCAS loaned
the Company an additional $7.5 million, and the Company borrowed an additional
$7.0 million under the Greyrock Line of Credit, both for working capital.
On June 25, 1999 the Company consented to an assignment by Greyrock of its
rights and interests under the Greyrock Line of Credit to WCAS in return for
payment in full 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 "WCAS Refinancing"). 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 was released; (iv) the negative pledge agreements
covering assets owned by the Company's subsidiaries in the UK and France were
terminated; and (v) the Company's obligations were 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% 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 by the holders upon a change of control of the Company.
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On November 24, 1999 the Company and its subsidiary entered into a Loan and
Security Agreement ("Congress Line of Credit") with Congress Financial
Corporation (Western) ("Congress") providing for a $13.0 million senior secured
revolving credit facility. Concurrent with this financing, WCAS agreed to
subordinate its security interest in the Company's assets. The Congress Line of
Credit which matures in February 2001, will provide additional working capital
and financing for the Company's domestic operations. Loans under the loan
agreement bear interest at fluctuating rates of either the Prime Rate, as
defined, plus 1/2% or the Adjusted Eurodollar Rate, as defined, plus 2-3/4%.
Borrowing availability pursuant to the Congress Line of Credit is limited by the
value, as defined in the credit agreement, of assets pledged as collateral,
namely accounts receivable and inventory. The agreement also contains customary
financial covenants and events of default for financings of this type. The
liquidation of Cerplex S.A.S. caused a default and a cross-default under the
Congress loan. The Company is in discussions with Congress regarding an
amendment or waiver to the loan agreement which will bring the Company back into
compliance with the loan covenants. Cerplex, Inc. is the borrower under the
Congress Line of Credit and the Company guarantees the repayment of its
obligations thereunder.
On December 15, 1999, Cerplex, Ltd. closed a financing arrangement (the
"Burdale Loans") with Burdale Financial Limited ("Burdale"), an affiliate of
Congress. The credit facility provides for advances to Cerplex Ltd. up to $2.9
million under a line of credit secured by accounts receivable (due in February
2001) and up to $3.5 million under a loan secured by real estate (due in
December 2003). This credit facility was used to repay existing indebtedness to
BT and will be used to finance the working capital needs of Cerplex Ltd. The
Burdale Loans bear interest at fluctuating rates of LIBOR plus 2%. The Burdale
Loans are covered by an agreement that provides customary financial covenants
and events of default for financing arrangements of this type. Indebtedness
under this agreement is guaranteed by the Company.
The terms of the Congress Line of Credit, the Burdale Loans, the 10% Senior
Subordinated Notes, the 7% Convertible Preferred Stock, and other Company debt
are described in greater detail in Item 7 of this Annual Report under,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
REVERSE STOCK SPLIT, CONVERSION OF PREFERRED STOCK, AND CURRENT CAPITALIZATION
On October 5, 1998, a majority of the outstanding capital stock of the
Company entitled to vote, voted at a Special Meeting of Stockholders to effect a
one-for-ten reverse stock split (the "One-for-Ten Reverse Split"), in which each
ten shares of the Company's Common Stock were converted into one share of the
Company's Common Stock. Stockholders who would have received fractional shares
of Common Stock as a result of the One-for-Ten Reverse Split, were paid, in lieu
of receiving fractional shares, cash in an amount equal to $0.104 per share.
Unless otherwise stated, figures as to the number of shares outstanding,
earnings per share, exercise price to convert the 7% Convertible Preferred Stock
and other per share figures stated in this Annual Report and in the Financial
Statements included herein, reflect the One-for-Ten Reverse Split. Immediately
following the One-for-Ten Reverse Split, the outstanding capital stock of the
Company consisted of 215,500 shares of 7% Convertible Preferred Stock, 44,000
shares of Series A Convertible Preferred Stock and 7,118,285 shares of Common
Stock. Subsequent to the One-for-Ten Reverse Split, on November 19, 1998,
249,233 shares of the Company's Common Stock were issued as a result of the
conversion of 44,000 shares of Preferred Stock of the Company that had been
issued to WCAS and other stockholders prior to the Merger. A majority of such
Preferred Stock was held by WCAS. As a majority holder of such Preferred Stock,
WCAS elected to cause all of the shares of such Preferred Stock to be converted
to Common Stock of the Company. 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% 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. As of December 29, 1999, there were 7,375,915 shares of
the Company's Common Stock outstanding.
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RISK FACTORS
This Annual Report contains forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. The words
"expect," "estimate," "anticipate," "believe" and similar words constitute
forward-looking statements. Readers are cautioned that any such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties, and that actual results may differ significantly from those
projected in the forward-looking statements. Risks and uncertainties that may
have a significant detrimental impact on the Company's performance include, but
are not limited to, the following:
High Degree of Leverage; Future Capital Requirements. As of December 15,
1999 the Company had approximately $42.3 million principal amount of
indebtedness outstanding, which consisted of: (i) $25.9 million indebtedness
under the WCAS secured loan; (ii) $0.4 million indebtedness under the Company's
10% Series B Senior Subordinated Notes; (iii) $10.4 million indebtedness under
the Company's 7 3/4% Convertible Subordinated Debentures; (iv) $3.0 million
indebtedness under the Burdale Loans; (v) $2.4 million indebtedness under the
Congress Line of Credit; and (vi) $0.2 million of other indebtedness consisting
primarily of equipment leases. The Company also had as of December 15, 1999,
$21.55 million outstanding (excluding accrued dividends of $8,942,000) of its
mandatorily redeemable 7% Convertible Preferred Stock. The payment terms of the
debt and preferred stock are described in Item 7 of this Annual Report under,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." It is anticipated that the
Company's cash from operations will not be sufficient to enable it to meet its
debt service and preferred stock redemption requirements, and the Company will
be required to obtain additional funds through equity or debt financings in
order not to default on its debt or mandatorily redeemable preferred stock. In
many cases, if the Company defaults on a particular debt, the default will cause
other debts of the Company to be in default and come due early. The liquidation
of Cerplex S.A.S. may cause the acceleration of all the material debt
instruments of the Company, either because it triggers a default or a
cross-default under such instruments. Unless appropriate waivers are obtained by
the Company, the acceleration of such debt would have a material adverse effect
on the Company. The Company is currently in the process of preparing a waiver
request from its debt holders and is engaged in discussions with its senior
lenders regarding the default. The degree to which the Company is leveraged
could adversely affect its ability to obtain additional financing and could make
it more vulnerable to economic downturns and competitive pressures. The terms of
any equity financings have in the past been, and may in the future be, dilutive
to the Company's stockholders, and the terms of any debt financings are likely
to contain restrictive covenants which limit the Company's ability to pursue
certain courses of action. There can be no assurance that additional funding
will be available on acceptable terms, if at all. If adequate funds are not
available, the Company will experience severe liquidity problems. This matter
raises substantial doubt about the Company's ability to continue as a going
concern.
Losses and Accumulated Deficit. For the fiscal year ended September 25,
1999, the Company reported a net loss of $50.6 million and an operating loss of
$47.1 million. As of September 25, 1999, the Company had a stockholders' deficit
of $47.5 million. The Company is expecting to experience losses for the
foreseeable future, and will require additional funding. Continued losses and/or
the failure to obtain such additional funding 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.
Control by WCAS. WCAS owns approximately 69% 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 fiscal year ended September 25, 1999,
Rank Xerox and BT accounted for approximately 18% and 15% of the Company's
revenues, respectively. These revenues were almost entirely attributable to the
business of Old Cerplex. The Rank Xerox business was terminated on July 20,
1999, when the Company lost control of Cerplex S.A.S. This is described in Item
1 of this Annual Report under "European Operations."
9
<PAGE>
While certain multi-year contracts are in effect which govern the work the
Company performs for BT, there can be no assurance that BT 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 BT does business. Any such
termination, change, reduction, or delay could have a material adverse effect on
the Company's business.
Competition. The Company competes with the in-house repair and service
centers of OEMs, TPMs and certain contract manufacturers. There is no indication
that these companies will choose to outsource their repair and service needs. In
certain instances, these companies compete directly with the Company to provide
services to third party OEMs and TPMs. Moreover, the industry in which the
Company operates is fragmented, and the Company faces competition from a variety
of small independent suppliers. Competition for business from OEM, TPM and MVSO
customers is based on a number of factors, including breadth of services
provided and price. Certain of the Company's competitors have greater revenue or
larger capitalizations than the Company. There can be no assurance that the
Company will be able to compete effectively in its target markets.
Reliance on International Sales. For the fiscal year ended September 25,
1999, approximately 21% of the Company's sales were from its U.K. subsidary and
approximately 29% of the Company's sales were from its French subsidiary, which
has been deconsolidated. These revenues were almost entirely attributable to the
business of Old Cerplex. There can be no assurance that the Company will be able
to successfully market, sell, and deliver its products and services in these
markets. Moreover, as a result of the liquidation of Cerplex S.A.S., the Company
terminated its contract with Rank Xerox, which accounted for approximately 18%
of the Company's revenues for the 1999 fiscal year. In addition to the
uncertainty as to the Company's ability to maintain or expand its international
presence, there are certain risks inherent in doing business on an international
level, such as unexpected changes in regulatory requirements, export
restrictions, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, longer payment cycles, problems in collecting
accounts receivable, political instability, severance and other costs associated
with work force reductions, fluctuations in currency exchange rates, and
potentially adverse tax consequences, any of which could adversely impact the
success of the Company's international operations. There can be no assurance
that one or more of such factors will not have a material adverse effect on the
Company's international operations and, consequently, on the Company's business,
operating results and financial condition.
Reliance on Short Term Purchase Orders and Contracts. The Company generally
distributes 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 September 25, 1999,
approximately $9.6 million of the Company's total assets consisted of intangible
assets. The intangible assets consist primarily of goodwill resulting from the
Merger with Old Cerplex. The goodwill must be amortized over a number of years
and deducted from the Company's earnings, even though the goodwill may not
generate earnings to offset such deduction. There can be no assurance that the
value of the Company's intangible assets will ever be realized by the Company,
particularly in any sale or liquidation of the Company. Any significant decrease
in the value of such intangible assets or increase in the rate of amortization
thereof would adversely affect the Company's financial condition and results of
operations.
Limited Trading Market and Possible Volatility of Stock Price. The volume of
trading of the Company's Common Stock has been very limited and there can be no
assurance of an active trading market for the Common Stock in the future. In
addition, the trading price of the Company's Common Stock has been, and in the
future could be, subject to significant fluctuations in response to variations
in quarterly operating results of the Company, the depth and liquidity of the
market for the Company's Common Stock, investor perception of the Company and
the industry within which it competes, the gain or loss of significant
contracts, changes in management or new products or services offered by the
Company or any competitors, general trends in the industry and other events or
factors. In addition, the stock market has experienced extreme price and volume
fluctuations, which have particularly affected the market price for many
companies in similar industries and which have often been unrelated to the
operating performance of these companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock.
Shares Available for Future Sale. No prediction can be made as to the
effect, if any, that future sales of shares, or the availability of shares for
future sale by WCAS, will have on the market price of the Company's Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock
(including shares issued upon the exercise of stock options and the conversion
of preferred stock), or the perception that such sales could occur, may
adversely affect prevailing market prices for the Company's Common Stock.
Year 2000 Risks. The Year 2000 risk is the result of computer programs,
microprocessors and embedded date reliant systems using two digits rather than
four to define the applicable year. This may result in the incorrect processing
of dates prior to, during and after the Year 2000. Incorrect processing may
result in claims against the Company if it is unable to properly manage data
related to the Year 2000. In addition to Year 2000 errors on the part of the
Company, the Company is vulnerable to its key suppliers' failure to remedy their
own Year 2000 issues, which could delay shipments of essential components,
thereby disrupting or halting the Company's operations. The Company also relies,
both domestically and internationally, upon governmental agencies, utility
companies, telecommunication service companies and other service providers
outside of the Company's control. The Company has implemented programs to
remediate potential Year 2000 problems in its systems and has communicated with
certain of its significant suppliers to evaluate their Year 2000 readiness
plans. There is no assurance that the Company or parties with whom it deals will
not suffer business disruption caused by a Year 2000 issue. Such failures could
have a material adverse effect on the Company's financial condition and results
of operations. Subsequent to January 1, 2000, the Company has encountered only
minimal problems related to Year 2000 issues. However, there can be no assurance
that future Year 2000 issues, if any, will be inconsequential. This is described
in greater detail in Item 7 of this Annual Report under, "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."
ITEM 2. PROPERTIES
The Company leases certain office and warehouse facilities under operating
leases and subleases which expire at various dates during the next six years.
The Company believes that its existing facilities are adequate for its current
business. The Company's executive offices are located at the Irvine, California,
facility listed below. A description of the facilities leased and subleased by
the Company as of December 15, 1999 is as follows:
<TABLE>
<CAPTION>
SQUARE
LOCATION FOOTAGE LEASE EXPIRATION
- -------- --------- ----------------
<S> <C> <C>
Jeffersontown, Kentucky................. 77,000 November 2001
Tewksbury, Massachusetts................ 250,180 May 2005
Livermore, California................... 124,914 June 2003
Irvine, California - Headquarters....... 23,660 February 2004
Irvine, California - Warehouse.......... 10,240 March 2002
</TABLE>
10
<PAGE>
In addition, the Company's European subsidiary owns land and buildings in
Enfield, England.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to legal proceedings relating to routine matters
incidental to its business. While the Company does not believe that any of these
proceedings, individually or in the aggregate, will have a material adverse
effect on its business or its results of operations, there can be no assurance
that such proceedings, individually or in the aggregate, will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 30, 1999 a requisite number of the Company's security holders
approved, by written consent, the designation and issuance of the Series B
Senior Cumulative Preferred Stock.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Until December 12, 1997, the Company's Common Stock was traded on the
American Stock Exchange ("AMEX") under the symbol "AUR." Commencing December 15,
1997, the Company's Common Stock was listed for quotation on the Nasdaq OTC
Bulletin Board (the "OTC Bulletin Board") under the symbol "AURU." Following the
Merger with Old Cerplex, the Company's Common Stock has been reported on the OTC
Bulletin Board under the symbol "CPLX." For the period during the last two
fiscal years in which the Common Stock was traded on the AMEX, the following
table sets forth the range of the high and low closing sales prices per share
for the Common Stock on the AMEX. For the period during the last two fiscal
years in which the Common Stock was listed for quotation on the OTC Bulletin
Board, the following table sets forth the range of the high and low bid
quotations per share for the Common Stock as reported on the OTC Bulletin Board.
Figures for the OTC Bulletin Board reflect inter-dealer prices, without mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
The per share prices set forth in the table below have been adjusted to
reflect the One-for-Ten Reverse Split for the Company's Common Stock that took
place following approval by the stockholders of the Company on October 5, 1998.
As a result of the One-for-Ten Reverse Split, each ten shares of the Company's
Common Stock was converted into one share of the Company's Common Stock.
<TABLE>
<CAPTION>
FISCAL YEAR 1999 FISCAL YEAR 1998
(OCTOBER 1, 1998 TO (OCTOBER 1, 1997 TO
SEPTEMBER 25, 1999) SEPTEMBER 30, 1998)
------------------- -------------------
HIGH LOW HIGH LOW
--------- --------- ------- ------
<S> <C> <C> <C> <C>
First Quarter.............. $ 1.75 $ 0.09 $ 16.00 $ 7.50
Second Quarter............. $ 1.16 $ 0.53 $ 11.10 $ 2.70
Third Quarter.............. $ 1.00 $ 0.38 $ 6.10 $ 2.50
Fourth Quarter............. $ 2.06 $ 0.88 $ 4.20 $ 0.90
</TABLE>
11
<PAGE>
On December 16, 1999, the closing bid price per share of the Common Stock
as reported on the OTC Bulletin Board was $1.125. As of December 16, 1999, the
Company had 1,018 holders of record of its Common Stock.
The Company has not paid any cash or stock dividends on its Common Stock
since September 30, 1993. At present, it is the policy of the Company to retain
all earnings for reinvestment into the Company. In addition, the Congress Line
of Credit prohibits payment of cash dividends.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding the
Company's results of operations and financial position. This information should
be read in conjunction with Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Company's Consolidated
Financial Statements and related Notes included elsewhere herein.
Information for the fiscal year ended September 30, 1998 reflects the
addition of the results of operations of Old Cerplex for the five months ended
September 30, 1998, subsequent to the Merger with Old Cerplex on April 30, 1998.
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
FOR THE
YEAR
ENDED
SEPTEMBER FOR THE YEAR ENDED SEPTEMBER 30,
25, -----------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net revenues...................... $ 93,346 $ 66,423 $ 64,892 $ 98,019 $ 141,852
--------- --------- --------- --------- ---------
Gross profit...................... 3,685 4,869 12,986 24,443 34,582
Selling, general and administrative
expenses........................ 22,304 23,145 23,466 25,943 28,170
Amortization of intangibles....... 24,295(1) 3,701 34,044(2) 18,042(3) 9,073(4)
Restructuring charge and other.... 4,170(5) -- -- -- 5,643(6)
--------- --------- --------- --------- ---------
Operating loss.................... (47,084) (21,977) (44,524) (19,542) (8,304)
Interest expense.................. (6,415) (5,465) (4,050) (6,221) (5,522)
Other income (expense), net....... 1,617 (1,653) (498) (1,284) 116
--------- --------- --------- --------- ---------
Loss from continuing operations
before taxes................... (51,882) (29,095) (49,072) (27,047) (13,710)
Net loss.......................... $ (50,606) $ (29,095) $ (49,605) $ (30,353) $ (15,030)
========= ========= ========= ========= =========
Loss from continuing operations before
taxes per share(6).............. $ (7.08) $ (7.57) $ (73.57) $ (37.78) $ (16.36)
Net loss per share(6)............. $ (6.90) $ (7.57) $ (74.37) $ (42.39) $ (17.94)
Net loss applicable to common
shareholders(6)................. $ (7.25) $ (8.26) $ (78.60) $ (44.40) $ (17.94)
Weighted average number of common
shares(6)....................... 7,333 3,843 667 716 838
</TABLE>
- --------------------------------------------------------------------------------
(1) During the third quarter of fiscal 1999, approximately $18,375 relating to
a write-down of intangible assets acquired in fiscal 1998 in connection
with the merger with Old Cerplex was charged to operations.
(2) During the fourth quarter of fiscal 1997, approximately $29,602 relating to
a write-down of intangible assets acquired in fiscal 1994 in connection
with the Century acquisition and $3,390 of computer systems and software
development costs were charged to operations.
(3) During the fourth quarter of fiscal 1996, approximately $16,580 relating to
a write-down of intangible assets acquired in fiscal 1992 in connection
with the Micro-C Corporation acquisition was charged to operations.
(4) During fiscal 1995, approximately $7,400 relating to a write-down of
intangible assets associated with the repair business acquired in fiscal
1993 in connection with the FRS, Inc. acquisition was charged to
operations.
(5) During fiscal 1999, approximately ($2,006) related to a reduction in
accruals, offset by $6,176 related to the loss due to loss of control of
SAS were charged to operations.
(6) During fiscal 1995, the Company substantially completed a major corporate
reorganization into two core businesses operating through the integrated
circuits recycling and recovery division and the spare parts distribution
division.
(7) Per share figures and figures for the number of shares outstanding have
been adjusted to reflect the One-for-Ten Reverse Split that occurred on
October 5, 1998.
12
<PAGE>
<TABLE>
<CAPTION>
AS OF AS OF SEPTEMBER 30,
SEPTEMBER --------------------------------------------
25,
1999 1998 1997 1996 1995
---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital (deficit)......... $(36,496) $ (55,415) $ (3,113) $ 610 $ 196
Total assets...................... 35,631 100,541 14,629 52,788 80,716
Long-term obligations (less current
maturities)..................... -- 25,782 36,585 25,842 46,183
Redeemable convertible preferred
stock........................... 30,492 34,150 46,722 40,000 --
Stockholders' equity (deficit).... (47,539) (59,208) (83,320) (31,690) 12,338
Dividends declared................ -- -- -- -- --
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company provides repair and logistics services, and 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. Until November 1999 the Company
operated through its two principal subsidiaries, Cerplex, Inc. and Aurora
Electronics Group, Inc., and their subsidiaries. In connection with a bank
financing arrangement that closed in November 1999, the Company merged Aurora
Electronics Group, Inc. into Cerplex, Inc. Based in Irvine, California, the
Company has locations in the United States and the United Kingdom.
Prior to the Merger with Old Cerplex which is discussed in more detail
below, the Company's business consisted primarily of two divisions, the Asset
Recovery Services Division (the "ARS Division") and the Parts Services Supply
Division (the "PSS Division"). The Merger was accounted for under the purchase
method of accounting and, as such, the operations of Old Cerplex are not
included in the Company's financial statements prior to April 30, 1998. The
majority of the Company's revenues subsequent to April 30, 1998 are attributable
to the repair operations of Old Cerplex acquired in the Merger. Due to this and
the fact that the Company's ARS and PSS Divisions experienced declining revenues
from fiscal 1997 to fiscal 1998, the Company's historical results, especially as
they relate to the ARS and PSS Divisions, may not be indicative of future
results.
The primary factors affecting the Company's repair business include, but
are not limited to, the pricing of the Company's services and the utilization of
the Company's resources that constitute fixed costs. Pricing in the Company's
industry is very competitive and price discounting could adversely affect the
Company's operating results. In addition, the Company has made a significant
investment in facilities, equipment and personnel. While the Company's
facilities have the capability of generating significantly more repair services
volume than current levels, the Company and Old Cerplex have, due to a variety
of factors, experienced decreasing revenues which have resulted in significant
operating losses. In particular, BT and Rank Xerox constituted Old Cerplex's and
the Company's largest customers in the last fiscal year. The contract with Rank
Xerox has been terminated as a result of the liquidation and resultant
deconsolidation of SAS. There can be no assurance that revenues from BT or other
customers will not decline in the future. The failure of the Company to develop
additional business from new and existing customers could have a material
adverse effect on the Company's business.
CORPORATE HISTORY
The Company was formed on September 30, 1992. Prior to September 30, 1992,
the Company was known as BSN Corp. and was engaged in the sporting goods
industry. From 1990 through 1992, BSN divested itself of a majority of its
sporting goods assets and, effective September 30, 1992, announced that all of
its remaining sporting goods assets would be accounted for as discontinued
operations and that such operations would be sold. Effective September 30, 1992,
the Company entered the computer and electronics industry through the
acquisition of Micro-C Corporation, a San Diego, California based company
founded in 1985, which provided both integrated circuits ("IC") recycling
services to computer OEMs and memory IC distribution services for semiconductor
manufacturers. Effective September 30, 1993, the Company acquired FRS, Inc., a
Sacramento, California, based company founded in 1984, which provided depot
repair services to computer and peripheral OEMs. Effective March 1, 1994, the
Company acquired Century Computer Marketing, a Marina del Rey, California, based
company founded in 1984, which was a leading supplier of new and refurbished
spare parts to the computer maintenance market.
In the third quarter of the fiscal year ended September 30, 1995, the
Company completed a corporate reorganization, in which it: (a) exited the memory
upgrade manufacturing and supply business formerly known as the Premier
Division; and (b) substantially downsized its depot repair services operation
acquired in the FRS, Inc. acquisition, and refocused these operations to support
the Company's remaining spare parts distribution and electronic recycling
services business.
In March 1996, the Company completed a recapitalization in which the Company
(a) acquired approximately 4,268,000 shares of its Common Stock, (b) issued
$40.0 million of convertible preferred stock and $10.0 million of subordinated
debt to WCAS, (c) established a $35.0 million credit facility, (d) repaid $26.0
million of senior bank debt and (e) redeemed approximately $9.3 million of
Senior Subordinated Notes.
14
<PAGE>
In October 1997, the Company completed the sale of the remainder of its
then-existing depot repair services operation and sold its Irvine, Scotland,
recovery processing facility. Losses from these transactions were accrued into
fiscal 1997 operating results.
In April 1998, the Company completed the Merger with Old Cerplex, in which a
wholly-owned subsidiary of the Company merged into Old Cerplex and each share of
Old Cerplex's Common Stock was converted into 1.070167 shares of the Company's
Common Stock (or .1070167 shares after giving effect to the Company's
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. Until
November 1999, the Company conducted its operations through two wholly-owned
subsidiaries, Cerplex, Inc. and Aurora Electronics Group, Inc., and their
subsidiaries. In November 1999, the Company merged Aurora Electronics Group,
Inc. into Cerplex, Inc.
On June 25, 1999 the Company consented to an assignment by Greyrock of its
rights and interests under the Greyrock Line of Credit to WCAS in return for
payment in full 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
was released; (iv) the negative pledge agreements covering assets owned by the
Company's subsidiaries in the UK and France were terminated; and (v) the
Company's obligations were 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 by the holders upon a change of control of the Company.
As of April 30, 1998 following the merger of Cerplex and Aurora
Electronics, Inc., the Company recorded an excess of purchase price over net
assets acquired totaling approximately $40.6 million. 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 continuing operations. Based on these estimates and the goodwill ascribed
to closed and discontinued operations, the Company determined, in the quarter
ended June 30, 1999, that an impairment charge of approximately $18.4 million
was necessary. The carrying value of goodwill as of June 30, 1999, after the
impairment charge, was approximately $9.7 million. The blended average life of
the goodwill attributable to all operations originally acquired was five years.
However, subsequent to the write-off of terminated operations, the remaining
operations have a 15 year remaining useful life.
On July 20, 1999, the management of SAS requested assistance from the
Commercial Court of Lille, France to structure a social plan for a portion of
the work force. Upon review, the Commercial Court declared SAS insolvent as of
July 15, 1999 and opened bankruptcy proceedings with respect to SAS. A judicial
administrator was appointed by the Court to assist the management of SAS in all
its activities pending the Court's decision on the development of the
proceedings. The terms of assignment of the judicial administrator included
reviewing SAS's condition and prospects and issuing a recommendation relating to
a plan of reorganization developed by SAS management. While the administrator
was overseeing SAS's operations, the Company believed that a plan of
reorganization would be adopted. In the event that the administrator could not
support a plan of reorganization, it would become necessary to refer the case to
a liquidator pursuant to Commercial Court guidelines.
On October 12, 1999, the Commercial Court, acting upon the recommendation
of the judicial administrator, ordered the liquidation of SAS. Prior to this
decision, management believed it would realize its investment in SAS through a
reorganization. However, after the liquidation of SAS was ordered, the Company
realized its investment in SAS was lost and should therefore be written off as
of July 20, 1999, the date Cerplex, Inc. lost control of its subsidiary. As a
consequence of this order, the Company terminated the operations of SAS, and the
liquidator has laid off substantially all employees. The liquidator is
responsible for selling the assets and paying off the debts of SAS. As the
result of the cost of laying-off all employees, the value of the SAS assets may
not exceed the value of its liabilities. There can be no assurance that Cerplex,
Inc., as shareholder, will receive any liquidation proceeds. Accordingly,
Cerplex, Inc. has written off its investment in SAS which totaled $6.2 million
at July 20, 1999.
Since the Company effectively lost management control as of July 20, 1999,
SAS has been deconsolidated from the Company's financial statements as of that
date. Based on Management's understanding and outside legal counsel's assessment
of the situation in France, the Company believes there is no additional
financial exposure related to the SAS liquidation, but there can be no
assurances that a deficiency judgment will not entered against Cerplex, Inc.,
the parent company. This is further described in Item 1 of this Annual Report
under "European Operations."
RESULTS OF OPERATIONS YEAR ENDED SEPTEMBER 25, 1999 COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1998
Net revenues for the year ended September 25, 1999 for the Company were
$93,346,000 as compared to $66,423,000 for the year ended September 30, 1998.
The Company's increase in revenues was attributable to the revenues of Old
Cerplex which were included for the full fiscal year in 1999 as compared to
fiscal 1998, which recorded revenues from the date of the merger in April 1998.
Gross profit for fiscal 1999 was $3,685,000 (4.0% of net revenues) as
compared to gross profit of $4,869,000 (7.3% of net revenues) for fiscal 1998.
The decrease in gross profit was due primarily to the lower gross profit
contribution of Old Cerplex which is included for a full year in fiscal 1999.
Selling, general and administrative expenses for fiscal 1999 were
$22,304,000 (23.9% of revenue) as compared $23,145,000 (34.8% of revenue) for
fiscal 1998. The decrease as a percentage of revenues was due to the reduction
in employees primarily related to the closing and consolidation of certain depot
repair facilities coupled with the increase in revenues.
Amortization expense for fiscal 1999 was $24,295,000 as compared to
$3,701,000 for fiscal 1998. Fiscal 1999 included write-offs of goodwill totaling
approximately $18,375,000 and amortization related to the goodwill associated
with Old Cerplex for the entire fiscal year. Additionally, the remaining
goodwill after the write-off, began amortization over the remaining 15 years of
useful life in June, 1999.
Reduction in accruals for fiscal 1999 was $(2,006,000) due to estimates
related to certain Aurora accruals established in 1998 and earlier years which
were reduced by approximately $1.2 million and accruals related to inventory and
accounts payable established in 1998 and earlier years which were analyzed and
reduced by approximately $0.8 million during the quarter ended June 30, 1999.
The estimates were reduced based on the receipt of new information, negotiations
and settlements, which became available or occurred at that time.
Loss due to loss of control of subsidiary for fiscal 1999 was $6,176,000
due to the write-off of the investment in SAS. As a result of the Commercial
Court in France appointing an administrator and subsequently appointing a
liquidator during the fourth quarter of 1999, the Company lost control of SAS
and management determined that it was unlikely that the Company would receive
any net proceeds from the liquidation of SAS. Prior to the Commercial Court
appointing a liquidator, management believed it would realize its investment in
SAS through a reorganization. The loss of control of subsidiary will materially
reduce revenues and reduce some selling, general and administrative expenses in
future periods.
Net interest expense for fiscal 1999 was $6,415,000 (6.9% of net revenues)
as compared to $5,465,000 (8.2% of net revenues) for fiscal 1998. The increase
in interest expense is due to higher loan balances on the Greyrock Line of
Credit.
Other income for fiscal 1999 was $1,617,000 and other expense for fiscal
1998 was $1,653,000, consisting of miscellaneous non-operating items each year.
Provision for income tax was $10,000 in fiscal 1999 as compared to $0 in
fiscal 1998. Both provisions include a valuation allowance provided for a
deferred tax asset that was not expected to be realized.
Gain on discontinued operations was $1,286,000 in fiscal 1999 due to the
Company subleasing the property related to the sporting goods operations and
eliminating the need for the remaining reserve.
Net loss for fiscal 1999 was $50,606,000 as compared to $29,095,000 in
fiscal 1998. The fiscal 1999 loss includes $18,375,000 of write-offs due to
goodwill impairment, $6,176,000 loss due to loss of control of subsidiary,
offset by $2,006,000 income from reduction of accruals. If this $22,545,000 of
net write-offs is excluded from the loss for fiscal 1999, the loss for fiscal
1999 was $28,061,000 as compared to $29,095,000 for fiscal 1998.
RESULTS OF OPERATIONS YEAR ENDED SEPTEMBER 30, 1998 COMPARED WITH YEAR ENDED
SEPTEMBER 30, 1997
Net revenues for the year ended September 30, 1998 for the Company were
$66,423,000 as compared to $64,892,000 for the year ended September 30, 1997.
The Company's increase in revenues was due principally to the acquisition of Old
Cerplex. This increase is offset by a substantial decline in revenues due to the
subsequent closing of the DRAM segment of the ARS Division and an overall
decline in the prices and volume of computer repair parts in its PSS Division.
Gross profit for fiscal 1998 was $4,869,000 (7.3% of net revenues) as
compared to gross profit of $12,986,000 (20.0% of net revenues) for fiscal 1997.
The decrease in gross profit was due primarily to the decline in revenues from
the ARS and PSS Division mentioned above, and by the lower gross profit
contribution of Old Cerplex ($1,849,000 or 4.3% of Old Cerplex's net revenue
contribution).
15
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Selling, general and administrative expenses for fiscal 1998 were
$23,145,000 (34.8% of revenue) as compared to $23,466,000 (36.2% of net
revenues) for fiscal 1997. The decrease as a percentage of revenues was due to
the reduction in employees related to the sale of its remaining depot repair
service operation and its Irvine, Scotland recovery processing facility.
Amortization expense for fiscal 1998 was $3,701,000 as compared to
$34,044,000 for fiscal 1997. Fiscal 1997 included writeoffs of goodwill and
system development costs totaling approximately $32,992,000.
Net interest expense for fiscal 1998 was $5,465,000 (8.2% of net revenues)
as compared to $4,050,000 (6.2% of net revenues) for fiscal 1997. The increase
in interest expense is due to higher loan balances on the Greyrock Line of
Credit.
Other expense for fiscal 1998 was $1,653,000 primarily for expenses
incurred to close the San Diego former headquarters. Other expense for fiscal
1997 was $498,000 which included approximately $450,000 loss from the sales of
the Sacramento Repair Facility and the Asset Recovery Facility in Scotland.
Provision for income tax was $0 in fiscal 1998 as compared to $533,000 in
fiscal 1997. The fiscal 1997 provision includes a $500 valuation allowance
provided for a deferred tax asset that was not expected to be realized.
Net loss for fiscal 1998 was $29,095,000 as compared to $49,605,000 in
fiscal 1997. The fiscal 1997 loss includes $32,992,000 of write-offs of goodwill
and information system development costs. If this $32,992,000 of write-offs is
excluded from the loss for fiscal 1997, the loss for fiscal 1997 was $16,613,000
as compared to $29,095,000 for fiscal 1998. The increase in loss for fiscal 1998
is due to continued operating losses from the operations of the electronics
recycling and spare parts distribution operations mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital are directly related to its
levels of accounts receivable, inventories, additions to its property and
equipment, level of operating losses and required debt principal payments. The
Company had a working capital deficit of $36.5 million as of September 25, 1999
as compared to a working capital deficit of $55.4 million as of September 30,
1998. See Note A of Notes to Consolidated Financial Statements -- "Current
Financial Condition."
The Company's most immediate liquidity concern is its potential inability
to repay its indebtedness under the sinking fund payment for the 7 3/4%
Convertible Subordinated Debentures. This matter raises doubt as to the
Company's ability to continue as a going concern. The liquidation of Cerplex
S.A.S. may cause the acceleration of all the material debt instruments of the
Company, either because it triggers a default or a cross-default under such
instruments. Unless appropriate waivers are obtained by the Company, the
acceleration of such debt would have a material adverse effect on the Company.
The Company is currently in the process of preparing a waiver request from its
debt holders and is engaged in discussions with its senior lenders regarding the
default. See Note A of Notes to Consolidated Financial Statements -- "Current
Financial Condition."
In addition to the possible need for capital to make the sinking fund
payment, management believes the Company will require substantial additional
working capital during fiscal 2000. Management believes that the Company will
continue to experience operating losses and negative cash flow during part or
all of fiscal 2000.
The Company is highly leveraged, and has significant debt repayment
obligations and preferred stock redemption obligations. As of December 15, 1999
the Company had approximately $42.3 million principal amount of indebtedness
outstanding, which consisted of: (i) $25.9 million indebtedness under the WCAS
secured loan; (ii) $0.4 million indebtedness under the Company's 10% Series B
Senior Subordinated Notes; (iii) $10.4 million indebtedness under the Company's
7 3/4% Convertible Subordinated Debentures; (iv) $3.0 million indebtedness under
the Burdale Loans; (v) $2.4 million indebtedness under the Congress Line of
Credit; and (vi) $0.2 million of other indebtedness consisting primarily of
equipment leases. The Company also had as of December 15, 1999, $21.55 million
outstanding (excluding accrued dividends) of its mandatorily redeemable 7%
Convertible Preferred Stock. Set forth below is a summary of the terms of such
indebtedness, as well as redemption and other obligations of the Company's
outstanding preferred stock.
<PAGE>
10% Series B Senior Subordinated Notes. As of December 15, 1999, there was
approximately $0.4 million principal amount outstanding of the Company's 10%
Series B Senior Subordinated Notes. These notes were sold to certain public
stockholders. The Series B 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 Series B 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 Series B 10%
Senior Subordinated Notes mature in three equal annual installments commencing
on December 31, 2002. The 10% Senior Subordinated Notes may be prepaid at any
time at the option of the Company in whole or in part, upon not less than 20 or
more than 60 days' notice at the unpaid principal amount thereof plus accrued
and unpaid interest.
7 3/4% Convertible Subordinated Debentures. As of December 15, 1999, there
was approximately $10.4 million principal amount outstanding of the Company's 7
3/4% Convertible Subordinated Debentures (the "Debentures"). The Debentures
mature April 15, 2001 and are convertible into Common Stock of the Company at a
conversion price, subject to adjustment in certain instances, of approximately
$116.60 per share, and are redeemable at the option of the Company at face value
plus accrued interest thereon. The Company is required to make a partial sinking
fund payment of $1,826,000 in 2000 on the Debentures. The Debentures bear
interest at 7 3/4% payable on April 14 and October 14 of each year through
maturity.
WCAS Senior Secured Notes. As of December 15, 1999, there was $25.9 million
principal and interest outstanding under the WCAS Senior Secured Notes. The
notes were issued on June 25, 1999 as part of a capital restructuring in which
the Company consented to an assignment to WCAS by Greyrock of Greyrock's rights
and interest under the Greyrock Line of Credit to WCAS in return for payment in
full 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 was released;
(iv) the negative pledge agreements covering assets owned by the Company's
subsidiaries in the UK and France were terminated; and (v) the Company's
obligations were 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 non-voting preferred shares that are redeemable by the Company
at its option and redeemable by the holders upon a change of control of the
Company. On November 24, 1999, WCAS agreed to release their collateral to allow
the Company to pledge the collateral to Congress Financial.
Congress Line of Credit. On November 24, 1999 the Company and its
subsidiary entered into a Loan and Security Agreement providing for a $13.0
million senior secured revolving credit facility. Concurrent with this
financing, WCAS agreed to subordinate its security interest in the Company's
assets. The Congress Line of Credit, which matures in February 2001, will
provide additional working capital and financing for the Company's domestic
operations. Loans under the loan agreement bear interest at fluctuating rates of
either the Prime Rate, as defined, plus 1/2% or the Adjusted Eurodollar Rate, as
defined, plus 2-3/4%. Borrowing availability pursuant to the Congress Line of
Credit is limited by the value, as defined in the credit agreement, of assets
pledged as collateral, namely accounts receivable and inventory. The agreement
also contains customary financial covenants and events of default for financings
of this type. Cerplex, Inc. is the borrower under the Congress Line of Credit
and the Company guarantees the repayment of its obligations thereunder.
Secured Note Payable to BT. As of September 25, 1999, there was $3.0 million
principal amount outstanding under a promissory note to BT (the "BT Note"). In
July 1994 Old Cerplex purchased the operating assets of BT Repair Services for
cash and assumed the BT Note in an original principal amount of GBP2.5 million.
The BT Note was paid off in full, including accrued interest, on December 15,
1999 with proceeds from the Burdale Debenture. (See Burdale Line of Credit.)
Burdale Line of Credit. On December 15, 1999, Cerplex, Ltd. closed the
Burdale Loans with Burdale, an affiliate of Congress. The credit facility, which
matures in February 2001, provides for advances to Cerplex Ltd. up to $2.9
million under a line of credit secured by accounts receivable. The Burdale
Debenture, which matures in December 2003, provides up to $3.5 million under a
loan secured by real estate. The Burdale Debenture was used to repay existing
indebtedness to BT and the line of credit will be used to finance the working
capital needs of Cerplex Ltd. The Burdale Loans bear interest at fluctuating
rates of LIBOR plus 2%. The Burdale Loans are covered by an agreement that
provides customary financial covenants and events of default for financing
arrangements of this type. Indebtedness under this agreement is guaranteed by
the Company.
Other Debt. As of September 25, 1999, there was $0.2 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 2000.
7% Senior Cumulative Convertible Preferred Stock. As of September 25, 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
17
<PAGE>
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).
During 1999, the Company refinanced debt or converted debt to equity,
totaling $104.0 million, consisting of $45.4 million outstanding under the
Greyrock Line of Credit and $58.6 million of indebtedness owed to WCAS pursuant
to the $25.0 million of senior secured indebtedness, $15.6 million of principal
of the 10% Series A Senior Subordinated Debentures, and $16.5 million principal
of the 10% unsecured promissory notes, plus $1.5 million of accrued interest
thereon. The funding sources for the repayment of such indebtedness consisted of
a $50.0 million WCAS Senior Secured Note and the issuance of $58.6 million of
Series B senior cumulative preferred stock.
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 implemented a program that was 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 installed 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 discussed 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's internal systems, equipment and processes are now
substantially Year 2000 compliant. The Company has completed the analysis and
remediation of potential Year 2000 problems with its significant suppliers and
customers. 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 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.
Subsequent to January 1, 2000, the Company has encountered only minimal problems
related to Year 2000 issues. The cost of remediation has been immaterial and the
cost of future remediation efforts is expected to be immaterial.
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 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.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133 is effective for all fiscal
quarters or fiscal years beginning after June 15, 1999. In August 1999, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133., An
Amendment of FASB Statement No. 133," which defers the effective date of SFAS
133 to all fiscal quarters or fiscal years beginning after June 15, 2000. SFAS
133 establishes accounting and reporting standards for derivative instruments
embedded in other contracts and for hedging activities. Application of this
accounting standard is not expected to have a material impact on the Company's
consolidated financial position, results of operations or liquidity.
In 1998, the AICPA issued Statement of Position No. 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use", which
provides guidance concerning recognition and measurement of costs associated
with developing or acquiring software for internal use. This pronouncement is
effective for financial statements of years beginning after December 31, 1998,
with earlier application encouraged. The Company does not believe that the
adoption of this pronouncement will have a material impact on its financial
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risks with respect to its variable rate
debt and its cash flows, receivables and payables denominated in foreign
currencies.
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Of the Company's $39.4 million principal amount of indebtedness at
September 25, 1999, $25.4 million principal amount of such debt (which
represents total principal indebtedness on the WCAS Senior Secured Notes) bears
interest at a rate that fluctuates based on changes in the LIBOR rate. A 1%
change in the underlying LIBOR rate would result in a $254,000 change in the
annual amount of interest payable on such debt.
The Company's overseas subsidiary operates in the United Kingdom. Both the
trade receivables and the trade payables for this unit are denominated in the
local currency. The Company does not hedge these balances. See Note O to the
Consolidated Financial Statements -- "Foreign Operations and Major Customers."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and Schedule appear in a
separate section of this Annual Report, beginning on pages F-1 and S-1,
respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 16, 1998, the Board of Directors of the Company dismissed
Arthur Andersen LLP as the Company's independent accountants, and on September
17, 1998 engaged KPMG LLP as the Company's independent accountants, who had been
the independent accountants for Old Cerplex prior to the Company's acquisition
of Old Cerplex. The Consolidated Financial Statements included herein for the
fiscal year ended September 30, 1997 were audited by Arthur Andersen LLP, and
the Consolidated Financial Statements for the fiscal years ended September 30,
1998 and September 25, 1999 were audited by KPMG LLP. In connection with Arthur
Andersen's audits for fiscal year 1997, and through Arthur Andersen's dismissal
on September 16, 1998, there were no disagreements with Arthur Andersen LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Arthur Andersen LLP, would have caused them to make
reference thereto in their report on the financial statements for such years.
The dismissal of Arthur Andersen LLP was reported in greater detail in the
Company's Report on Form 8-K filed on September 22, 1998.
PART III
The information required by Part III is omitted from this Annual Report
because the Company will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") within 120 days of the Company's fiscal
year ended September 25, 1999 in connection with the Company's Annual Meeting of
Stockholders. The Proxy Statement will contain the information that would
otherwise be included in Part III of this Annual Report.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Item 10 will be provided in the Company's Proxy
Statement, to be filed within 120 days of the Company's fiscal year ended
September 25, 1999.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to Item 11 will be provided in the Company's Proxy
Statement, to be filed within 120 days of the Company's fiscal year ended
September 25, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to Item 12 will be provided in the Company's Proxy
Statement, to be filed within 120 days of the Company's fiscal year ended
September 25, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to Item 13 will be provided in the Company's Proxy
Statement, to be filed within 120 days of the Company's fiscal year ended
September 25, 1999.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements -- See Index to Consolidated Financial
Statements and Financial Statement Schedule on page F-1.
2. Financial Statement Schedule -- See Index to Consolidated Financial
Statements and Financial Statement Schedule on Page F-1.
3. Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
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<S> <C>
3.1.1 The Restated Certificate of Incorporation of the Company, as
amended (incorporated by reference from Exhibit 3.1 to the
Company's Transition Report on Form 10-K for the transition
period from December 31, 1991 to September 30, 1992).
3.1.2 The Certificate of Amendment to the Restated Certificate of
Incorporation of the Company, filed on April 28, 1998
(incorporated by reference from Exhibit 4.1.1 of the Company's
Post-Effective Amendment No. 2 to the Company's Registration
Statement on Form S-3, filed on May 13, 1998 (Registration No.
333-47973)).
3.1.3 The Certificate of Amendment to the Restated Certificate of
Incorporation of the Company, filed on April 30, 1998
(incorporated by reference from Exhibit 4.1.2 of the Company's
Post-Effective Amendment No. 2 to the Company's Registration
Statement on Form S-3, filed on May 13, 1998 (Registration No.
333-47973)).
3.1.4 Certificate of Amendment to Certificate of Incorporation of
the Company filed on October 6, 1998.
3.2.1 Bylaws of the Company, as amended (incorporated by reference
from Exhibit 4.2 of the Company's Registration Statement on
Form S-8 (Registration No. 33-79426)).
3.2.2 Resolutions adopted by the Board of Directors on April 30,
1998, amending the Bylaws of the Company (incorporated by
reference from Exhibit 4.2.1 of the Company's Post-Effective
Amendment No. 2 to the Company's Registration Statement on
Form S-3, filed on May 13, 1998 (Registration No. 333-47973)).
4.1 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 (incorporated by
reference from Exhibit 4.3 of the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999 and filed on
August 16,1999).
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 (incorporated by reference from Exhibit
10.3 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and filed on May 17, 1999).
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
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 (incorporated by reference from Exhibit
10.4 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and filed on May 17, 1999).
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 (incorporated by reference from Exhibit
10.5 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and filed on May 17, 1999).
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 (incorporated by reference from Exhibit
10.6 of the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1999 and filed on May 17, 1999).
10.7 Lease of the Company's primary headquarters facility located
at 111 Pacifica Avenue, Suite 300, Irvine, CA 92618
(incorporated by reference from Exhibit 10.7 of the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1999 and filed on May 17, 1999).
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 (incorporated by
reference from Exhibit 10.8 of the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999 and filed on
August 16, 1999).
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 (incorporated by reference from Exhibit 10.9 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999 and filed on August 16, 1999).
10.10 Acknowledgement, Consent and Release by the Company, Aurora
Electronics Group, Inc., Cerplex, Inc. and Cerplex Mass., Inc.
(incorporated by reference from Exhibit 10.10 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999 and filed on August 16, 1999).
10.11 Release by Welsh, Carson, Anderson & Stowe VII, L.P.
(incorporated by reference from Exhibit 10.11 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999 and filed on August 16, 1999).
10.12 Release of Continuing Guaranty by Greyrock Capital, a division
of NationsCredit Commercial Corporation (incorporated by
reference from Exhibit 10.12 of the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999 and filed on
August 16, 1999).
10.13 Consent by Silicon Valley Bank to the assignment documents
(incorporated by reference from Exhibit 10.13 of the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
1999 and filed on August 16, 1999).
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 (incorporated by reference from
Exhibit 10.14 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999 and filed on August 16,
1999).
10.15 Amended and Restated Secured promissory Note in the amount of
$9,024,896.72 issued 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. as payee (incorporated by reference from Exhibit
10.15 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 and filed on August 16, 1999).
10.16 Demand Promissory Note in the amount of $11,000,000.00
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 (incorporated by reference from
Exhibit 10.16 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999 and filed on August 16,
1999).
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 (incorporated by reference from
Exhibit 10.17 of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1999 and filed on August 16,
1999).
10.18 Loan and Security Agreement dated November 24, 1999 by and
among Congress Financial Corporation (Western) as lender and
Cerplex, Inc. as borrower and The Cerplex Group, Inc. as
Guarantor (incorporated by reference from Exhibit 4.1 of the
Company's Report on Form 8-K dated December 1, 1999).
*10.19 Deed of Debenture dated December 15, 1999 between Cerplex
Limited as borrower and Burdale Financial Limited as lender.
*10.20 Guarantee and Indemnity agreement dated December 14, 1999
between The Cerplex Group, Inc. as a guarantor and Burdale
Financial Limited as lender.
*10.21 Facility Agreement dated December 14, 1999 between Cerplex
Limited as borrower and Burdale Financial Limited as lender.
*23.1 Consent of KPMG LLP.
*23.2 Consent of Arthur Andersen LLP.
*27 Financial Data Schedule.
*99.1 Liquidation of Cerplex S.A.S. - Unaudited pro froma financial
information
- --------------------
</TABLE>
* Filed herewith.
(b) Reports on Form 8-K.
21
<PAGE>
The following current reports on Form 8-K were filed by the Company
subsequent to the last quarter of the fiscal year ended September 25, 1999:
1. Current report on Form 8-K filed December 1, 1999 regarding the
liquidation of Cerplex S.A.S.
2. Current report on Form 8-K filed December 1, 1999 regarding the loan and
security agreement with Congress Financial Corporation (Western)
providing for a $13 million senior secured revolving credit facility.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: January 10, 2000
THE CERPLEX GROUP, INC.
By: /s/ DEBBI ANDERS
-----------------------------
Debbi Anders
Vice President, Finance
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed on the dated indicated below by the
following persons on behalf of the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ GEORGE L. MCTAVISH Chairman of the Board of Directors January 10, 2000
- ----------------------------------------------------- and Chief Executive Officer
George L. McTavish (Principal Executive Officer)
/s/ RICHARD ALSTON President & Chief Operating Officer January 10, 2000
- -----------------------------------------------------
Richard Alston
/s/ DEBBI ANDERS Vice President, Finance January 10, 2000
- -----------------------------------------------------
Debbi Anders
(Principal Financial Officer)
/s/ ROBERT M. NELSON Corporate Controller (Controller) January 10, 2000
- -----------------------------------------------------
Robert M. Nelson
/s/ THOMAS E. MCINERNEY Director January 10, 2000
- -----------------------------------------------------
Thomas E. McInerney
/s/ BRUCE ANDERSON Director January 10, 2000
- -----------------------------------------------------
Bruce Anderson
</TABLE>
23
<PAGE>
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
INDEX TO THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
PAGE
----
<S> <C>
Reports of Independent Auditors.......................................................................... F-2
Consolidated Balance Sheets as of September 25, 1999 and September 30, 1998.............................. F-4
Consolidated Statements of Operations for the year ended September 25, 1999 and the years ended
September 30, 1998 and 1997........................................................................... F-5
Consolidated Statements of Stockholders' Deficit for the year ended September 25, 1999 and
the years ended September 30, 1998 and 1997........................................................... F-6
Consolidated Statements of Cash Flows for the year ended September 25, 1999 and the years ended
September 30, 1998 and 1997........................................................................... F-7
Notes to Consolidated Financial Statements............................................................... F-8
Schedule II -- Valuation and Qualifying Accounts for the year ended September 25, 1999 and the years
ended September 30, 1998 and 1997..................................................................... S-1
</TABLE>
All other financial statement schedules are omitted as the required
information is presented in the consolidated financial statements or the notes
thereto or is not necessary.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORTS
The Board of Directors
The Cerplex Group, Inc.
We have audited the accompanying consolidated balance sheets of The Cerplex
Group, Inc. and subsidiaries (formerly known as Aurora Electronics, Inc.) as of
September 25, 1999 and September 30, 1998, and the related consolidated
statements of operations, stockholders' deficit and cash flows for the years
then ended, as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the consolidated
financial statement schedule as of and for the years ended September 25, 1999
and September 30, 1998, as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
Cerplex's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Cerplex
Group, Inc. and subsidiaries as of September 25, 1999 and September 30, 1998,
and the results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
The accompanying consolidated financial statements and financial statement
schedule have been prepared assuming that The Cerplex Group, Inc. will continue
as a going concern. As discussed in Note A to the consolidated financial
statements, The Cerplex Group, Inc. has suffered recurring losses from
operations, has net stockholders' and working capital deficiencies, is in
default on substantially all of its debt obligations and does not have the
necessary funds to pay substantially all of its debt obligations which are in
default or which mature in fiscal year 2000. In addition, the Company's losses
are expected to continue for the forseeable future, and the Company will require
additional funding and financial support. These factors raise substantial doubt
about The Cerplex Group's ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note A. The consolidated
financial statements and financial statement schedule do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Orange County, California
December 20, 1999
F-2
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Aurora Electronics, Inc.:
We have audited the accompanying consolidated balance sheet of Aurora
Electronics, Inc. (a Delaware Corporation) and subsidiaries as of September 30,
1997 (not separately presented herein), and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for the year then
ended. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and the
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aurora
Electronics, Inc. and subsidiaries as of September 30, 1997, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
A to the consolidated financial statements, the Company has experienced
declining revenues, significant operating losses, has negative working capital
and a deficit in stockholders' equity. In addition, since a recapitalization of
the Company in March 1996, the Company has relied upon the financial support of
its largest shareholder for additional capital and to maintain its existing
credit facilities. The Company's losses are expected to continue for the
foreseeable future and the Company will require additional funding and financial
support from its largest shareholder or another third party. There can be no
assurance that such additional funding and financial support will be available
on acceptable terms, or that such funds, if available, would enable the Company
to continue operating. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of asset
carrying amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index to the consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Orange County, California
January 12, 1998
F-3
<PAGE>
THE CERPLEX GROUP, INC.
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
September 25, 1999 September 30, 1998
------------------ ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................................................ $ 382 $ 14,196
Trade receivables, less allowance for doubtful accounts of
$912 ($2,511 in 1998)......................................................... 9,234 12,416
Inventories...................................................................... 5,375 6,626
Other current assets............................................................. 1,191 4,628
--------- ---------
Total current assets............................................................. 16,182 37,866
Property, p\lant and equipment, net................................................. 9,406 25,021
Goodwill, net...................................................................... 9,560 37,202
Intangible and other assets, net................................................... 483 452
--------- ---------
Total assets............................................................. $ 35,631 $ 100,541
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt................................................ $ 39,406 $ 53,886
Accounts payable................................................................. 6,674 9,903
Accrued liabilities.............................................................. 4,802 14,165
Accrued interest................................................................. 458 1,424
Current portion of reserve for discontinued operations........................... -- 154
Income taxes payable............................................................. -- 1,271
Other current liabilities........................................................ 1,338 12,478
--------- ---------
Total current liabilities.......................................................... 52,678 93,281
Long-term debt..................................................................... -- 25,782
Reserve for discontinued operations................................................ -- 1,822
Other long-term liabilities........................................................ -- 4,714
Commitments and contingencies (notes Q and R)
Subsequent events (notes H and S)
Redeemable convertible preferred stock, 216 shares issued
(260 shares in 1998)............................................................. 30,492 34,150
Stockholders' deficit:
Series B senior cumulative preferred stock, 58,643 shares issued................. 59,669 --
Common stock, 75,000 shares authorized, 7,850 shares
issued (7,601 shares issued in 1998).......................................... 2,270 2,262
Additional paid-in capital....................................................... 121,601 116,400
Accumulated deficit.............................................................. (214,415) (161,232)
Treasury stock, at cost, 474 shares (474 shares in
1998)......................................................................... (16,675) (16,675)
Accumulated other comprehensive income........................................... 11 37
--------- ---------
Total stockholders' deficit........................................................ (47,539) (59,208)
--------- ---------
Total liabilities and stockholders' deficit.............................. $ 35,631 $ 100,541
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE CERPLEX GROUP, INC.
(formerly known as Aurora Electronics, Inc.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share figures)
<TABLE>
<CAPTION>
Years Ended
----------------------------------
September 30,
September 25, --------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net revenues .................................................... $ 93,346 $ 66,423 $ 64,892
Cost of sales ................................................... 89,661 61,554 51,906
-------- -------- --------
Gross profit .................................................... 3,685 4,869 12,986
Selling, general and administrative expense: .................... 22,304 23,145 23,466
Amortization of intangibles, including write-offs of $18,375,
$405 and $32,992 in 1999, 1998 and 1997, respectively ...... 24,295 3,701 34,044
Reduction in accruals ........................................... (2,006) -- --
Loss on loss of control of subsidiary ........................... 6,176 -- --
-------- -------- --------
Operating loss .................................................. (47,084) (21,977) (44,524)
Interest expense ................................................ (6,415) (5,465) (4,050)
Other income (expense), net ..................................... 1,617 (1,653) (498)
-------- -------- --------
Loss from continuing operations before provision for income taxes (51,882) (29,095) (49,072)
Provision for incomes taxes ..................................... 10 -- 533
-------- -------- --------
Loss from continuing operations ................................. (51,892) (29,095) (49,605)
Discontinued operations, net of income taxes and valuation
allowance:
Gain on discontinued operations ............................ 1,286 -- --
-------- -------- --------
Net loss ........................................................ (50,606) (29,095) (49,605)
Accrued dividends on preferred stock ............................ (2,577) (2,665) (2,822)
-------- -------- --------
Net loss applicable to common shareholders ...................... $(53,183) $(31,760) $(52,427)
======== ======== ========
Gain (Loss) per share of common stock applicable to common
shareholders:
Basic and diluted loss on continuing operations ............ $ (7.43) $ (8.26) $ (78.60)
Basic and diluted gain on discontinued operations .......... 0.18 -- --
-------- -------- --------
Net loss per basic and diluted share of common stock applicable
to common shareholders...................................... $ (7.25) $ (8.26) $ (78.60)
======== ======== ========
Weighted average number of common shares outstanding ............ 7,333 3,843 667
======== ======== ========
</TABLE>
F-5
<PAGE>
THE CERPLEX GROUP, INC.
(formerly known as Aurora Electronics, Inc)
STATEMENT OF STOCKHOLDERS' DEFICIT
(in thousands, except per share figures)
<TABLE>
<CAPTION>
SERIES B SENIOR ADDITIONAL
CUMULATIVE CONVERTIBLE
COMMON STOCK PREFERRED STOCK PAID IN ACCUMULATED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at September 30,
1996....................... 1,049 $ 315 -- -- $ 61,679 $ (77,045) $ (16,639)
Comprehensive Loss:
Net loss................. $ (49,605) --
Currency Translation .... -- --
Comprehensive Loss ........ -- --
Issuance of common stock -
acquisitions............... 23 $ 7 -- -- $ 380 -- --
Issuance of common stock -
employee bonuses........... 9 $ 3 -- -- $ 151 -- --
Issuance of common stock -
litigation................. 78 $ 23 -- -- $ (23) -- --
Financing costs - warrants
issued for guarantees on
bank debt................. -- -- -- -- $ 256 -- --
Accretion of dividends on
redeemable convertible
preferred.................. -- -- -- -- -- $ (2,822) --
---------------------------------------------------------------------------------------------
Balances at September 30,
1997....................... 1,159 $ 348 -- -- $ 62,443 $ (129,472) $ (16,639)
=============================================================================================
Comprehensive Loss:
Net loss................. -- -- -- -- -- $ (29,095) --
Currency Translation..... -- -- -- -- -- -- --
Comprehensive Loss......... -- -- -- -- -- -- --
Issuance of common stock -
acquisition................ 3,890 $ 1,167 -- -- $ 6,616 -- --
Conversion of Series A, B, C,
D redeemable convertible
preferred stock........... 2,544 $ 747 -- $ 47,341 -- --
Repurchase of common
stock..................... 8 -- -- -- -- -- $ (36)
Accretion of dividends on
Redeemable Convertible
Preferred Stock........... -- -- -- -- -- $ (2,665) --
--------------------------------------------------------------------------------------------
Balances at September 30,
1998....................... 7,601 $ 2,262 -- $ -- $ 116,400 $ (161,232) $ (16,675)
============================================================================================
Comprehensive Loss:
Net loss................ -- -- -- -- -- $ (50,606) --
Currency Translation.... -- -- -- -- -- -- --
Comprehensive Loss........ -- -- -- -- -- -- --
Conversion of Preferred
Stock into Common Stock... 249 $ 8 -- -- $ 5,201 -- --
Dividends Cumulative
Preferred Series A........ -- -- -- -- -- $ (1,551) --
Issuance of Series B
senior cumulative
preferred stock........... -- -- 58,643 $ 58,643 -- -- --
Accretion of dividends on
Series B Preferred Stock.. -- -- -- $ 1,026 -- $ (1,026) --
----------------------------------------------------------------------------------------------
Balances at September 25,
1999....................... 7,850 $ 2,270 58,643 $ 59,669 $ 121,601 $ (214,415) $ (16,675)
==============================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATED OTHER
COMPREHENSIVE COMPREHENSIVE
INCOME(LOSS) TOTAL INCOME(LOSS)
--------------------------------- --------------------
<S> <C> <C> <C>
Balances at September 30,
1996....................... $ -- $(31,690) --
Comprehensive Loss:
Net loss................. -- $(49,605) $ (49,605)
Currency Translation .... -- $ -- --
-------------------
Comprehensive Loss ........ -- -- $ (49,605)
===================
Issuance of common stock -
acquisitions............... -- $ 387 --
Issuance of common stock -
employee bonuses........... -- $ 154 --
Issuance of common stock -
litigation................. -- -- --
Financing costs - warrants
issued for guarantees on
bank debt................. -- $ 256 --
Accretion of dividends on
redeemable convertible
preferred................. -- $ (2,822) --
---------------------------------------------------------
Balances at September 30,
1997....................... -- $(83,320) --
=========================================================
Comprehensive Loss:
Net loss................. -- $(29,095) $ (29,095)
Currency Translation..... $ 37 $ 37 37
--------------------
Comprehensive Loss......... -- -- $ (29,058)
Issuance of common stock - ====================
acquisition................ -- $ 7,783 --
Conversion of Series A, B, C,
D redeemable convertible
preferred stock........... -- $ 48,088 --
Repurchase of common
stock..................... -- $ (36) --
Accretion of dividends on
Redeemable Convertible
Preferred Stock........... -- $ (2,665) --
-------------------------------------
Balances at September 30,
1998....................... $ 37 $(59,208) --
=====================================
Comprehensive Loss:
Net loss................ -- $(50,606) $ (50,606)
Currency Translation.... $ (26) $ (26) (26)
------------------
Comprehensive Loss........ -- -- $ (50,632)
==================
Conversion of Preferred
Stock into Common Stock... -- $ 5,209 --
Dividends Cumulative
Preferred Series A........ -- $ (1,551) --
Issuance of Series B
senior cumulative
preferred stock........... -- $ 58,643 --
Accretion of dividends on
Series B Preferred Stock.. -- $ 0 --
---------------------------------
Balances at September 25,
1999....................... $ 11 $(47,539) --
=================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
THE CERPLEX GROUP, INC.
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------
SEPTEMBER SEPTEMBER 30,
-----------------------
25, 1999 1998 1997
--------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS USED BY OPERATING ACTIVITIES:
Net loss.................................................................. $(50,606) $ (29,095) $ (49,605)
Adjustments to reconcile net loss to net cash flows
used by operating activities:
Depreciation and amortization, including write-offs of intangibles.... 27,893 4,994 32,322
Noncash interest expense.............................................. 3,732 2,008 2,044
Loss on disposition of assets......................................... 1,030 224 3,390
Foreign currency translation.......................................... (26) 37 --
Changes in assets and liabilities, net of acquisitions:
Trade receivables, inventories and other assets..................... 965 8,202 4,227
Accounts payable, accrued compensation and other
liabilities...................................................... (12,476) (12,730) (1,389)
Accrued interest and income taxes
receivable/payable............................................... (587) (489) 70
Deferred income taxes............................................... -- -- 500
-------- --------- ---------
Net cash flows used by continuing operations............................ (30,075) (26,849) (8,441)
Net cash flows used by discontinued operations.......................... (1,976) (614) (478)
Loss on loss of control of subsidiary, net of cash...................... 3,548 -- --
-------- --------- ---------
Net cash flows used by operating activities............................. (28,503) (27,463) (8,919)
-------- --------- ---------
CASH FLOWS FROM (USED BY) INVESTING ACTIVITIES:
Acquisition of property, plant and equipment............................ (1,411) (1,106) (3,053)
Purchase of treasury stock, net......................................... -- (36) --
Purchase of Old Cerplex, net of cash acquired........................... -- 13,681 --
-------- --------- ---------
Net cash flows from (used by) investing activities...................... (1,411) 12,539 (3,053)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on debt........................................................ -- (59,500) (1,405)
Issuance of redeemable convertible preferred stock...................... -- 22,750 2,500
Issuance of senior subordinated debentures.............................. -- 15,000 --
Proceeds from senior secured notes...................................... 4,600 -- --
Proceeds from promissory notes.......................................... 11,500 5,000 --
Proceeds from LIBOR revolving line of credit and term
debt.................................................................. -- 45,547 --
Advances under line of credit........................................... -- -- 9,663
-------- --------- ---------
Net cash flows from financing activities................................ 16,100 28,797 10,758
-------- --------- ---------
Net change in cash and cash equivalents................................. (13,814) 13,873 (1,214)
Cash and cash equivalents at beginning of period.......................... 14,196 323 1,537
-------- --------- ---------
Cash and cash equivalents at end of period................................ 382 $ 14,196 $ 323
======== ========= =========
SUPPLEMENTAL DISCLOSURES:
Cash paid for:
Interest.............................................................. $ 2,725 $ 3,456 $ 1,907
======== ========= =========
Income taxes.......................................................... $ 150 $ 30 $ 42
======== ========= =========
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of common stock to acquire Old Cerplex......................... $ -- 7,783 --
======== ========= =========
Conversion of 10% senior debt to redeemable convertible
preferred stock....................................................... $ -- $ 10,101 $ --
======== ========= =========
Issuance of common stock for employee bonuses........................... $ -- $ -- $ 154
======== ========= =========
Accretion of dividends on redeemable convertible preferred
stock................................................................. $ 2,577 $ 2,665 $ 2,882
======== ========= =========
Conversion of redeemable convertible preferred stock into
common stock.......................................................... $ 5,209 $ 48,088 $ --
======== ========= =========
Conversion of various WCAS debt instruments and accrued interest into
series B cumulative preferred stock................................... $ 58,643 $ -- $ --
======== ========= =========
Net long term assets written off due to loss of control of subsidiary... $ 6,946 -- --
======== ========= =========
Reduction in goodwill due to reduction in accruals $ 3,738 -- --
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
THE CERPLEX GROUP, INC. AND SUBSIDIARIES
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE FIGURES)
GENERAL
The Cerplex Group, Inc. (the "Company") was formerly named Aurora
Electronics, Inc. The Company changed its name during 1998 in connection with
its acquisition of The Cerplex Group ("Old Cerplex"). See Note C.
On October 5, 1998, the Company effected a one for ten reverse common stock
split. All share and per share amounts in the accompanying consolidated
financial statements have been restated to reflect this split. At this time the
amount of authorized Common Stock was established at 75,000.
NOTE A -- CURRENT FINANCIAL CONDITION
During the year ended September 25, 1999 and the years ended September 30,
1998, and 1997, the Company experienced recurring operating losses. As a result
of these losses, at September 25, 1999 the Company has a deficit of $47,539 in
stockholders' equity and negative working capital of $36,496. In addition, since
a recapitalization of the Company in March 1996, the Company has relied
primarily upon the financial support of its largest stockholder for additional
capital. On September 25, 1999 the Company had $3.0 million outstanding under a
secured note payable to one of its customers. This note was subsequently paid in
full on December 15, 1999. In fiscal 2000, the Company will be required to make
a sinking fund payment of $1.8 million on the 7 3/4% convertible subordinated
debentures. The liquidation of Cerplex S.A.S. may cause the acceleration of all
the material debt instruments of the Company, either because it triggers a
default or a cross-default under such instruments. Unless appropriate waivers
are obtained by the Company, the acceleration of such debt would have a material
adverse effect on the Company. The Company is currently in the process of
preparing a waiver request from its debt holders and is engaged in discussions
with its senior lenders regarding the default. Though the Company intends to
make efforts to increase revenues to improve operations, the Company's losses
are expected to continue for the foreseeable future and the Company will require
additional funding and financial support from its largest stockholder or another
third party. There can be no assurance that such additional funding and
financial support will be available on acceptable terms, or that such funds, if
available, would enable the Company to continue operating, or that the Company
will be successful in increasing revenues. These matters raise substantial doubt
about the Company's ability to continue as a going concern.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization. The Company provides repair and logistics services and parts
sourcing and service management to major personal computer manufacturers and
field service organizations.
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company and its subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates. The preparation of the financial statements in conformity
with generally accepted accounting principles requires management to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Fiscal Year. In fiscal 1999, the Company adopted a fiscal year for
reporting purposes ending on the last Saturday of September (September 25,
1999). The Company's fiscal quarters are on a 13-week basis ending on the
Saturday nearest to the quarter end. Previously the fiscal year ended on
September 30. The effect of this change is insignificant.
Cash and Cash Equivalents. The Company considers all liquid investments with
a maturity of three months or less at the date of purchase to be cash
equivalents.
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method. Write-downs for cost in excess
of net realizable value are determined periodically by comparing expected sales
prices and volumes to cost and quantity of inventory on hand.
Property, Plant and Equipment. Property, plant and equipment is recorded at
cost and is depreciated over the estimated useful lives of the related assets by
the straight-line method for financial reporting purposes, and accelerated
methods with respect to certain assets for income tax purposes. Property, plant
and equipment includes computer hardware, software and implementation costs
which are
F-8
<PAGE>
purchased, acquired and modified for internal use. The Company's policy is to
capitalize and accumulate such costs as incurred and to commence amortization
when placed in service. Leasehold improvements are amortized over the terms of
the related leases or their useful lives, whichever is shorter.
Intangible and Other Long-Lived Assets. Goodwill, which represents the
excess of purchase price over fair value of net assets acquired, is being
amortized on a straight-line basis over the expected periods to be benefited.
Goodwill associated with the acquisition of Old Cerplex was initially being
amortized based on a blended average of five years. As discussed below, and in
Note C, events during fiscal 1999 resulted in the write-off of a portion of the
goodwill associated with the acquisition of Old Cerplex. The remaining goodwill
is related to operations with a remaining useful life of 15 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 undiscounted 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 totalling approximately $40.6 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. Refer to Note C for further details.
Revenue Recognition. Revenue is recognized upon completion of services,
normally represented by the shipment of products to customers. The Company
warrants products against defects and has policies permitting the return of
products under certain circumstances. Provisions are made for warranty costs and
returns. Such costs generally have not been material. The Company does not offer
price protection to its customers. The Company performs ongoing credit
evaluations of its customers and has established provisions for potential credit
losses.
Earnings Per Share. In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
128 "Earnings Per Share," which requires companies to present basic earnings per
share (EPS) and diluted earnings per share, instead of primary and fully diluted
EPS that was previously required. SFAS No. 128 required additional informational
disclosures, and also made certain modifications to the currently applicable EPS
calculations defined in APB Opinion No. 15. The new standard was required to be
adopted by all public companies for reporting periods ending after December 15,
1997, and required restatement of EPS for all prior periods reported. Basic
earnings per share and diluted earnings (loss) per share are the same as to
previously reported primary and fully diluted earnings (loss) per share.
Basic earnings (loss) per common share is computed by dividing net income
(loss) by the weighted average number of common shares outstanding after adding
to loss from operations cumulative dividends to holders of the Company's
redeemable convertible preferred stock.
Diluted earnings per share is computed by dividing net income (loss)
available to common stockholders by the sum of the weighted average number of
common shares outstanding and common stock equivalents. For all years presented,
common stock equivalents (stock options) were excluded from calculations as they
were considered to be anti-dilutive.
Other Comprehensive Income /(Loss). The Company has adopted Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting of comprehensive
income and its components in annual and interim financial statements.
Reclassification or restatement of financial statements or financial information
for earlier periods is required upon adoption of SFAS 130. For fiscal 1999 and
1998, the Company possessed one of the components of other comprehensive income
as defined in SFAS 130, namely foreign currency translation adjustment. The
amount of other comprehensive income/(loss) was $(26) and $37 in 1999 and 1998,
respectively. At the time the Company lost control of SAS, the translation
adjustment related to that subsidiary was eliminated and included in the loss
related to the loss of control of the subsidiary.
Stock-Based Compensation. In October 1995, the FASB issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This standard, if fully adopted,
requires the accounting for employee stock-based compensation using a fair value
methodology. For stock options, fair value is determined using an option pricing
model that takes into account the stock price at the date of grant, the exercise
price, the expected life of the option, the volatility of the underlying stock,
the expected dividends and the risk-free interest rate. For stock-based
compensation issued to non-employees, the standard requires measurement based on
the value of the related services performed or the stock-based compensation
issued, whichever is more reliably measurable.
The adoption of the accounting methodology of SFAS 123 related to employees
is optional and as permitted under SFAS 123, the Company continues to account
for employee stock options using the methodology in accordance with APB Opinion
No. 25; however, pro forma disclosures as if the Company adopted the accounting
methodology of SFAS 123 are required to be presented. See Note L -- "Stock
Option and Savings Plans."
Segment Reporting. The Company has adopted Statement of Financial
Accounting Standards No. 131, "Disclosures about Segments of and Enterprise and
Related Information" ("SFAS 131"). SFAS 131 establishes standards for reporting
financial and descriptive information about an enterprise's operating segments
in its annual financial statements and selected segment information in interim
financial reports. Reclassification or restatement of comparative financial
statements or financial information for earlier periods is required upon
adoption of SFAS 131. In fiscal 1999, the Company operated in one industry
segment, the outsourcing of services to the computer and electronics industry,
and in accordance with SFAS 131, only enterprise-wide disclosures have been
provided (see Note O of Notes to Consolidated Financial Statements).
Computer Software. In 1998, the AICPA issued Statement of Position No.
98-1, " Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which provides guidance concerning recognition and measurement of
costs associated with developing or acquiring software for internal use. This
pronouncement is effective for financial statements of years beginning after
December 31, 1998, with earlier application encouraged. The Company does not
believe that the adoption of this pronouncement will have a material impact on
its consolidated financial statements.
F-9
<PAGE>
Fair Value of Financial Instruments. SFAS No. 107, "Disclosures about Fair
Value of Financial Instruments," requires all entities to disclose the fair
value of financial instruments, both assets and liabilities recognized and not
recognized on the balance sheet, for which it is practicable to estimate fair
value. SFAS No. 107 defines fair value of a financial instrument as the amount
at which the instrument could be exchanged in a current transaction between
willing parties. As of September 25, 1999 and September 30, 1998, the carrying
value of all debt and redeemable convertible preferred stock approximates fair
value as the related interest rates approximate rates currently available to the
Company. The carrying value of all other financial instruments approximates fair
value due to the short-term nature of such instruments.
NOTE C -- ACQUISITIONS
MICROLINE, INC.
Effective March 31, 1997, the Company acquired MicroLine, Inc., the
developer and operator of PowerSource On-line, an internet-based information
service that matches computer parts buyers to available inventories from
distributors that participate in the on-line parts data base of PowerSource. The
consideration to the former shareholders of MicroLine was 23 shares of Common
Stock of the Company. The business operated as the PowerSource Division of the
Company.
The estimated fair value of assets and liabilities as of the date of the
acquisition of MicroLine is summarized as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets................................ $ 78
Property, plant and equipment................. 21
Other assets.................................. 3
Goodwill...................................... 496
Liabilities................................... (211)
------
Net purchase price.................. $ 387
======
</TABLE>
Goodwill from the MicroLine acquisition has been written off as the Company
disposed of this division during fiscal 1998. See Note G -- "Goodwill,
Intangibles and Other Assets."
OLD CERPLEX
On April 30, 1998, the Company, formerly known as Aurora Electronics,
Inc., merged with Old Cerplex, a provider of electronic parts repair, spare
parts sales and management and logistics to the electronics industry. As a
result of the merger, Old Cerplex became a wholly-owned subsidiary of the
Company, and the current equity holders of Old Cerplex received, in a tax-free
exchange, approximately 3,890 shares of the Company's Common Stock or
approximately 25% of the post-merger, fully-diluted Common Stock of the Company,
after giving effect to the financing from Welsh, Carson, Anderson & Stowe
("WCAS"), described in Note H "Long-Term Debt." Under the terms of the
agreement, each share of Old Cerplex Common Stock was converted into .1070167
shares of the Company's Common Stock (after giving effect to the Company's
one-for-ten reverse stock split, discussed elsewhere herein). The Company
changed its name to The Cerplex Group, Inc. and the combined company is
operating under that name.
Management estimated that the fair value of the Common Stock issued was
approximately 80% of the negotiated conversion price of the 7% Senior Cumulative
Convertible Preferred Stock issued simultaneous to the merger. Based upon a
$2.50 per share conversion price for the 7% Senior Cumulative Convertible
Preferred Stock, the fair value of the Common Stock issued to Old Cerplex
stockholders was determined to be $2.00 per share.
The merger with Old Cerplex has been accounted for using the purchase method
of accounting. Accordingly, the operating results of Old Cerplex have been
included in the Company's consolidated financial statements since the date of
the merger. The allocation of the purchase price was as follows:
<TABLE>
<CAPTION>
<S> <C>
Current assets....................... $ 38,721
Property, plant and equipment........ 22,519
Other assets......................... 113
Goodwill............................. 40,583
Net current liabilities.............. (75,600)
Long term liabilities................ (15,698)
---------
Net purchase price......... $ 10,638
=========
</TABLE>
F-10
<PAGE>
Goodwill resulting from the merger has been determined as the excess of: (i)
the fair value of the shares issued to Old Cerplex shareholders totaling $7,783,
plus merger costs incurred of approximately $2.9 million over; (ii) the fair
value of the identifiable assets less the liabilities of Old Cerplex.
The following table presents unaudited pro forma consolidated results of
operations for the year ended September 30, 1998 assuming the acquisition of Old
Cerplex occurred as of October 1, 1997 (in thousands, except per share data).
These results are not necessarily indicative of future operations:
1998
----
Net sales...................... $ 95,654
Net loss....................... (32,250)
Loss per share-- basic and
diluted..................... (8.39)
The Company reviews the carrying value of goodwill and other long-lived
assets whenever circumstances indicate that the carrying amount may not be
recoverable based upon estimates of undiscounted future cash flows. During the
quarter ended June 30, 1999, management evaluated the recoverability of the Old
Cerplex goodwill based on revised estimates and the goodwill ascribed to closed
and terminated operations. Based on this evaluation, the Company determined that
an impairment charge of approximately $18.4 million was 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 is being amortized over a remaining useful
life of 15 years. The blended average life of all operations originally acquired
was five years. However, subsequent to the write-off of terminated operations,
the remaining operations have a remaining 15 year useful life. It is possible
that a subsequent review may require a further reduction in the carrying value
of the goodwill resulting from the merger.
In connection with the Merger, the Company sold an aggregate of $15.0
million of newly issued 10% Series A Senior Subordinated Notes and $21.55
million of newly issued 7% Senior Cumulative Convertible Preferred Stock
primarily to its principal stockholder, WCAS. The aggregate consideration paid
for the 10% Senior Subordinated Notes and the 7% Senior Cumulative Convertible
Preferred Stock consisted of approximately $12.0 million in cash, the
cancellation of $21.0 million of combined indebtedness of Old Cerplex and the
Company to WCAS, and the surrender of warrants held by WCAS to purchase capital
stock of Old Cerplex. The cash proceeds of approximately $12.0 million and
borrowings under the Greyrock Line of Credit of $38.5 million was used in full
to repay $30.0 million of indebtedness of Old Cerplex under a line of credit
from Citibank, N.A., to repay $16.5 million of the Company's indebtedness under
a line of credit with The Chase Manhattan Bank, N.A., and the balance to pay
investment banking and other transactional fees in connection with the Merger.
NOTE D -- DISCONTINUED OPERATIONS
Effective September 30, 1992, the Company announced that its remaining
sporting goods operations would be accounted for as discontinued operations and
the remaining assets would be sold. As of September 25, 1999, no material assets
remained related to the discontinued operations. Obligations relating to
discontinued operations consist primarily of a leased building. The Company
initially accrued an estimated loss on the lease; however in 1999, the Company
was able to sublease the building which resulted in a reduction in the estimated
accrual of $1,286 for the amount of probable sub-lease income. Such amount is
reflected as a gain on discontinued operations in the accompanying consolidated
statement of operations.
NOTE E -- INVENTORIES
Inventories at September 25, 1999 and September 30, 1998 consisted of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Spare and repair parts. $ 4,687 $5,569
Work in process........ 493 113
Finished goods......... 195 944
------- ------
Total inventories... $ 5,375 $6,626
======= ======
</TABLE>
F-11
<PAGE>
NOTE F -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 25, 1999 and September 30, 1998
consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED LIFE 1999 1998
-------------- ---- ----
<S> <C> <C> <C>
Land.......................... $ 2,464 $ 5,482
Buildings..................... 20 years 2,210 2,135
Furniture, fixtures and
equipment..................... 3-5 years 12,862 20,205
Leasehold improvements........ 1-5 years 828 1,196
-------- --------
18,364 29,018
Less accumulated depreciation
and amortization.............. (8,958) (3,997)
-------- --------
Total property, plant
and equipment...... $ 9,406 $ 25,021
======== ========
</TABLE>
The Property, plant and equipment balances at September 25, 1999 have been
affected primarily by the loss of control of SAS which resulted in the
elimination of approximately $10.0 million in fixed assets (See Note R for a
further discussion).
F-12
<PAGE>
NOTE G -- GOODWILL, INTANGIBLES AND OTHER ASSETS
Intangibles and other assets at September 25, 1999 and September 30, 1998
consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Goodwill.............................. $ 9,722 $40,583
Debt issuance costs................... -- 601
Other................................. 483 557
-------- -------
Total goodwill, intangibles and other
assets................................ $10,205 41,741
Less accumulated amortization......... (162) (4,087)
------- -------
Net goodwill, intangibles and
other assets................ $ 10,043 $37,654
======== =======
</TABLE>
Due to the closure of the PowerSource Division business during fiscal 1998,
management charged the remaining unamortized goodwill of $405 to operations in
the second quarter. This charge was necessary as management decided to shut down
the PowerSource Division and disposed of the operation in exchange for $36 of
treasury stock.
In fiscal 1997, due to continuing declines in the prices for replacement and
repair parts, the Parts Services Division (formerly Century) experienced a
continued decrease in inventory values and increasing levels of operating
losses. As a result, management decided to reorganize its parts business to
reduce inventory exposure and to more cost effectively deliver parts to its
customers. The Company replaced Century's inventory and labor intensive
operating methods with MicroLine's internet-based electronic processing
technology. As a result, management charged the remaining balance of goodwill
and the database valuation resulting from the acquisition of Century,
aggregating $29,602, to operations in the fourth quarter of fiscal 1997. These
charges were determined necessary as management estimated that the amortization
of the respective intangible balances over their remaining lives would not be
recovered through the projected non-discounted future cash flows over their
respective remaining amortization periods. Also, the new internet technology
made obsolete much of the Company's capitalized information systems software and
development costs and, therefore, $3,390 of such formerly capitalized costs were
charged to operations in the fourth quarter of fiscal 1997.
As of 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 $40.6 million ("Goodwill").
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 continuing operations. Based on these estimates
and the goodwill ascribed to closed and discontinued operations, the Company has
determined that an impairment charge of approximately $18.4 million was
necessary (after a reduction in goodwill of $3.7 million due to a reduction in
Old Cerplex accruals during the three months ended June 30, 1999). 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 charge, was
approximately $9.7 million. The $9.7 million value is the result of $40.6
million initial value, net of $12.5 million of accumulated amortization, less
the $18.4 million write-off. This intangible asset is being amortized over a
remaining useful life of 15 years.
F-13
<PAGE>
NOTE H -- LONG-TERM DEBT
Long-term debt at September 25, 1999 and September 30, 1998 consists of the
following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
LIBOR revolving line of credit.............. $ -- $ 9,547
LIBOR term debt............................. -- 36,000
WCAS LIBOR term debt........................ 25,439 --
10% Senior subordinated notes............... 387 15,000
7 3/4% Convertible subordinated debentures.. 10,408 10,381
Secured note payable to customer............ 2,957 3,064
Promissory note............................. -- 5,000
Other....................................... 215 676
--------- --------
Total long-term debt.............. 39,406 79,668
Less current portion of
long-term debt.................. (39,406) (53,886)
--------- --------
Total long-term portion........... $ -- $ 25,782
========= ========
</TABLE>
The liquidation of Cerplex S.A.S. may cause the acceleration of all the
material debt instruments of the Company, either because it triggers a default
or a cross-default under such instruments. The Company is currently in the
process of preparing a waiver request from its debt holders and is engaged in
discussions with its senior lenders regarding the default. As a result, all debt
instruments have been classified as current as of September 25, 1999.
On June 25, 1999 the Company consented to an assignment by Greyrock of its
rights and interests under the Greyrock Line of Credit to WCAS in return for
payment in full 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 "WCAS Refinancing"). 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 was released, (iv) the negative pledge agreements
covering assets owned by the Company's subsidiaries in the UK and France were
terminated; and (v) the Company's obligations were 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 is
7% cumulative, non-convertible preferred shares that is redeemable by the
Company at its option and redeemable by the holders upon a change of control of
the Company. On November 24, 1999 WCAS agreed to subordinate their collateral to
the liens of Congress to allow the Company to pledge the collateral to Congress
Financial Corporation (Western). The Company accrued dividends of $1,026 in
fiscal 1999 on these preferred shares.
LIBOR FINANCING
F-14
<PAGE>
In connection with the acquisition of Old Cerplex, the Company entered into
a financing relationship with a financial institution. This arrangement provided
for two elements, a $10,000 revolving loan and a $36,000 term loan. The amount
available under the revolving loan was based upon eligible receivables and
inventory, as defined in the agreement. Interest accrued at the highest LIBOR
rate in effect during the month plus 4.875% per annum on the revolving loan or
4.5% per annum on the term loan, but not less than 9% per annum provided that
the interest charged for each month was a minimum of $25. This loan was paid in
full on June 25, 1999 in connection with the WCAS Refinancing.
WCAS LIBOR TERM DEBT
In connection with the WCAS Refinancing on June 25, 1999, the Company
consented to an assignment by Greyrock of its rights and interests under the
Greyrock Line of Credit to WCAS. The balance of the WCAS LIBOR term debt is
$25,439 as of September 25, 1999. Interest accrues at the LIBOR rate in effect
on the last day of the month plus 1.75% per annum. Interest is paid in kind
monthly. This note matures on April 1, 2001 and is secured by the Company's
domestic assets.
10% SENIOR SUBORDINATED NOTES
In connection with the acquisition of Old Cerplex, the Company issued
$15,000 of 10% Series A and Series B Senior Subordinated Notes to WCAS.
Subsequently, approximately 3% of this amount was purchased by the public. On
April 30, 1999 the WCAS Series A Notes in the amount of $16.4 million, including
accrued interest, were exchanged for Series B senior cumulative preferred stock
in connection with the WCAS Refinancing. These Notes are subordinate to all bank
debt and other senior debt but senior to all outstanding subordinated
indebtedness. This obligation is unsecured and bears interest at 10% annually
payable semi-annually on June 30 and December 31. The debentures mature in three
equal installments on December 31, 2002, 2003 and 2004. Payment is accelerated
in the event of a change of control as defined in the agreement.
During 1998, previously issued 10% senior subordinated notes to WCAS with a
face value of $10,000 were exchanged for 33 shares of the 7% Senior Cumulative
Convertible Preferred Stock. See Note J -- "Redeemable Convertible Preferred
Stock."
7 3/4% CONVERTIBLE SUBORDINATED DEBENTURES
The 7 3/4% Convertible Subordinated Debentures mature April 15, 2001
("Convertible Debentures") and are shown net of unamortized discount of
approximately $43 and $70 at September 25, 1999 and September 30, 1998,
respectively. The Company is required to make a partial sinking fund payment of
$1,826 in 2000. The Convertible Debentures are convertible into Common Stock of
the Company at a conversion price, subject to adjustment in certain instances,
of $116.60 per share, and are redeemable at the option of the Company at face
value plus accrued interest thereon. Interest on the Convertible Debentures is
payable on April 14 and October 14 of each year through maturity.
SECURED NOTE PAYABLE TO CUSTOMER
In July 1994, Old Cerplex purchased the operating assets of BT Repair
Services for cash and assumed a promissory note to BT in an original principal
amount of GBP2.5 million (approximately $3.9 million at December 31, 1994)
secured by the land and buildings. The Company repaid this note in full plus
accrued interest on December 15, 1999 using the proceeds of the Burdale Loans.
See Note S for a full description of the Burdale Loans.
F-15
<PAGE>
PROMISSORY NOTES
At various times throughout 1998 and 1999, the Company borrowed a total of
$16,500 from WCAS under 10% unsecured promissory notes. These notes, totaling
$17.2 million including accrued interest, were all exchanged for Series B
senior cumulative preferred stock in connection with the WCAS Refinancing.
OTHER LONG-TERM DEBT
Additional long-term debt consists primarily of secured equipment financing
and capital lease obligations with interest rates ranging from 8.9% to 12.9%,
due in monthly installments through 2001.
Aggregate maturities of long-term debt for the fiscal years ending September
25 are as follows: 2000 -- $39,406; and thereafter -- $0.
NOTE I -- INCOME TAXES
Components of loss from continuing operations before taxes consists of the
following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-------------------------------------
SEPTEMBER 30,
SEPTEMBER 25, ------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
United States....... $(48,323) $(25,094) $(49,161)
Foreign............. (3,559) (4,001) 89
-------- -------- --------
$(51,882) $(29,095) $(49,072)
======== ======== ========
</TABLE>
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------
SEPTEMBER 30,
SEPTEMBER 25, ------------------------
1999 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Current benefit:
Federal................................... $ -- $ -- $ --
Foreign................................. -- (362) --
State................................... 10 -- --
------ ------ -----
Total current benefit..................... 10 (362) --
------ ------ -----
Deferred provision:
Federal................................. -- -- 455
Foreign................................. -- 362 --
State................................... -- -- 78
------ ------ -----
Total deferred provision........ -- 362 533
------ ------ -----
Total provision for income tax
expense:...................... $ 10 $ -- $ 533
====== ====== =====
</TABLE>
F-16
<PAGE>
The provision for income taxes in the accompanying consolidated statements
of operations differs from the amount of tax based on the statutory federal
income tax rate as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
-----------------------------------------
SEPTEMBER 30,
SEPTEMBER 25, ------------------------
1999 1998 1997
------------- ----------- -----------
<S> <C> <C> <C>
Benefit for income taxes at statutory rate $(17,204) $(9,892) $(16,684)
Nondeductible expenses................... 16 1,178 30
Deferred benefit not currently recognized -- 7,009 3,860
Permanent effect of book/tax adjustments. 18,474 -- 14,104
Change in deferred tax valuation
allowance................................ (2,413) 4,195 500
State taxes, net of federal benefit...... (7) (1,289) (1,310)
Other.................................... 1,144 (1,201) 33
-------- ------- --------
Total provision for income taxes $ 10 $ -- $ 533
======== ======== ========
</TABLE>
The components of the Company's deferred income tax assets are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 25, SEPTEMBER 30,
1999 1998
---- ----
<S> <C> <C>
Reserves for discontinued operations.... $ -- $ 1,539
Allowance for doubtful accounts and notes 321 3,362
Inventory write-downs................... 572 705
Nondeductible accruals.................. 38 396
Warranty reserve........................ -- 85
</TABLE>
F-17
<PAGE>
<TABLE>
<S> <C> <C>
Valuation allowance-- current........... (931) (6,087)
-------- --------
Current deferred income tax benefit..... -- --
-------- --------
Depreciation............................ -- 2,265
Net operating loss carryforwards--
long-term............................ 64,234 50,594
Capital loss carryback.................. 736 --
Tax credits............................. 5,954 6,023
Goodwill amortization and other
write-offs........................... 181 9,495
Other................................... 55 39
Valuation allowance-- long-term......... (71,160) (68,416)
-------- --------
Long-term deferred income tax benefit... -- --
-------- --------
$ -- $ --
======== ========
</TABLE>
At September 25, 1999, the Company had tax basis net operating losses
("NOLs") of approximately $185.0 million available to offset future ordinary
taxable income. The utilization of the Company's NOLs will be substantially
limited due to the Recapitalization and the acquisition of Old Cerplex, among
other things. These carryforwards begin to expire during 2007. The income tax
benefit related to these NOLs, as well as to certain reserves recorded by the
Company, have been reflected in the deferred income tax asset accounts to the
extent they are considered realizable.
The Company has established a valuation allowance for the entire deferred
tax asset because it is not more likely than not to be realized in the
foreseeable future.
NOTE J -- REDEEMABLE CONVERTIBLE PREFERRED STOCK
The Company has issued, in series, Redeemable Convertible Preferred Stock
(the "Shares"), primarily to its largest stockholder, WCAS. The Company has
authorized 260 of the 1,000 total authorized preferred stock for this series.
The Shares have a par value of $.01 per share and were issued for $100 per
share. The Shares have a liquidation preference of $100 per share plus accrued
and unpaid dividends. Dividends accrue at 7% per annum. The Shares (including
all unpaid dividends) are convertible into Common Stock of the Company and are
subject to mandatory redemption by the Company on September 30, 2006 at the
price of $100 per share plus all accrued and unpaid dividends to the redemption
date. The holders of the Shares have voting rights equivalent to the holders of
Common Stock on an "as converted" basis. The issues were:
7% Senior Cumulative Convertible Preferred -- 216 shares were issued in
connection with the acquisition of Old Cerplex and exchange of the 10%
Senior Subordinated Notes. Dividends are cumulative at 7%, payable when
declared by the Board of Directors. Dividends accrued in fiscal 1999, 1998
and 1997 were $1,551, $2,665 and $2,822, respectively. Each share is
convertible into 40 shares of Common Stock at $2.50 per share at the option
of the holder subject to certain requirements. These shares must be redeemed
in equal installments on December 30, 2006 and 2007. Upon a change of
control of the Company, as set forth in the certificates, the shares must be
redeemed at the option of the holders.
Old Series A -- 400 shares issued concurrent with the Recapitalization
with a current conversion price of $1.91 as adjusted for anti-dilution
adjustments. In connection with the acquisition of Old Cerplex 356 of those
shares were converted into approximately 1.9 million shares of Common Stock.
In November 1998, the remaining 44 shares with a carrying value of $5,209
were converted into 249 shares of Common Stock. See Note K -- "Stockholders'
Equity."
Series B, C, D -- 25 shares of Series B, 25 shares of Series C and 20
shares of Series D were issued on August 14, 1997, October 2, 1997 and
October 24, 1997, respectively. All shares were converted into approximately
0.6 million shares of Common Stock in connection with the Old Cerplex
Acquisition.
NOTE K -- STOCKHOLDERS' EQUITY
On October 5, 1998, the Company effected a one for ten reverse common stock
split ("One-for-Ten Reverse Split"). All share and per share amounts in the
accompanying consolidated financial statements and related notes have been
restated to reflect this split. At that time the amount of authorized Common
Stock was established at 75,000 shares.
Subsequent to the One-for-Ten Reverse Split, 249 shares of the Company's
Common Stock were issued as a result of the conversion of 44 shares of the
Series B Senior Cumulative Preferred Stock in October 1998.
The Company has approximately 58,643 shares authorized and outstanding of
the Series B senior cumulative preferred stock, $1,000 par value. WCAS owns all
of these shares, which were issued on June 30, 1999 in connection with the WCAS
Restructuring (see Note H, Long Term Debt for more details).
F-18
<PAGE>
In March 1996, the Company completed a comprehensive Recapitalization of the
Company, pursuant to which the Company (a) sold (i) 400 shares of Redeemable
Convertible Preferred Stock, $.01 par value, to WCAS and certain other investors
for an aggregate purchase price of $40,000 and (ii) 61 shares of Common Stock,
along with a $10,000 10% Senior Subordinated Note due September 2001, to WCAS
Capital Partners II, L.P. ("WCAS CP II") for an aggregate purchase price of
$10,000, and (b) repurchased 427 shares of the Company's Common Stock at $2.875
per share pursuant to a tender offer for up to 650 shares of Common Stock.
In consideration for WCAS guaranteeing certain borrowings, the Company has
granted WCAS warrants to purchase 223 Common Shares at prices ranging from
$20.90 to $10.25 per share.
In connection with the merger with Old Cerplex, warrants held by Old Cerplex
note holders and certain principals of Old Cerplex were converted into warrants
to purchase 98 Common Shares at prices ranging from $0.94 to $82.23.
NOTE L -- STOCK OPTION AND SAVINGS PLANS
Savings plan. The Company has two savings plans, which qualify under Section
401(k) of the Internal Revenue Code. Under the plans, participating U.S.
employees may defer up to 15% of their pretax salary, but not more than
statutory limits. The Company contributes a discretionary amount, set by the
Board of Directors, for each dollar contributed by a participant, with a maximum
of 6% of participant earnings. There was no matching contribution in fiscal 1999
or 1998. The Company's matching contribution to the savings plan was $207 for
the year ended September 30, 1997.
Stock option plan. The Company has a stock option plan for directors,
officers, and key employees which provides for incentive and nonqualified stock
options. A committee comprised of disinterested directors determines the option
price (not less than the fair market value of the stock at the date of grant).
The options generally expire ten years from the date of grant and 77% of options
generally vest over three years, with the remaining 23% of options becoming
exercisable upon the earlier of the Company's achievement of earnings before
interest, taxes, depreciation and amortization of $12,000 on a rolling twelve
month period basis or 2004. As of September 25, 1999, options for shares were
issued and shares were available for future grants under the plan. This stock
option plan was instituted at the time of the Recapitalization. At that time,
the Company offered to exchange options issued under prior stock option plans
for options under the new plan at the market price per share at the time of the
Recapitalization.
On October 5, 1998 the Company adopted its 1998 Stock Option and Restricted
Stock Plan, which provides for the grant to eligible employees and others the
right to purchase up to 2,836 shares of the Company's Common Stock.
The Company accounts for its stock option plans under APB Opinion No. 25,
under which no compensation cost has been recognized. The following pro forma
disclosures represent what the Company's net loss and loss per share would have
been had the Company recorded compensation cost for these plans in accordance
with the provisions of FASB Statement No. 123, "Accounting for Stock-Based
Compensation." (SFAS No. 123).
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro forma net loss applicable to common
stockholders................................ $ (55,303) $ (32,621) $(53,497)
Pro forma basic and diluted loss per share..... $ (7.54) $ (8.47) $ (8.01)
</TABLE>
Because the method of accounting required under Statement No. 123 has not
been applied to options granted prior to October 1, 1995, the resulting pro
forma compensation cost may not be representative of that to be expected in
future years.
F-19
<PAGE>
The following table summarizes activity under the stock option plans,
(in thousands except per share amounts).
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
----------------------------------
SHARES RANGE OF OPTION
(IN THOUSANDS) PRICES
-------------- ------------------
<S> <C> <C>
Outstanding at September 30, 1996....... 403 $ 21.30-$ 117.50
Granted................................. 166 10.00- 17.50
Forfeited............................... (127) 21.30
---- -----------------
Outstanding at September 30, 1997....... 442 $ 10.00-$ 117.50
Issued in connection with Old Cerplex
merger............................... 72 15.60
Forfeited............................... (295) 30.00- 117.50
---- -----------------
Outstanding at September 30, 1998....... 219 $ 10.00-$ 117.50
Granted................................. 3,075 .44 - 1.63
</TABLE>
F-20
<PAGE>
<TABLE>
<S> <C> <C>
Forfeited............................... (327) .88- 21.25
---- -------- --------
Outstanding at September 25, 1999....... 2,967 $ .44-$ 21.25
</TABLE>
The weighted-average fair value of options granted and forfeited were $0.87
and $1.26 for fiscal 1999, $3.00 and $33.43 for fiscal 1998, and $11.80 and
$21.30 for fiscal 1997, respectively.
The options outstanding at September 25, 1999 have a weighted average
exercise price of $2.15 and a weighted average contractual life of 9.9 years.
There were 769 exercisable options as of September 25, 1999 with a weighted
average contractual life of 9 years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1999, 1998 and 1997: risk-free interest rates of
6.3% in 1999 and 6.5% in 1998 and 1997; no expected dividend yield; expected
lives of 4 years; expected volatility of 117% for all three years.
NOTE M -- INVESTMENT AND RETIREMENT PLANS
In October 1996, Old Cerplex established a defined contribution plan for the
employees of Cerplex Ltd., a wholly-owned subsidiary of Old Cerplex operating in
the United Kingdom ("U.K. Plan"), not covered by the U.K. Pension Plan (see
below). Participating employees are allowed to contribute either 3% or 6% of
their annual compensation subject to maximum limitations based on compensation
and Inland Revenue Service regulations. The Company contributes an amount
equal to 100% of the employee's contributions in connection with the U.K. Plan.
The Company contributions vest immediately. In the event the U.K. Plan is
terminated, all participants are entitled to receive a distribution equal to
their account balance at that date. Contributions to the U.K. Plan were
approximately $58 for 1999, and $258 for 1998.
Certain employees of Cerplex Ltd. are also covered by a defined benefit
pension plan. The Company's contribution rates have been actuarially assessed
and are being amortized over the estimated employees' working lives with the
Company. Benefits are determined based on employee's final pensionable pay. The
net assets and benefit obligation, as well as pension costs relating to this
plan are not significant to the consolidated financial statements as of
September 25, 1999 and September 30, 1998 and for the years then ended.
NOTE N -- CONCENTRATION OF CREDIT RISK
The Company's revenues are primarily with Original Equipment Manufacturers
("OEMs") or Third Party Maintainers ("TPMs") in the computer and peripheral,
telecommunications and office automation industries located principally in the
United States and Europe. The Company performs ongoing credit evaluations of its
customers' financial condition and, generally, requires no collateral from its
customers. Credit risk is affected by conditions or occurrences within the
economy and the computer and peripheral, telecommunications and office
automation markets.
NOTE O -- BUSINESS SEGMENT AND FOREIGN OPERATIONS
The Company currently operates in one industry segment, the outsourcing of
services to the computer and electronics industry. The Company's operations
outside the United States include a manufacturing facility in the United
Kingdom. The Company's facility in France was deconsolidated during fiscal 1999
upon the Company losing control of the subsidiary. (See Note R of the Notes to
Consolidated Financial Statements.)
The following table summarizes revenues, operating losses and assets of the
Company by geographic area for the past three years. The United States operating
loss includes the $6,176 loss related to the loss of control of the French
subsidiary.
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
United States
Revenues............. $ 46,502 $ 38,470 $ 56,201
Operating loss....... (41,135) (18,973) (46,168)
Assets............... 24,192 58,861 12,113
Foreign
Revenues............. 46,844 27,953 8,691
Operating income (loss) (5,949) (3,004) 1,644
Assets............... 11,439 41,680 2,516
</TABLE>
In fiscal 1999 two customers accounted for approximately 18% and 15% of net
revenues. In fiscal 1998 two customers accounted for approximately 17% and 11%
of net revenues. One customer accounted for 11% percent of net revenues in
fiscal 1997.
NOTE P -- LOSS PER SHARE
F-21
<PAGE>
The following table illustrates the computation of basic and diluted loss
per share under the provisions of SFAS No. 128.
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
Numerator for basic and diluted loss per share --
Loss from continuing operations............... $(51,892) $(29,095) $(49,605)
Accrued dividends on preferred stock.......... (2,577) (2,665) (2,822)
--------- --------- ---------
Numerator for basic and diluted loss per share
on continuing operations.................... $(54,469) $(31,760) $(52,427)
========= ========= =========
Numerator for basic and diluted loss per share
on discontinued operations.................. $ 1,286 $ -- $ --
========= ========= =========
Numerator for net loss per basic and diluted
share....................................... $(53,183) $(31,760) $(52,427)
========= ========= =========
Denominator for basic and diluted loss per
share --
Weighted average number of common shares
outstanding during the period................. 7,333 3,843 667
========= ========= =========
Basic and diluted loss per share from
continuing operations......................... $ (7.43) $ (8.26) $ (78.60)
Basic and diluted loss per share from
discontinuing operations...................... 0.18 -- --
--------- --------- ---------
Net loss per basic and diluted share............ $ (7.25) $ (8.26) $ (78.60)
========= ========= =========
</TABLE>
The computation of diluted loss per share for each of the years in the
three-year period ended September 25, 1999 excluded the effect of all
incremental common shares attributable to the exercise of outstanding Common
Stock options and warrants and conversions of the Convertible Preferred Stock
because their effect would be antidilutive. As of September 25, 1999, all stock
options and warrants were antidilutive. See Note B -- "Summary of Significant
Accounting Principles", Note K -- "Stockholders' Equity" and Note L -- "Employee
Stock and Savings Plans."
NOTE Q -- COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases the majority of its office and warehousing facilities and
certain equipment under noncancellable operating leases which expire at various
dates through 2008.
Rental expense, net of sublease income, for the year ended September 25,
1999 and the years ended September 30, 1998 and 1997 was approximately $3,032,
$1,265, and $1,531, respectively. Future minimum lease payments and sub-lease
income as of September 25, 1999 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING MINIMUM MINIMUM
SEPTEMBER 25 LEASE PAYMENT SUB-LEASE INCOME
-------------- ---------------- ----------------
<S> <C> <C>
2000.......................... 3,672 349
2001.......................... 3,588 176
2002.......................... 3,271 141
2003.......................... 2,922 141
2004.......................... 1,725 141
Thereafter.................... 4,156 18
-------- --------
$ 19,334 966
======== ========
</TABLE>
REDUCTION IN ACCRUALS
During 1999, the Company reduced accruals by $2,006 due to estimates
related to certain Aurora accruals established in 1998 and earlier years which
were reduced by approximately $1.2 million and accruals related to inventory and
accounts payable established in 1998 and earlier years which were analyzed and
reduced by approximately $0.8 million during the quarter ended June 30, 1999.
The estimates were reduced based on the receipt of new information, negotiations
and settlements, which became available or occurred at that time.
CONTINGENCIES
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. In the opinion of
management, the resolution of these matters will not materially affect the
Company's consolidated financial position, results of operations or liquidity.
NOTE R--LOSS ON LOSS OF CONTROL OF SUBSIDIARY
On July 20, 1999, the management of SAS requested assistance from the
Commercial Court of Lille, France to structure a social plan for a portion of
the work force. Upon review, the Commercial Court declared SAS insolvent as of
July 15, 1999 and opened bankruptcy proceedings with respect to SAS. A judicial
administrator was appointed by the Court to assist the management of SAS in all
its activities pending the Court's decision on the development of the
proceedings. The terms of assignment of the judicial administrator included
reviewing SAS's condition and prospects and issuing a recommendation relating to
a plan of reorganization developed by SAS management. While the administrator
was overseeing SAS's operations, the Company believed that a plan of
reorganization would be adopted. In the event that the administrator could not
support a plan of reorganization, it would become necessary to refer the case to
a liquidator pursuant to Commercial Court guidelines.
On October 12, 1999, the Commercial Court, acting upon the recommendation
of the judicial administrator, ordered the liquidation of SAS. Prior to this
decision, management believed it would realize its investment in SAS through a
reorganization. However, after the liquidation of SAS was ordered, the Company
realized its investment in SAS was lost and should therefore be written off as
of July 20, 1999, the date Cerplex, Inc. effectively lost control of its
subsidiary. As a consequence of this order, SAS discontinued its operations, and
the liquidator has laid off substantially all employees. As the Company
effectively lost control of its subsidiary on July 20, 1999, the Company wrote
off its investment in SAS as of that date. Based on Management's understanding
and outside legal counsel's assessment of the situation in France, the Company
believes there is no additional financial exposure related to the SAS
liquidation, but there can be no assurances that a deficiency judgment will not
be entered against Cerplex, Inc., the parent company.
The liquidator is responsible for selling the assets and paying off the
debts of SAS. As a result of the cost of laying-off all employees, the value of
the SAS assets may not exceed its liabilities. There can be no assurance that
Cerplex, Inc., as shareholder, will receive any liquidation proceeds.
Accordingly, Cerplex, Inc. has written off its investment in SAS which totaled
$6.2 million at July 20, 1999. The $6.2 million write-off is comprised of
writing off assets carried at $20.9 million, liabilities carried at $13.8
million and intercompany balances for SAS of $0.9 million. Through July 20,
1999, SAS had sales of $27.6 million and a net loss of $0.9 million. These
amounts are included in the Company's financial statements reported herein.
Thereafter, results from SAS operations have been excluded.
NOTE S--SUBSEQUENT EVENTS
On November 24, 1999 the Company and its subsidiary entered into a Loan and
Security Agreement ("Congress Line of Credit") with Congress Financial
Corporation (Western) ("Congress") providing for a $13.0 million senior secured
revolving credit facility. Concurrent with this financing, WCAS agreed to
subordinate its security interest in the Company's assets. The Congress Line of
Credit, which matures in February 2001, will provide additional working capital
and financing for the Company's domestic operations. As of December 15, 1999,
the Company had $2.9 million (unaudited) available to borrow under this
facility. Loans under the loan agreement bear interest at fluctuating rates of
either the Prime Rate, as defined, plus 1/2% or the Adjusted Eurodollar Rate, as
defined, plus 2-3/4%. Borrowing availability pursuant to the Congress Line of
Credit is limited by the value, as defined in the credit agreement, of assets
pledged as collateral, namely accounts receivable and inventory. The agreement
also contains customary financial covenants and events of default for financings
of this type. The liquidation of Cerplex S.A.S. caused a default and a
cross-default under the Congress loan. The Company is in discussions with
Congress regarding an amendment or waiver to the loan agreement which will bring
the Company back into compliance with the loan covenants. Cerplex, Inc. is the
borrower under the Congress Line of Credit and the Company guarantees the
repayment of its obligations thereunder.
On December 14, 1999, Cerplex, Ltd. closed a financing arrangement ("the
"Burdale Loans") with Burdale Financial Limited ("Burdale"), an affiliate of
Congress. The credit facility provides for advances to Cerplex Ltd. up to $2.9
million under a line of credit secured by accounts receivable and up to $3.5
million under a loan secured by real estate. This credit facility will be used
to repay existing indebtedness to BT and to finance the working capital needs of
Cerplex Ltd. The Burdale Loans bear interest at fluctuating rates of LIBOR plus
2%. The Burdale Loans are covered by an agreement that provides customary
financial covenants and events of default for financing arrangements of this
type. Indebtedness under this agreement is guaranteed by the Company.
F-22
<PAGE>
SCHEDULE II
THE CERPLEX GROUP, INC.
(FORMERLY KNOWN AS AURORA ELECTRONICS, INC.)
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE AT END
PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
------ -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED SEPTEMBER 25, 1999
Allowance for doubtful accounts.......... $2,511 $ 1,561 $ -- $3,160(1) $ 912
====== ======= ======= ====== ======
Reserve for discontinued operations....... $1,976 $ -- $(1,286)(2) $ 690 $ --
====== ======= ======= ====== ======
FOR THE YEAR ENDED SEPTEMBER 30, 1998
Allowance for doubtful accounts.......... $ 736 $ 1,246 $ 1,775 $1,246(1) $2,511
====== ======= ======= ====== ======
Reserve for discontinued operations....... $2,590 $ -- $ -- $ 614 $1,976
====== ======= ======= ====== ======
FOR THE YEAR ENDED SEPTEMBER 30, 1997
Allowance for doubtful accounts........... $1,209 $ 372 $ -- $ 845(1) $ 736
====== ======= ======= ====== ======
Reserve for discontinued operations....... $3,068 $ -- $ -- $ 478 $2,590
====== ======= ======= ====== ======
</TABLE>
- ----------
(1) Uncollectible accounts written off, net of recoveries.
(2) Reduction in accrual for estimated loss on operating lease due to probable
sub-lease income.
S-1
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
3.1.1 The Restated Certificate of Incorporation of the Company,
as amended (incorporated by reference from Exhibit 3.1 to
the Company's Transition Report on Form 10-K for the
transition period from December 31, 1991 to September 30,
1992).
3.1.2 The Certificate of Amendment to the Restated Certificate
of Incorporation of the Company, filed on April 28, 1998
(incorporated by reference from Exhibit 4.1.1 of the
Company's Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-3, filed on May 13, 1998
(Registration No. 333-47973)).
3.1.3 The Certificate of Amendment to the Restated Certificate
of Incorporation of the Company, filed on April 30, 1998
(incorporated by reference from Exhibit 4.1.2 of the
Company's Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-3, filed on May 13, 1998
(Registration No. 333-47973)).
3.1.4 Certificate of Amendment to Certificate of Incorporation
of the Company filed on October 6, 1998.
3.2.1 Bylaws of the Company, as amended (incorporated by
reference from Exhibit 4.2 of the Company's Registration
Statement on Form S-8 (Registration No. 33-79426)).
3.2.2 Resolutions adopted by the Board of Directors on April 30,
1998, amending the Bylaws of the Company (incorporated by
reference from Exhibit 4.2.1 of the Company's
Post-Effective Amendment No. 2 to the Company's
Registration Statement on Form S-3, filed on May 13, 1998
(Registration No. 333-47973)).
4.1 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
(incorporated by reference from Exhibit 4.3 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 and filed on August 16, 1999).
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 (incorporated by
reference from Exhibit 10.3 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999
and filed on May 17, 1999).
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 (incorporated by
reference from Exhibit 10.4 of the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1999
and filed on May 17, 1999).
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
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 (incorporated by reference from
Exhibit 10.5 of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 and filed on May
17, 1999). .
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 (incorporated by reference from
Exhibit 10.6 of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999 and filed on May
17, 1999). .
10.7 Lease of the Company's primary headquarters facility
located at 111 Pacifica Avenue, Suite 300, Irvine, CA
92618 (incorporated by reference from Exhibit 10.7 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 and filed on May 17, 1999).
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 (incorporated by reference from Exhibit 10.8 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 and filed on August 16, 1999).
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 (incorporated by reference
from Exhibit 10.9 of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999 and filed on
August 16, 1999).
10.10 Acknowledgement, Consent and Release by the Company,
Aurora Electronics Group, Inc., Cerplex, Inc. and Cerplex
Mass., Inc. (incorporated by reference from Exhibit 10.10
of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999 and filed on August 16, 1999).
10.11 Release by Welsh, Carson, Anderson & Stowe VII, L.P.
(incorporated by reference from Exhibit 10.11 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 and filed on August 16, 1999).
10.12 Release of Continuing Guaranty by Greyrock Capital, a
division of NationsCredit Commercial Corporation
(incorporated by reference from Exhibit 10.12 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 and filed on August 16, 1999).
10.13 Consent by Silicon Valley Bank to the assignment documents
(incorporated by reference from Exhibit 10.13 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999 and filed on August 16, 1999).
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 (incorporated by
reference from Exhibit 10.14 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999
and filed on August 16, 1999).
10.15 Amended and Restated Secured promissory Note in the amount
of $9,024,896.72 issued 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. as payee (incorporated by
reference from Exhibit 10.15 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999
and filed on August 16, 1999).
10.16 Demand Promissory Note in the amount of $11,000,000.00
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 (incorporated by
reference from Exhibit 10.16 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999
and filed on August 16, 1999).
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------ -----------------------
<S> <C>
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 (incorporated by
reference from Exhibit 10.17 of the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999
and filed on August 16, 1999).
10.18 Loan and Security Agreement dated November 24, 1999 by and
among Congress Financial Corporation (Western) as lender
and Cerplex, Inc. as borrower and The Cerplex Group, Inc.
as guarantor (incorporated by refeence from Exhibit 4.1 of
the Company's Report on Form 8-K dated December 1, 1999).
*10.19 Deed of Debenture dated December 15, 1999 between
Cerplex,Limited as borrower and Burdale Financial Limited
as lender.
*10.20 Guarantee and Indemnity agreement dated December 14, 1999
between The Cerplex Group, Inc. as guarantor and Burdale
Financial Limited as lender.
*10.21 Facility Agreement dated December 14, 1999 between Cerplex
Limited as borrower and Burdale Financial Limited as
lender.
*23.1 Consent of KPMG LLP.
*23.2 Consent of Arthur Andersen LLP.
*27 Financial Data Schedule.
*99.1 Liquidation of Cerplex S.A.S. -- Unaudited pro forma
financial information
</TABLE>
- ----------
* Filed herewith.
3
DATED DECEMBER 15, 1999
CERPLEX LIMITED
and
BURDALE FINANCIAL LIMITED
------------------------------------
DEED OF DEBENTURE
------------------------------------
THEODORE
GODDARD
<PAGE>
<TABLE>
<CAPTION>
INDEX
Clause Page
- ------ ----
<S> <C>
1. INTERPRETATION..........................................................................................1
2. FIXED SECURITY..........................................................................................5
3. FLOATING CHARGE.........................................................................................7
4. INTEREST................................................................................................8
5. REPRESENTATIONS AND WARRANTIES..........................................................................8
6. UNDERTAKINGS...........................................................................................11
7. DEFAULT................................................................................................19
8. WHEN SECURITY BECOMES ENFORCEABLE......................................................................20
9. ENFORCEMENT OF SECURITY................................................................................20
10. RECEIVER...............................................................................................21
11. POWERS OF RECEIVER.....................................................................................22
12. APPLICATION OF PROCEEDS................................................................................24
13. EXPENSES AND INDEMNITY.................................................................................25
14. DELEGATION.............................................................................................25
15. FURTHER ASSURANCES.....................................................................................25
16. POWER OF ATTORNEY......................................................................................25
17. MISCELLANEOUS..........................................................................................26
18. RELEASE................................................................................................27
19. NOTICES................................................................................................27
20. GOVERNING LAW..........................................................................................27
SCHEDULES
1. The Mortgaged Property..............................................................................29
2. Forms of Notice to Banks and Acknowledgement........................................................30
3. Group Shares........................................................................................38
4. Credit Insurance Policies...........................................................................39
5. Form of Notice to Insurers and Acknowledgement......................................................40
6. Form of Notice to be affixed to invoices and sent to Account Debtors................................43
7. Other Accounts......................................................................................44
SIGNATORIES..................................................................................................45
</TABLE>
<PAGE>
THIS DEED OF DEBENTURE is dated 1999
BETWEEN:
(1) CERPLEX LIMITED (Registered in England and Wales No. 2953372) (the
"Company"); and
(2) BURDALE FINANCIAL LIMITED (Registered in England and Wales No. 2656007)
("Burdale").
BACKGROUND:
(A) The Company enters into this Deed to secure the repayment and satisfaction
of the Secured Liabilities.
(B) The Company and Burdale intend that this document take effect as a deed
notwithstanding that it may be executed under hand.
IT IS AGREED:
1. INTERPRETATION
1.1 DEFINITIONS
In this Deed:
"ACCOUNT BANKS" is defined in the Facility Agreement.
"AMOUNTS" means the aggregate of the Blocked Amounts and the Other
Amounts.
"ASSIGNABLE RECEIVABLES" means all Receivables which are not
Unassignable Receivables or Purchased Receivables.
"BLOCKED ACCOUNT" is defined in the Facility Agreement.
"BLOCKED AMOUNTS" means all sums from time to time standing to the
credit of the Blocked Account, all interest on such sums and all other
amounts of whatever nature deriving directly or indirectly from such
sums, whether or not credited to the Blocked Account.
"BOOK DEBTS" means:
(a) all book and other debts in existence from time to time (including,
without limitation, any sums whatsoever owed by banks or similar
institutions) both present and future, due, owing to or which may
become due, owing to or purchased or otherwise acquired by the Company;
and
(b) the benefit of all rights whatsoever relating to the debts referred to
above including, without limitation, any related agreements, documents,
rights and remedies
<PAGE>
(including, without limitation, negotiable or non-negotiable
instruments, guarantees, indemnities, legal and equitable charges,
reservation of proprietary rights, rights of tracing, unpaid vendor's
liens and all similar connected or related rights and assets).
"CHARGED ACCOUNTS" means the Blocked Account and the Other Accounts.
"DANGEROUS SUBSTANCE" means any substance of whatever kind and form
and in whatever combination capable of causing harm to any lifeform
or the environment.
"ENVIRONMENTAL LAW" means all laws, regulations, directives, statutes
and any guidance, circular or regulations issued thereunder,
subordinate legislation, common law, equity, all other international,
national and local laws and all judgments, orders, instructions or
awards of any court or competent authority concerning the protection
of or compensation for damage to human health, the environment, or
the condition, of any work place or the generation, dealing with, or
disposal of any Dangerous Substance.
"ENVIRONMENTAL LICENSE" means any consent, approval, authorisation,
exemption, licence, order, permission, condition, recording,
registration, variation, modification or transfer required by any
Environmental Law.
"EQUIPMENT" means all present and future plant, equipment, machinery,
computers and computer hardware and software (whether owned or
licensed), vehicles, tools, furniture and fixtures and all
attachments, accessories owned by the Company and property (other
than Fixtures) now or in future relating to it or used in connection
with it and replacements and substitutions for it wherever located.
"EVENT OF DEFAULT" is defined in the Facility Agreement.
"FACILITY AGREEMENT" means the facility agreement dated on or about
the date of this Deed between Burdale and the Company as Borrower.
"FINANCE DOCUMENTS" is defined in the Facility Agreement.
"FIXTURES" means all fixtures and fittings (including those of trade)
and fixed plant and machinery on the Mortgaged Property.
"GROUP SHARES" means all shares specified in Schedule 3 together with
all other stocks, shares, debentures, bonds, warrants, coupons or
other securities and investments now or in the future owned by the
Company from time to time;
"INSURANCES" means all contracts and policies of insurance taken out
by or for the Company or in which the Company has an interest (to the
extent of that interest) including, without limitation, the credit
insurance policies specified in Schedule 4.
"INTELLECTUAL PROPERTY" means all subsisting patents and subsisting
rights of a similar nature held in any part of the world,
applications for patents and such rights, divisions and continuations
of such applications for patents, registered and unregistered trade
marks, registered and unregistered service marks, registered designs,
utility models (in each case for their full period and all extensions
and renewals of them), applications for any of them
<PAGE>
and the right to apply for any of them in any part of the world,
inventions, confidential information, Know-how, business names, trade
names, brand names, copyright and rights in the nature of copyright,
design rights and get-up and any similar rights existing in any
country; and the benefit (subject to the burden) of any and all
agreements, arrangements and licences in connection with any of the
foregoing.
"KNOW-HOW" means all the body of knowledge, technical experience,
expertise and skills, technical processes, secret processes, formulae
and technical information held by the Company and relating to its
business, which is not in the public domain.
"MORTGAGED PROPERTY" means any freehold or leasehold property
(including the Premises) the subject of the security created by this
Deed.
"OTHER ACCOUNTS" means the bank accounts of the Chargor specified in
Schedule 7 and/or such other bank accounts of the Chargor with
Account Banks as Burdale may permit.
"OTHER AMOUNTS" means all sums from time to time standing to the
credit of the Other Accounts, or withdrawn from the Blocked Account
for payment into (but not yet credited to) any of the Other Accounts,
all interest on such sums and all other amounts of whatsoever nature
deriving directly or indirectly from such sums, whether or not
credited to the Other Accounts.
"PERMITTED ENCUMBRANCE" means any Encumbrance which the Company is
permitted to create or maintain under the terms of the Facility
Agreement.
"PLANNING ACTS" means the Town and Country Planning Act 1990, the
Planning (Listed Buildings and Conservation Areas) Act 1990, the
Planning (Hazardous Substances) Act 1990, the Planning (Consequential
Provisions) Act 1990 and the Planning and Compensation Act 1991 and
all other legislation regulating the use and development of land.
"PREMISES" means any building or other edifice on the Mortgaged
Property or other Security Asset.
"PURCHASED RECEIVABLES" is defined in the Facility Agreement.
"RECEIVABLE" is defined in the Facility Agreement.
"RECEIVER" means a receiver and manager or (if Burdale so specifies
in the relevant appointment) a receiver, in either case, appointed
under this Deed or pursuant to any statute.
"RELATED RIGHTS" means, in relation to the Group Shares, all
dividends and other distributions paid or payable after today's date
on all or any of the Group Shares and all stocks, shares, securities
(and the dividends or interest on them), rights, money or property
accruing or offered at any time by way of redemption, bonus,
preference, option rights or otherwise to or in respect of any of the
Group Shares or in substitution or exchange for any of the Group
Shares.
<PAGE>
"REPORT ON TITLE" means any title report or certificate of title
pertaining to the Mortgaged Property and provided to Burdale before
today's date.
"SECURED LIABILITIES" means all present and future obligations and
liabilities, whether actual or contingent and whether owed jointly or
severally or in any other capacity whatsoever, of the Company to
Burdale except for any obligation which, if it were so included,
would result in a contravention of section 151 of the Companies Act
1985.
"SECURITY ASSETS" means all assets of the Company the subject of any
security created by this Deed (and includes the Mortgaged Property).
"SECURITY PERIOD" means the period beginning on the date of this Deed
and ending on the date on which Burdale is satisfied that the Secured
Liabilities have been irrevocably and unconditionally satisfied in
full. If Burdale considers that any amount paid by the Company and/or
in connection with the satisfaction of the Secured Liabilities is
capable of being avoided or otherwise set aside on the liquidation or
administration of the Company or otherwise, then that amount shall
not be considered to have been irrevocably paid for the purpose of
this Deed.
"SECURITY SHARES" means the Group Shares and the Related Rights.
"STOCK" means the Company's stock and inventory at any time which,
for the avoidance of doubt, includes Eligible Stock and any other
finished goods, raw materials or unfinished goods.
"UNASSIGNABLE RECEIVABLES" means any Receivables which are or become
unassignable or assignable only with the prior consent of the
relevant Account Debtor (where such consent has not been obtained)
and which are not Purchased Receivables.
1.2 CONSTRUCTION
(a) Any reference in this Deed to any assets or accounts includes
present and future assets or accounts and any substitutes of
such assets or accounts, unless the context requires otherwise.
(b) Any reference in this Deed, express or implied, to any enactment
includes references to any amendment, re-enactment, and/or
legislation subordinate to that enactment and/or any permission
of whatever kind given under that enactment.
(c) The headings in this Deed do not affect its interpretation.
(d) Any reference in this Deed to a charge or mortgage of any
freehold or leasehold property includes all Premises and
Fixtures on that property, the proceeds of sale of any part of
that property, and the benefit of any covenants for title (or
any moneys paid or payable in respect of them) given or entered
into by any predecessor in title in respect of that property.
<PAGE>
(e) Any obligation in this Deed to commit or not to commit any act
or thing shall be deemed to include a like obligation to procure
or not to permit any such act or thing.
(f) Any reference in this Deed to, and the definition of, any
document (including this Deed) is a reference to such document
as it may be amended, supplemented, modified and replaced (in
whole or in part), but disregarding any such change taking place
otherwise than in accordance with this Deed.
(g) Any reference in this Deed to any party or person includes any
person deriving title from it or any successor, transferee or
assignee.
(h) Any reference in this Deed to a "person" includes any
individual, company, corporation, partnership, firm, joint
venture, association, organisation, trust, state or state agency
(in each case, whether or not having a separate legal
personality).
(i) Save where the context requires otherwise, words in this Deed in
the singular shall include the plural and vice versa.
(j) A reference in this Deed to Clauses and Schedules are a
reference to the clauses of and schedules to this Deed.
(k) Capitalised terms defined in the Facility Agreement have the
same meaning when used in this Deed unless the context requires
otherwise.
(l) In the event of any conflict between the provisions of this Deed
and the provisions of the Facility Agreement, the provisions of
this Deed shall prevail.
2. FIXED SECURITY
2.1 CREATION
The Company, as security for the payment and performance of the
Secured Liabilities and in the manner specified in Clause 2.3 of this
Deed:
(a) charges in favour of Burdale by way of a first legal mortgage
all the property (if any) now belonging to it and specified in
Schedule 1 and all other interests in any freehold or leasehold
property now or in the future belonging to it; and
(b) charges in favour of Burdale by way of a first fixed charge:
(i) (to the extent that they are not within paragraph 2.1(a))
all interests in any freehold or leasehold property now
or in the future belonging to it;
(ii) all of its rights and benefit under any agreement
relating to the acquisition of the Mortgaged Property by
it or for it and the benefit of all agreements,
contracts, deeds, undertakings, guarantees, warranties
and other documents now or hereafter in existence in
relation to the Mortgaged Property;
<PAGE>
(iii) all Equipment now or in the future belonging to it and its
interest in any Equipment in its possession now or in the
future and in all Fixtures;
(iv) all of its benefits, claims and returns of premiums in
respect of the Insurances;
(v) all moneys standing to the credit of any account (including
the Charged Accounts and notwithstanding that the existence
of such an account may be in breach of this Deed) with any
person and the debts represented by them including, without
limitation, the Blocked Amounts and the Other Amounts;
(vi) its goodwill and its uncalled capital;
(vii) its Book Debts, both uncollected and collected, the proceeds
of the same and all moneys otherwise due and owing to it;
(viii) the benefit of all rights, securities and guarantees of
whatsoever nature enjoyed or held by it in relation to
anything in sub-paragraph 2.1(b)(vii);
(ix) its rights under any hedging arrangements;
(x) any of its beneficial interest, claim or entitlement in any
pension fund;
(xi) the benefit of all permissions of whatsoever nature and
whether statutory or otherwise, held in connection with its
business or the use of any Security Asset and the right to
recover and receive all compensation which may be payable to
it;
(xii) its Intellectual Property;
(xiii) all of its rights, title and interest and benefit in the
Unassignable Receivables;
(c) mortgages and charges and agrees to mortgage and charge to Burdale
all Group Shares held now or in the future by it and/or any nominee
on its behalf, the same to be a security by way of a first mortgage;
and
(d) mortgages and charges and agrees to mortgage and charge to Burdale
all the Related Rights accruing to all or any of the Group Shares
held now or in the future by it and/or any nominee on its behalf, the
same to be a security by way of a first mortgage or charge.
PROVIDED THAT:
(i) whilst no Event of Default exists, all dividends and other
distributions paid or payable as referred to in paragraph (d)
above may be paid directly to the Company (in which case
Burdale or its nominee shall execute any necessary dividend
mandate) and, if paid directly to Burdale shall be paid
promptly by it to the Company; and
<PAGE>
(ii) subject to Clause 6.4(c) whilst no Event of Default exists,
all voting rights attaching to the relevant Group Shares may
be exercised by the Company or, where the shares have been
registered in the name of Burdale or its nominee, as the
Company may direct in writing, and Burdale and any nominee of
Burdale in whose name such Group Shares are registered shall
execute any form of proxy or other document reasonably
required in order for the Company to do so.
2.2 ASSIGNMENTS
The Company, in the manner specified in Clause 2.3 of this Deed,
assigns to Burdale by way of security all of its right, title and
interest (if any) in and to:
(a) all rental income and any guarantee of any rental income
contained in or relating to any lease or other occupational
arrangements affecting the Mortgaged Property;
(b) the Insurances;
(c) the Assignable Receivables.
2.3 TITLE GUARANTEE
(a) Every disposition effected by this Deed is made with full title
guarantee.
(b) The other terms of this Deed do not limit or extend any of the
covenants implied by virtue of Part 1 of the Law of Property
(Miscellaneous Provisions) Act 1994 but create separate and
independent obligations having effect cumulatively with those
implied covenants.
3. FLOATING CHARGE
3.1 CREATION
The Company as security for the payment of the Secured Liabilities and
in the manner specified in Clause 2.3 of this Deed charges in favour of
Burdale by way of a floating charge all its assets not otherwise
effectively mortgaged or charged by way of fixed mortgage or charge by
Clause 2.
3.2 CONVERSION BY NOTICE
Burdale may by notice to the Company convert the floating charge
created by this Deed into a fixed charge in relation to all or any of
the Company' s assets specified in the notice if:
(a) Burdale has reasonable grounds for considering those assets to be
in jeopardy, by legal process or otherwise; or
(b) an Event of Default has occurred; or
<PAGE>
(c) Burdale becomes aware or has reason to believe that steps have
been taken which would, in the reasonable opinion of Burdale, be
likely to lead to the presentation of a petition to appoint an
administrator in relation to the Company (or such an
administrator has been appointed) or to wind up the Company (or
that such a petition has been presented).
3.3 AUTOMATIC CONVERSION
The floating charge created by this Deed shall (in addition to the
circumstances in which the same will occur under general law)
automatically be converted into a fixed charge over the assets, rights
and property of the Company on the convening of any meeting of the
members of the Company to consider a resolution to wind the Company up
(or not to wind the Company up) provided that this Clause 3.3 shall not
apply to any of the Company's undertaking and assets situate in
Scotland if, and to the extent that, a Receiver would not be capable of
exercising his powers in Scotland pursuant to Section 72 of the
Insolvency Act 1986 by reason of such automatic conversion.
3.4 NO WAIVER
The giving by Burdale of a notice pursuant to Clause 3.2 in relation to
any class of the Company's assets, rights and property shall not be
construed as a waiver or abandonment of Burdale's rights to give other
similar notices in respect of any other class of assets.
4. INTEREST
Interest shall accrue on the Secured Liabilities from the date of
demand by Burdale until payment (after as well as before any judgment
obtained or the liquidation or administration of the Company) at the
Default Rate upon such days as Burdale may from time to time determine
and such interest shall be compounded in the event of it not being
punctually paid with monthly rests in accordance with the usual
practice of Burdale but without prejudice to the right of Burdale to
require payment of such interest when due.
5. REPRESENTATIONS AND WARRANTIES
5.1 MAKING OF REPRESENTATIONS
The Company makes the representations and warranties set out in this
Clause 5 to Burdale and the Company repeats the representations and
warranties in Clause 13 of the Facility Agreement. The representations
and warranties so set out are made on the date of this Deed and are
deemed to be repeated by the Company daily throughout the Security
Period with reference to the facts and circumstances then existing.
5.2 CAPACITY
The Company has the capacity, power and authority to enter into this
Deed and the obligations assumed by it are its legal, valid, binding
and enforceable obligations.
<PAGE>
5.3 ENVIRONMENTAL MATTERS
(a) The Company has at all times complied with all applicable
Environmental Law including the obtaining of and compliance with
all requisite Environmental Licences.
(b) No Dangerous Substance has been used, disposed of or otherwise
dealt with at, on, from or under any premises while within the
Company's ownership, occupation or control in circumstances which
could result in a liability on the Company.
5.4 MORTGAGED PROPERTY
Save as is disclosed in any Report on Title:
(a) the Company is the legal and beneficial owner of such Mortgaged
Property;
(b) other than as notified in writing to Burdale, the Mortgaged
Property is free from any agreement for lease, lease, licence,
tenancy, overriding lease or other occupational arrangement or
overriding interest;
(c) the Premises are in good and substantial repair;
(d) there subsists no breach of any law or regulation which could
affect materially the value of the Mortgaged Property;
(e) there are no covenants, agreements, stipulations, reservations,
conditions, interests, rights or other matters whatsoever which
could affect adversely the Mortgaged Property so far as the
Company is aware;
(f) the Mortgaged Property is free from any financial encumbrance of
whatsoever nature other than Permitted Encumbrances;
(g) the Company has not received any notice of any adverse claim, nor
has any acknowledgement been given in respect of the ownership of
the Mortgaged Property, or any interest in it; and
(h) no facility necessary for the enjoyment and use of the Mortgaged
Property may be terminated or curtailed.
5.5 REPORT ON TITLE
The information provided for the purpose of the preparation of any
Report on Title was true and complete in all material respects at the
date that such information was given to Burdale and remains so.
5.6 SECURITY
This Deed creates the various forms of security it purports to create
and is not liable to be avoided or otherwise set aside on the
liquidation or administration of the Company,
<PAGE>
or otherwise, save that no representation is given that any charge is
of a fixed or floating nature.
5.7 SECURITY SHARES
(a) The Company is and will remain the sole beneficial owner of the
Security Shares and, save where the Security Shares have been
registered in the name of Burdale or its nominee pursuant to this
Deed and/or its nominee, is and will remain the absolute legal
owner of the Security Shares.
(b) The Company will not take any action whereby the rights attaching
to the Security Shares are altered or diluted.
(c) The Group Shares are fully paid and non-assessable and neither
the Group Shares nor the Related Rights are subject to any
options to purchase or similar rights of any person.
5.8 RECEIVABLES, AMOUNTS AND INSURANCES
(a) The Company is absolutely, solely and beneficially entitled to
its rights, interest and benefit under the Receivables, the
Amounts and the Insurances as from the date they or any part of
them falls to be charged or assigned under this Deed and its
rights in respect of the Receivables, the Amounts and the
Insurances are free from any Encumbrance of any kind save for any
Permitted Encumbrances.
(b) In relation to each Receivable and Insurance which is either
stated to be expressly assignable under the contractual terms
governing it or in relation to which such terms are silent
regarding its assignability the Company knows of no reason why
such Receivable or Insurance should not be assignable on such
date.
(c) The Company has to the best of its knowledge and belief after due
and careful enquiry disclosed or provided to Burdale or its
agents, legal advisers or representatives all the documentation
or other information requested of it relating to Receivables and
Insurances, it is not aware, after reasonable enquiry, of any
further such documentation or information in its possession and,
in relation to the documentation which it has so disclosed, such
documentation governs the whole of the value of the Receivables
or Insurances to which it relates.
(d) So far as the Company is aware (after due and careful enquiry)
the creation of a fixed charge over Receivables in accordance
with Clause 2.1(b) will not breach the contractual terms upon
which such Receivables are based;
(e) The Company has not sold or agreed to sell or otherwise disposed
of or agreed to dispose of, the benefit of all or any of its
rights, title, interest and benefit in the Receivables (other
than pursuant to the Facility Agreement), the Amounts or the
Insurances.
(f) Each of the Receivables and Insurances is in full force and legal
effect, valid and binding on both parties thereto, with no
default having occurred thereunder or claim
<PAGE>
threatened, pending or subsisting in respect thereof, and all
premiums have been fully and timeously paid in respect of the
Insurances.
6. UNDERTAKINGS
6.1 DURATION
The undertakings in this Clause 6 shall remain in force throughout the
Security Period and are given by the Company to Burdale.
6.2 GENERAL
(a) FACILITY AGREEMENT: The Company repeats the undertakings set out
in Clause 14 of the Facility Agreement as if they were set out in
full in this Deed.
(b) BOOK DEBTS AND RECEIPTS: The Company shall collect and realise
the following and, save to the extent that Burdale otherwise
agrees, pay the proceeds thus realised into the Blocked Account:
(i) rent and other moneys due from tenants or other occupiers
of the Mortgaged Property;
(ii) Book Debts and other moneys; and
(iii) securities to the extent held by way of temporary
investment,
and, pending payment into the Blocked Account, hold the proceeds
thus realised upon trust for Burdale.
(c) COVENANT TO PERFORM: The Company shall continuously comply with
the terms (both express and implied) of this Deed and any
contracts relating to the Secured Liabilities.
(d) ENVIRONMENTAL MATTERS: The Company shall:
(i) comply in all material respects with all applicable
Environmental Law including the obtaining of and
compliance with all requisite Environmental Licences; and
(ii) promptly upon receipt, notify Burdale of any communication
of whatsoever nature, whether specific or general, served
on it concerning any alleged breach of any Environmental
Law or non-compliance with any Environmental Licence,
which, if substantiated, could have a material adverse
effect upon its financial position or upon its ability to
perform its obligations under this Deed.
(e) NOTICE TO INSURERS: The Company shall, today, give notice to any
relevant insurers in respect of each Insurance to which it is
party that the Company has assigned those rights by way of
security to Burdale in substantially the form set out in
<PAGE>
Schedule 5 and shall use its reasonable endeavours to procure
that the relevant insurer acknowledges receipt of such notice in
substantially the form set out in Schedule 5 or such other form
acceptable to Burdale in its absolute discretion.
(f) RESTRICTIONS ON DEALINGS: The Company shall not:
(i) create or permit to subsist any Encumbrance of whatsoever
nature on any Security Asset other than a Permitted
Encumbrance or as created by this Deed; or
(ii) sell, transfer, grant, lease or otherwise dispose of any
Security Asset, except for the disposal in the ordinary
course of trade of any Security Asset subject to the
floating charge created by Clause 3.1 and except as
provided for in the Finance Documents.
(g) PROVIDE INFORMATION: The Company shall furnish to Burdale
forthwith on demand by Burdale such information and supply such
documents or papers relating to the Security Assets from time to
time as Burdale may in its discretion reasonably require.
(h) DEBENTURE BY SUBSIDIARY: The Company shall procure that any
company which may be or become a Subsidiary of the Company at any
time during the subsistence of this Deed shall provide in favour
of Burdale such security in such form as Burdale may in its
discretion require but on terms no more onerous than the terms of
this Deed.
(i) SHARES OF SUBSIDIARY: The Company shall not permit any
Subsidiary of the Company to issue any shares except to
the Company or to one of its other wholly owned
Subsidiaries.
(j) LABELLING EQUIPMENT: Forthwith after the date of this Deed, the
Company shall at the request of Burdale (acting reasonably)
attach to a visible part of each item of Equipment in a permanent
manner a clear and distinctive label, no smaller than 3 inches by
4 inches in size comprising the following notice: "This piece of
Equipment is subject to a charge in favour of Burdale Financial
Limited ("Burdale") and may not be removed or sold without the
prior written consent of Burdale" (the "Notice").
6.3 PROPERTY
(a) ACCESS: At all reasonable times, the Company shall permit Burdale
and any person nominated by it to enter and inspect any part of
the Mortgaged Property or other Security Asset.
(b) COMPLIANCE WITH APPLICABLE LAWS: The Company shall perform all
its obligations under any law or regulation in any way affecting
any Security Asset.
<PAGE>
(c) DEPOSIT OF TITLE DEEDS: For the duration of the Security Period
the Company shall deposit with Burdale all deeds and documents of
title relating to the Mortgaged Property owned by it and any
property comprised within Clause 6.3(e).
(d) DEVELOPMENT: Save for any development carried out pursuant to the
contract for sale dated 23 November 1999 between the Company and
Easter Development Group Limited, the Company shall not:
(i) make any application for planning permission affecting any
part of the Mortgaged Property or other Security Asset
except with the previous written consent of Burdale; or
(ii) carry out any development on any part of the Mortgaged
Property or other Security Asset except with the previous
written consent of Burdale (for the purposes of this
sub-clause development shall be defined as in the Planning
Acts as that for which the permission of the local
planning authority is required).
(e) FUTURE ACQUISITIONS AND LEGAL MORTGAGE: The Company shall:
(i) notify Burdale immediately upon the acquisition by it of
any freehold or leasehold or other interest in property
(and for the purposes of this Clause 6.3(e) the date of
exchange of contracts for such an acquisition shall be
deemed the date of acquisition);
(ii) at its cost, execute and deliver to Burdale, on demand, a
legal mortgage (on terms no more onerous than this Deed)
in favour of Burdale of any freehold or leasehold or other
interest in property which becomes vested in it after the
date of this Deed; and
(iii) in any event, if applicable, give H.M. Land Registry
written notice of this Deed and procure that notice of it
be duly noted in the Registers to each such title.
(f) INSURANCE: The Company shall effect, in a form and with an
insurance company or underwriters acceptable to Burdale insurance
of the Security Assets in accordance with the terms of the
Facility Agreement.
(g) INVESTIGATION OF TITLE: Upon request, the Company shall grant
Burdale or its lawyers all facilities within its powers to enable
Burdale or its lawyers to carry out such investigations of title
to and enquiries into the Mortgaged Property or other Security
Asset as may be carried out by a prudent mortgagee.
(h) LEASE AND COVENANT COMPLIANCE: THE COMPANY SHALL:
(i) perform all the terms on its part contained in any lease
or agreement for lease comprising the Mortgaged Property
or to which the Mortgaged Property is subject;
<PAGE>
(ii) not do anything as a result of which any lease or
agreement for lease comprising Mortgaged Property or to
which the Mortgaged Property is subject may become forfeit
or otherwise determinable;
(iii) properly perform (and indemnify Burdale for any breach of)
any covenants and stipulation of whatsoever nature
affecting the Mortgaged Property.
(i) NOTICES: Within 10 days after the receipt by the Company of any
application, requirement, order or notice served or given by any
public, local or other authority relating to any Security Asset,
the Company shall:
(i) deliver a copy to Burdale; and
(ii) inform Burdale of the steps taken or proposed to be taken
by way of compliance.
(j) POWER TO REMEDY: In case of default by the Company in performing
any obligation or other covenant affecting the Mortgaged Property
or other Security Asset, the Company shall permit Burdale or its
agents and contractors:
(i) to enter on the Mortgaged Property or other Security
Asset;
(ii) to comply with or object to any notice served on the
Company relating to the Mortgaged Property or other
Security Asset; and
(iii) to take any action Burdale may reasonably consider
expedient to prevent or remedy any breach of any such term
or to comply with or object to any such notice.
(k) REPAIR: The Company shall keep:
(i) the Premises in good and substantial repair and condition
and decorative order;
(ii) the Fixtures and other plant, machinery, implements and
other effects belonging to it in a good state of repair,
working order and condition; and
(iii) all Equipment in good repair, working order and condition
and fit for its purpose.
Without prejudice to Clause 6.3(k), if the Company fails to
repair any damage, within 6 months of its occurrence, to the
satisfaction of Burdale, Burdale may, but shall not be obliged
and without liability, take any of the steps referred to in
Clause 6.3(k).
6.4 DEPOSIT OF SECURITIES AND REGISTRATION
(a) The Company shall forthwith deposit with Burdale or as Burdale
may direct all bearer instruments, share certificates and other
documents of title or evidence of
<PAGE>
ownership in relation to such Group Shares as are owned by it or
in which it has or acquires an interest and their Related Rights
and shall execute and deliver to Burdale all such share transfers
and other documents as may be requested by Burdale in order to
enable Burdale or its nominees to be registered as the owner or
otherwise to obtain a legal title to the same and, without
limiting the generality of the foregoing, shall deliver to
Burdale on today's date executed (and, if required to be stamped,
pre-stamped) share transfers for all Group Shares in favour of
Burdale and/or its nominee(s) as transferees or, if Burdale so
directs, with the transferee left blank and shall procure that
all such share transfers are at the request of Burdale forthwith
registered by the relevant company and that share certificates in
the name of Burdale and/or such nominee(s) in respect of all
Group Shares are forthwith delivered to Burdale.
(b) The Company shall provide Burdale with certified copies of all
resolutions and authorisations approving the execution of such
transfer forms and registration of such transfers as Burdale may
reasonably require.
(c) Burdale and its nominee may at any time after an Event of Default
has occurred or in any other instance where Burdale is of the
reasonable opinion that it is necessary for the avoidance of an
Event of Default or necessary for the protection of its material
interests exercise or refrain from exercising (in the name of the
Company, the registered holder or otherwise and without any
further consent or authority from the Company and irrespective of
any direction given by the Company) in respect of the Security
Shares any voting rights and any powers or rights under the terms
of the Security Shares or otherwise which may be exercised by the
person or persons in whose name or names the Security Shares are
registered or who is the holder thereof, including, without
limitation, all the powers given to trustees by Section 10(3) and
(4) of the Trustee Act 1925 as amended by Section 9 of the
Trustee Investments Act 1961 in respect of securities or property
subject to a trust PROVIDED THAT in the absence of notice from
Burdale the Company may and shall continue to exercise any and
all voting rights with respect to the Group Shares subject always
to the terms of this Deed. The Company shall not without the
previous consent in writing of Burdale exercise the voting rights
attached to any of the Group Shares in favour of resolutions
having the effect of changing the terms of the Group Shares (or
any class of them) or any Related Rights or prejudicing the
security under this Deed or impairing the value of the Security
Shares. The Company hereby irrevocably appoints Burdale or its
nominees its proxy to exercise (as provided in or permitted by
this Deed) all voting rights so long as the Group Shares remain
registered in the names of the Company.
(d) The Company during the continuance of this security will make all
payments which may become due in respect of any of the Security
Shares and, in the event of default in making any such payment,
Burdale may if it thinks fit make such payment on behalf of the
Company. Any sums so paid by Burdale shall be repayable by the
Company to Burdale on demand and pending such repayment shall
constitute part of the Secured Liabilities.
(e) It is expressly agreed that, notwithstanding anything to the
contrary contained in this Deed, the Company shall remain liable
to observe and perform all of the conditions
<PAGE>
and obligations assumed by it in respect of the Security Shares
and Burdale shall not be under any obligation or liability by
reason of or arising out of the security over the Security Shares
conferred by this Deed. Burdale shall not be required in any
manner to perform or fulfil any obligation of the Company in
respect of the Security Shares, or to make any payment, or to
receive any enquiry as to the nature or sufficiency of any
payment received by them, or to present or file any claim or take
any other action to collect or enforce the payment of any amount
to which they may have been or to which they may be entitled
under this Deed at any time or times.
(f) Upon the occurrence of an Event of Default and at any time
thereafter while the same is continuing Burdale shall be entitled
to put into force and exercise immediately as and when it may see
fit any and every power possessed by Burdale by virtue of the
security over the Security Shares conferred by this Deed or
available to a secured creditor (so that Sections 93 and 103 of
the Law of Property Act 1925 shall not apply to this security)
and in particular (without limitation):
(i) to sell all or any of the Security Shares in any manner
permitted by law upon such terms as Burdale shall in its
absolute discretion determine;
(ii) to collect, recover or compromise and give a good
discharge for any moneys payable to the Company in respect
of the Security Shares or in connection therewith; and
(iii) to act generally in relation to the Security Shares in
such manner as Burdale acting reasonably shall determine.
For the avoidance of doubt, the Company agrees that the
enforceability of the security over the Security Shares conferred
by this Deed is not dependent on the performance or
non-performance by Burdale of its obligations under any agreement
with the Company.
(g) Immediately on conversion of any of the Group Shares from
certificated to uncertificated form, and on the creation or
conversion of any other securities which are for the time being
comprised in the Security Shares in or into uncertificated form,
the Company shall give such instructions or directions as Burdale
may require in order to protect or preserve its security.
(h) The Company shall, immediately upon receipt of any certificate or
other document evidencing any entitlement to further Security
Shares, deposit it with Burdale together with such share transfer
forms in blank and other documents as Burdale may require.
6.5 OPENING OF ACCOUNTS AND COLLECTION OF RECEIVABLES
(a) Forthwith upon the execution of this Deed, the Company shall open
the Blocked Account, and maintain the Other Accounts and execute
all deeds and documents and do all other acts and things required
by Burdale in connection with them and
<PAGE>
the Company shall maintain such accounts throughout the
maintenance of this security.
(b) Forthwith upon the execution of this Deed, the Company shall
serve notice upon the Account Bank at which the Blocked Account
is opened (in respect of the Blocked Account) in substantially
the form set out in Part I of Schedule 2 and upon each Account
Bank at which any Other Account is held (in respect of such Other
Account(s)) in substantially the form set out in Part II of
Schedule 2, and shall use all reasonable endeavours to procure
that the relevant Account Bank returns the acknowledgement in
substantially the form set out in the relevant Part of Schedule 2
or such other form acceptable to Burdale in its absolute
discretion.
(c) Until the security constituted by this Deed is discharged, the
Company shall:
(i) get in and realise all Receivables in the ordinary course
of its business save that the expression "in the ordinary
course of its business" shall not include or extend to the
selling or assigning or in any other way factoring or
discounting any Receivable save as permitted in this Deed;
(ii) forthwith upon the date of this Deed, pay the proceeds or
procure the paying of proceeds of such getting in and
realisation directly into the Blocked Account; and
(iii) maintain no other bank accounts save for the Charged
Accounts.
6.6 OPERATION OF BLOCKED ACCOUNT
(a) Until the security constituted by this Deed is discharged, the
Company shall not be entitled to withdraw the whole or any part
of the Blocked Amounts and shall not, subject to paragraph (b)
below, take any action, claim or proceedings against Burdale or
any other party for the return or payment to any person of the
whole or any part of the Blocked Amounts.
(b) The Company agrees that until the security constituted by this
Deed is discharged, Burdale shall be able to withdraw on a daily
basis all deposits made into the Blocked Account provided that
the amount so withdrawn is credited to Burdale's loan account and
applied towards the Secured Liabilities in accordance with Clause
6.2 of the Facility Agreement and the Company shall direct the
Blocked Bank to transfer the cleared balance of the Blocked
Account to such account as Burdale shall specify for the purpose
from time to time at the end of each Business Day.
(c) Upon the occurrence, and during the continuance of an Event of
Default, Burdale shall have the exclusive right to apply and
determine the application of any and all of the Blocked Amounts
in or towards satisfaction of the Secured Liabilities, whether by
transfer into the Burdale's loan account or otherwise.
<PAGE>
6.7 OPERATION OF OTHER ACCOUNTS
Other than on the occurrence, and during the continuance of a Default
the Company shall be entitled to operate the Other Accounts and shall
be entitled to withdraw the whole or any part of the Other Amounts
PROVIDED THAT:
(a) the Other Accounts each retain a credit or zero balance at all
times;
(b) the Company shall not and shall procure that no other person
shall deposit or transfer any monies into the Other Accounts
other than those transferred from the Blocked Account or any
Other Account; and
(c) the Company shall not at any time transfer the whole or any part
of the Other Amounts to any other Company bank account other than
to another Charged Account.
6.8 RECEIVABLES
(a) The Company shall, upon a Default, in respect of Assignable
Receivables then in existence serve notice of the assignment
contained in Clause 2.2 upon the relevant Account Debtor by
written notice in substantially the form set out in Schedule 6
and, in respect of Assignable Accounts Receivable created after a
Default, serve notice of the assignment contained in this Clause
by a notice, in the form set out in Schedule 6 on the invoice
itself forthwith upon the creation of such Receivable.
(b) With respect to any Unassignable Receivables coming into
existence after the date of this Deed, the Company shall, upon a
Default, in respect of Unassignable Receivables then in existence
serve notice of the charge contained in Clause 2.1(b) upon the
relevant Account Debtor in substantially the form set out in Part
I of Schedule 6 and, in respect of Unassignable Receivables
created after a Default shall serve notice of the charge
contained in Clause 2.1(b) upon the relevant Account Debtor
forthwith upon the creation of such Receivable by notice in
substantially the form Part I of Schedule 6 on the invoice
itself.
(c) The Company covenants to Burdale that it will use all reasonable
endeavours to obtain the necessary consents from the Account
Debtors in respect of Unassignable Receivables to the assignment
contained in Clause 2.2 and where a Default has occurred shall
forthwith upon obtaining such consents, serve upon the relevant
Account Debtors a written notice substantially in the form set
out in Part II of Schedule 6;
(d) The Company covenants to Burdale that it will not serve upon any
Account Debtor any notice whose terms conflict with those of the
notices in Schedule 6 until the security constituted by this Deed
has been released by Burdale.
6.9 RECEIVABLES, AMOUNTS AND INSURANCES
The Company undertakes to Burdale that:
<PAGE>
(a) subject as otherwise provided in this Deed, it shall not take any
action claim or proceeding against Burdale or any other party for
the return or payment to any person of the Charged Accounts or
the Amounts or any part thereof or permit third party rights to
arise over any of its rights, title, interest and benefit in the
Receivables (other than under the Finance Documents), the Amounts
or the Insurance Policies or any part thereof, or attempt or
agree so to do save for Permitted Encumbrances;
(b) it shall not withdraw the whole or any part of the Amounts, or
deal in any other way with the Receivables, the Amounts or the
Insurances except as provided in this Deed;
(c) subject as otherwise provided in this Deed it shall not sell,
release, exchange, compound, set-off, assign, transfer, discount,
charge or otherwise dispose of or agree to sell, release,
exchange, compound, set-off, assign, transfer, discount, charge
or otherwise dispose of or deal with any of its rights, title,
benefit and interest whether present or future in Receivables,
the Amounts or the Insurances nor do or omit to do anything which
may delay or prejudice the right of Burdale to utilise, withdraw,
transfer or set-off the Receivables, the Amounts or the
Insurances in accordance with the provisions of this Deed without
prejudice to the foregoing, shall not without the prior written
consent of Burdale, settle or give credit against any Receivable
or any Insurance and shall deliver to Burdale on a weekly basis
until the Secured Liabilities have been irrevocably discharged in
full, a schedule of all settlements and credit proposed to be
given by it, which Schedule shall set out the amount of the
invoice, the proposed amount of the settlement and/or credit and
the name of the debtor; and
(d) it shall do all such things and execute all such assignments
charges authorities and documents as Burdale may from time to
time reasonably require to enable Burdale to utilise, withdraw,
transfer or set-off the Receivables, the Amounts and the
Insurances in accordance with the terms of this Deed, such
documents to be prepared by or on behalf of Burdale at the cost
of the Company in such form as Burdale may reasonably require.
7. DEFAULT
7.1 EVENTS OF DEFAULT
Each of the events set out in Clause 15 of the Facility Agreement is an
Event of Default (howsoever caused).
7.2 ACCELERATION
On and at any time after the occurrence of an Event of Default and at
any time whilst the relevant Event of Default is continuing Burdale may
by notice to the Company demand that all or part of the Secured
Liabilities, together with accrued interest and all other amounts
accrued be immediately due and payable, and upon the giving of such
notice they shall become immediately due and payable.
<PAGE>
8. WHEN SECURITY BECOMES ENFORCEABLE
The security constituted by this Deed shall become immediately
enforceable and the power of sale and other powers conferred by section
101 of the Law of Property Act 1925, as varied or amended by this Deed,
shall be immediately exercisable upon and at any time after the
occurrence of any Event of Default after which Burdale may in its
absolute discretion enforce all or any part of the security in any
manner it sees fit.
9. ENFORCEMENT OF SECURITY
9.1 GENERAL
(a) For the purposes of all powers implied by statute, the Secured
Liabilities are deemed to have become due on the date of this
Deed.
(b) Section 103 of the Law of Property Act (restricting the power of
sale) and section 93 of the Law of Property Act 1925 (restricting
the right of consolidation) do not apply to the security
constituted by this Deed.
(c) The statutory powers of leasing conferred on Burdale are extended
so that, without the need to comply with any provision of section
99 or 100 of the Law of Property Act 1925, Burdale is empowered
to lease, make agreements for leases, accept surrenders of leases
and grant options as Burdale may think fit.
9.2 AGENT OF THE COMPANY
For all purposes each Receiver is deemed to be the agent of the Company
and to be in the same position as a Receiver duly appointed by a
mortgagee under the Law of Property Act 1925. The Company alone shall
be responsible for the receiver's contracts, engagements, commissions,
omissions, defaults and losses and for liabilities incurred by him.
Burdale shall not incur any liability of whatsoever nature (either to
the Company or to any other person) by reason of Burdale making his
appointment as a Receiver or for any other reason.
9.3 CONTINGENCIES
If Burdale enforces the security constituted by this Deed at a time
when no amounts are due to Burdale under the Finance Documents but at a
time when amounts may or will become so due, Burdale (or the Receiver)
may pay the proceeds of any recoveries effected by it into the Blocked
Account.
9.4 MORTGAGEE IN POSSESSION - NO LIABILITY
Neither Burdale nor any Receiver or Manager will be liable, by reason
of entering into possession of a Security Asset, to account as
mortgagee in possession or for any loss on realisation or for any
default or omission for which a mortgagee in possession might otherwise
be liable.
<PAGE>
9.5 PRIVILEGES
Each Receiver and Burdale is entitled to all the rights, powers,
privileges and immunities conferred by the Law of Property Act 1925 on
mortgagees and receivers when such receivers have been duly appointed
under that Act, except that section 103 of that Act does not apply.
9.6 PROTECTION OF THIRD PARTIES
No person (including a purchaser) dealing with Burdale or a Receiver or
its or his agents need enquire:
(a) whether the Secured Liabilities have become payable; or
(b) whether any power purported to be exercised has become
exercisable; or
(c) whether any money remains due; or
(d) how any money paid to Burdale or to the Receiver is to be
applied.
9.7 REDEMPTION OF PRIOR MORTGAGES
At any time after the security constituted by this Deed has become
enforceable, Burdale may, at the sole cost of the Company (payable to
Burdale on demand):
(a) redeem any prior form of security against any Security Asset;
and/or
(b) procure the transfer of that form of security to itself; and/or
(c) settle and pass the accounts of any prior mortgagee, chargee or
encumbrancer which once so settled and passed shall be conclusive
and binding on the Company.
10. RECEIVER
10.1 APPOINTMENT OF RECEIVER
(a) At any time after the security constituted by this Deed becomes
enforceable, or, at any time if so requested by the Company in
writing, without further notice Burdale may appoint under seal or
in writing under its hand any one or more qualified persons to be
a Receiver of all or any part of the Security Assets as if
Burdale had become entitled under the Law of Property Act 1925 to
exercise the power of sale conferred under that Act.
(b) In this Deed "QUALIFIED PERSON" means a person who, under the
Insolvency Act 1986, is qualified to act as a receiver of the
property of any company with respect to which he is appointed or
as an administrative receiver of any such company.
<PAGE>
10.2 RELATIONSHIP WITH BURDALE
To the fullest extent permitted by law, any right, power or discretion
conferred by this Deed (be it express or implied) upon a Receiver of
any Security Assets may, after the security created by this Deed has
become enforceable, be exercised by Burdale in relation to any Security
Asset either:
(a) without first appointing a Receiver; or
(b) notwithstanding the appointment of a Receiver.
10.3 REMOVAL
Burdale may by writing under its hand (subject to any requirement for
any order of the court in the case of an administrative receiver):
(a) remove any Receiver appointed by it; and
(b) whenever it deems it expedient, appoint a new Receiver in the
place of any Receiver whose appointment may for any reason have
terminated.
10.4 REMUNERATION
Burdale may fix the remuneration of any Receiver appointed by it.
11. POWERS OF RECEIVER
11.1 GENERAL
(a) In addition to those conferred by the Law of Property Act 1925 on
any receiver appointed under that Act, each Receiver has, and is
entitled to exercise, all of the rights, powers and discretions
set out below in this Clause 11.
(b) If there is more than one Receiver holding office at the same
time, unless the document appointing him states otherwise, each
Receiver may exercise all of the powers conferred on a Receiver
under this Deed individually and to the exclusion of any other
Receivers.
(c) A Receiver who is an administrative receiver of the Company has
all the rights, powers and discretions of an administrative
receiver under the Insolvency Act 1986.
(d) A Receiver may, in the name of the Company if he so wishes:
(i) do all other acts and things which he may consider
expedient for realising any Security Asset or incidental
or conducive to any of the rights, powers or discretions
conferred on a Receiver under or by virtue of this Deed;
and
<PAGE>
(ii) exercise in relation to any Security Asset all the powers,
authorities and things which he would be capable of
exercising as if he were its absolute beneficial owner.
11.2 BORROW MONEY
A Receiver may raise and borrow money (either unsecured or on the
security of any Security Asset, either in priority to the security
constituted by this Deed or otherwise) on any terms and for whatever
purpose which he thinks fit. No person lending that money need enquire
as to the propriety or purpose of the exercise of that power or to
check the application of any money so raised or borrowed.
11.3 CARRY ON BUSINESS
A Receiver may carry on the business of the Company as he thinks fit.
11.4 COMPROMISE
A Receiver may settle, adjust, refer to arbitration, compromise and
arrange any claims, accounts, disputes, questions and demands with or
by any person who is or claims to be a creditor of the Company or
relating in any way to any Security Asset.
11.5 DELEGATION
A Receiver may delegate his powers in accordance with Clause 14.
11.6 EMPLOYEES
For the purposes of this Deed, a Receiver may:
(a) appoint and discharge managers, officers, agents, accountants,
servants, workmen and others upon such terms as to remuneration
or otherwise as he may think proper; and
(b) discharge any such persons appointed by the Company.
11.7 LEASES
A Receiver may let any Security Asset for any term and at any rent
(with or without a premium) which he thinks proper and may accept a
surrender of any lease or tenancy of any Security Asset on any terms
which he thinks fit (including the payment of money to a lessee or
tenant on a surrender).
11.8 LEGAL ACTIONS
A Receiver may bring, prosecute, enforce, defend and abandon all
actions, suits and proceedings in relation to any Security Asset as he
considers expedient.
<PAGE>
11.9 POSSESSION
A Receiver may take immediate possession of, get in and collect any
Security Asset.
11.10 PROTECTION OF ASSETS
A Receiver may, in each case as he may think fit:
(a) make and effect all repairs and insurances and do all other acts
which the Company might do in the ordinary conduct of its
business be they for the protection or for the improvement of the
Security Assets;
(b) commence and/or complete any building operations on the Mortgaged
Property or other Security Asset; and
(c) apply for and maintain any planning permission, building
regulation approval or any other permission, consent or licence.
11.11 RECEIPTS
A Receiver may give valid receipts for all moneys and execute all
assurances and things which may be expedient for realising any Security
Asset.
11.12 SALE OF ASSETS
A Receiver may sell, exchange, convert into money and realise any
Security Asset by public auction or private contract in any manner and
on any terms which he thinks proper. The consideration for any such
transaction may consist of cash, debentures or other obligations,
shares, stock or other valuable consideration and any such
consideration may be payable in a lump sum or by instalments spread
over such period as he thinks fit. Fixtures may be severed and sold
separately from the property containing them without the consent of the
Company.
11.13 SUBSIDIARIES
A Receiver may form a subsidiary of the Company and transfer to that
subsidiary any Security Asset.
12. APPLICATION OF PROCEEDS
Any moneys received by Burdale or any Receiver after this Deed has
become enforceable shall be applied in the following order of priority
(but without prejudice to the right of Burdale to recover any shortfall
from the Company):
(a) in satisfaction of or provision for all costs and expenses
incurred by Burdale or any Receiver and of all remuneration due
to any Receiver under this Deed;
(b) in or towards payment of the Secured Liabilities or such part of
them as is then due and payable to Burdale; and
<PAGE>
(c) in payment of the surplus (if any) to the Company or other person
entitled to it.
13. EXPENSES AND INDEMNITY
Immediately upon demand, the Company shall pay all other costs and
expenses (including legal fees and VAT) incurred from time to time in
connection with the enforcement of or preservation of rights under this
Deed by Burdale, or any Receiver, attorney, manager, agent or other
person appointed by Burdale under this Deed or by statute, and keep
each of them indemnified against any failure or delay in paying the
same (including any arising from any actual or alleged breach by any
person of any Environmental Law or Licence).
14. DELEGATION
Burdale and any Receiver may delegate by power of attorney or in any
other manner to any person any right, power or discretion exercisable
by Burdale under this Deed. Any such delegation may be made upon the
terms (including power to sub-delegate) and subject to any regulations
which Burdale or such Receiver (as the case may be) may think fit.
Neither Burdale nor any Receiver will be in any way liable or
responsible to the Company for any loss or liability arising from any
act, default, omission or misconduct on the part of any such delegate
or sub-delegate.
15. FURTHER ASSURANCES
The Company shall, at its own expense, take whatever action (including
payment of all stamp duties and other registration fees) Burdale or a
Receiver may reasonably require for:
(a) perfecting or protecting the security intended to be created by
this Deed over any Security Asset; and
(b) facilitating the realisation of any Security Asset or the
exercise of any right, power or discretion exercisable, by
Burdale or any Receiver or any of its or their delegates or
sub-delegates in respect of any Security Asset, including the
execution of any transfer, conveyance, assignment or assurance of
any property whether to Burdale or to its nominees, and the
giving of any notice, order or direction and the making of any
registration, which in any such case, Burdale may think
expedient.
16. POWER OF ATTORNEY
The Company, by way of security, irrevocably and severally appoints
Burdale, each Receiver and any of their delegates or sub-delegates to
be its attorney to take any action which the Company is obliged to take
under this Deed, including, without limitation, under Clause 15 and
Clause 6.3(e) and Clause 6.3(n). The Company ratifies and confirms
whatever any attorney does or purports to do pursuant to its
appointment under this Clause.
<PAGE>
17. MISCELLANEOUS
17.1 ADDITIONAL SECURITY
The security constituted by this Deed is in addition to and is not in
any way prejudiced by any other security now or subsequently held by
Burdale for any of the Secured Liabilities.
17.2 CONTINUING SECURITY
The security constituted by this Deed is continuing and will extend to
the ultimate balance of all the Secured Liabilities, regardless of any
intermediate payment or discharge in whole or in part.
17.3 COVENANT TO PAY
The Company shall pay or discharge the Secured Liabilities in the
manner provided for in any document creating or evidencing the Secured
Liabilities and/or otherwise as agreed from time to time.
17.4 H.M. LAND REGISTRY
The Company applies to the Chief Land Registrar for a restriction in
the following terms to be entered on the Register of Title relating to
any property registered at H.M. Land Registry in its name and against
which this Deed may be noted:
"Except under an order of the Registrar, no disposition or
dealing by the proprietor of the land is to be registered
without the consent of the proprietor for the time being of
the Deed dated December 1999 between Cerplex Limited and
Burdale Financial Limited."
17.5 NEW ACCOUNTS
If Burdale receives, or is deemed to be affected by, notice, whether
actual or constructive, of any subsequent charge or other interest
affecting any Security Asset and/or the proceeds of sale of any
Security Asset, Burdale may open a new account with the Company. If
Burdale does not open a new account, it shall nevertheless be treated
as if it had done so at the time when it received or was deemed to have
received notice. As from that time all payments made to Burdale will be
credited or be treated as having been credited to the new account and
will not operate to reduce any amount for which this Deed is security.
17.6 TACKING
Burdale covenants with the Company that it shall perform its
obligations under any document creating or evidencing the Secured
Liabilities (including any obligation to make available further
advances).
<PAGE>
18. RELEASE
Upon the expiry of the Security Period (but not otherwise), Burdale
shall, at the request and cost of the Company , take whatever action is
necessary to release the Security Assets from the security constituted
by this Deed and/or reassign the benefit of the Security Assets to the
Company.
19. NOTICES
19.1 DELIVERY AND RECEIPT
All notices pertaining to this Deed shall be given in writing or
facsimile and shall be deemed to be given as follows:
(a) if in writing, when delivered; and
(b) if by facsimile, when received,
save that any notice delivered or received on a non-working day or
after business hours shall be deemed to be given on the next working
day at the place of delivery or receipt.
19.2 ADDRESSES
(a) The Company's address and facsimile number for notices are:
Cerplex Limited
76 Bilton Way
Enfield, Middlesex EN3 7EP
Facsimile no: 0208 443 8750
For the attention of: Finance Director
or such as the Company may notify to Burdale by not less than 10 days'
notice.
(b) Burdale's address and facsimile number for notices are:
53 Queen Anne Street
London W1M 0HP
Facsimile no: 0171 935 5445
For the attention of: Company Secretary
or such as Burdale may notify to the Company by not less than 10 days'
notice.
20. GOVERNING LAW
This Deed is governed by English law and the parties submit to the
non-exclusive jurisdiction of the English courts.
<PAGE>
This Deed has been entered into as a deed on the date
stated at the beginning of this Deed.
<PAGE>
SCHEDULE 1
MORTGAGED PROPERTY
Freehold land and buildings on the West side of Bilton Way, Enfield as the same
is registered at HM Land Registry under title number MX212336.
<PAGE>
SCHEDULE 2
FORMS OF NOTICE TO BANKS AND ACKNOWLEDGEMENT
PART I
BLOCKED ACCOUNT NOTICE
[On Headed Notepaper of the Company]
[Date]
To: [Bank name]
o Branch
[Address]
Attention: o
Dear Sirs,
We hereby give you notice that by a Deed of Debenture dated o (the "DEED"), we
have charged to Burdale Financial Limited ("BURDALE") by way of first fixed
charge all our rights, title, interest and benefit in and to the following
account held with yourselves and all amounts standing to the credit of such
account from time to time:
Account No. o, sort code oo-oo-oo (the "BLOCKED ACCOUNT").
We have also assigned (where assignable) or charged by way of first fixed charge
(where not assignable) to Burdale pursuant to the Deed all our rights, title,
interest and benefit in and to inter alia, all accounts, accounts receivable,
other receivables, book debts and other forms of obligations, with respect to
goods and services supplied by us to a customer whether now owned or hereafter
acquired by us (the "ACCOUNTS RECEIVABLE").
Please acknowledge receipt of this letter by returning a copy of the attached
letter on your own headed notepaper with a receipted copy of this notice
forthwith, to Burdale at 53 Queen Anne Street, London, W1M 0HP, Attention:
Company Secretary.
Yours faithfully
.........................
for and on behalf of
CERPLEX LIMITED
<PAGE>
BLOCKED ACCOUNT ACKNOWLEDGEMENT
[On the Headed Notepaper of Bank]
[Date]
To: Burdale Financial Limited ("BURDALE")
53 Queen Anne Street
London W1M 0HP
Attention: Company Secretary
Dear Sirs,
CERPLEX LIMITED (THE "COMPANY")
We refer to the notice, received today from the Company (a copy of which we
attach, receipted) (the "NOTICE").
Terms not defined in this letter shall have the meanings given to them in the
Notice.
WITH RESPECT TO THE NOTICE:
1. We hereby acknowledge that:
(a) the Company has charged to Burdale by way of a first fixed charge
all of its rights, title, interest and benefit in and to the
Blocked Account; and
(b) the Company has absolutely and legally assigned (where
assignable) or charged by way of first fixed charge (where not
assignable) to Burdale all of its rights, title, interest and
benefit in and to the Accounts Receivable.
2. We hereby irrevocably undertake to you that until receipt by us of
notice from you confirming that you no longer have any interest in the
Blocked Account and the Accounts Receivable, we shall:
(a) not exercise any right of combination, consolidation, merger or
set-off which we may have in respect of, or otherwise exercise
any other right which we may have to apply any monies from time
to time standing or accruing to the credit of the Blocked Account
save for fees and charges payable to us for the operation of the
Blocked Account;
(b) promptly notify you of any renewal, renumbering or redesignation
of any and all of the Blocked Account;
(c) promptly send to you copies with respect to all the Blocked
Account of all statements together with copies of all credits,
debits and notices given or made by us in connection with such
account;
<PAGE>
(d) not permit or effect any withdrawal or transfer from the Blocked
Account by or on behalf of the Company save for withdrawals and
transfers requested by you in writing to us pursuant to the terms
of this letter;
(e) comply with all instructions received by us from you from time to
time with respect to the conduct of the Blocked Account provided
that such instructions are given in accordance with the terms of
this letter;
(f) comply with all instructions received by us from you from time to
time with respect to the movement of funds from the Blocked
Account provided that:
(i) all instructions are received in writing, by facsimile, to
us at facsimile number o, attention: o; and
(ii) all instructions must be received by 2pm if they are to be
complied with on the same Business Day. Instructions
received outside such hours will be complied with on the
next Business Day following such receipt. Facsimile
instructions will be deemed received at the time of
transmission;
(iii) all instructions are given in compliance with the mandate
entered into by you stipulating who may give instructions
to us; and
(iv) to the extent that an instruction is given which would in
our opinion cause the Blocked Account to become overdrawn
we will transfer the outstanding balance in the account;
(g) (subject to paragraph (h) below) effect the following transaction
on a daily basis unless we receive written notice to the contrary
in accordance with paragraph (f) above: the cleared balance of
the Blocked Account will be transferred into the account at
[Bank] account number o, being an account in your name designated
the "[the Company] Loan Account" attn. o;
(h) we shall not be obliged to comply with any instructions received
from you or undertake the transactions set out in paragraph (g)
where:
(i) due to circumstances not within our direct control we are
unable to comply with such instructions; and
(ii) that to comply with such instructions will breach a Court
Order or be contrary to applicable law;
and in each case we shall give notice thereof to the Company and
Burdale as well as reasons why we cannot comply with such
instructions;
(i) in the event that we are unable to comply with any
instructions due to circumstances set out in paragraph (h)
we shall not be responsible for any loss caused to you or
to the Company and in any event we shall not be liable for
any consequential, special,
<PAGE>
secondary or indirect loss of or damage to goodwill, profits
or anticipated savings (however caused); and
(j) you acknowledge that we are obliged to comply with the terms of
this letter and that we have no notice of the particulars of the
charge granted to you by the Company other than as set out in the
Notice and this letter. You further acknowledge that subject to
the terms of this letter we shall not be liable to you in any
respect if the Company operates the Blocked Account in breach of
any agreement entered into by the Company with you.
We note that, for the purposes of this letter, all notices, copy notices,
advices and correspondence to be delivered to you shall be effectively delivered
if sent by facsimile to you at number 0171-935-5445 or by post at the address at
the top of this letter, in both cases marked for the attention of the Company
Secretary.
This letter is governed by and shall be construed in accordance with English
law.
Yours faithfully
......................
for and on behalf of
[BANK]
We hereby acknowledge and accept the terms of this letter
..........................
for and on behalf of
BURDALE FINANCIAL LIMITED
<PAGE>
Part II
OTHER ACCOUNTS NOTICE
[On Headed Notepaper of the Company]
[Date]
To: [Bank name]
o Branch
[Address]
Attention: o
Dear Sirs,
We hereby give you notice that by a Deed of Debenture dated o (the "DEED"), we
have charged to Burdale Financial Limited ("BURDALE") by way of first fixed
charge all our rights, title, interest and benefit in and to the following
accounts held with yourselves and all amounts standing to the credit of such
accounts from time to time:
Account No. o, sort code oo-oo-oo
Account No. o, sort code oo-oo-oo
Account No. o, sort code oo-oo-oo
[Repeat as necessary]
(the "CHARGED ACCOUNTS").
We have also assigned (where assignable) or charged by way of first fixed charge
(where not assignable) to Burdale pursuant to the Deed all our rights, title,
interest and benefit in and to inter alia, all accounts, accounts receivable,
other receivables, book debts and other forms of obligations, with respect to
goods and services supplied by us to a customer whether now owned or hereafter
acquired by us (the "ACCOUNTS RECEIVABLE").
Please acknowledge receipt of this letter by returning a copy of the attached
letter on your own headed notepaper with a receipted copy of this notice
forthwith, to Burdale at 53 Queen Anne Street, London, W1M 0HP, Attention:
Company Secretary.
Yours faithfully
.......................
for and on behalf of
CERPLEX LIMITED
<PAGE>
OTHER ACCOUNTS ACKNOWLEDGEMENT
[On the Headed Notepaper of Bank]
[Date]
To: Burdale Financial Limited ("BURDALE")
53 Queen Anne Street
London W1M 0HP
Attention: Company Secretary
Dear Sirs,
CERPLEX LIMITED (THE "COMPANY")
We refer to the notice, received today from the Company (a copy of which we
attach, receipted) (the "NOTICE").
Terms not defined in this letter shall have the meanings given to them in the
Notice.
WITH RESPECT TO THE NOTICE:
1. We hereby acknowledge that:
(a) the Company has charged to Burdale by way of a first fixed charge
all of its rights, title, interest and benefit in and to the
Charged Accounts; and
(b) the Company has absolutely and legally assigned (where
assignable) or charged by way of first fixed charge (where not
assignable) to Burdale all of its rights, title, interest and
benefit in and to the Accounts Receivable.
2. We hereby irrevocably undertake to you that until receipt by us of
notice from you confirming that you no longer have any interest in
the Charged Accounts and the Accounts Receivable, we shall:
(a) not exercise any right of combination, consolidation, merger or
set-off which we may have in respect of, or otherwise exercise
any other right which we may have to apply any monies from time
to time standing or accruing to the credit of the Charged
Accounts save for fees and charges payable to us for the
operation of the Charged Accounts;
(b) promptly notify you of any renewal, renumbering or redesignation
of any and all of the Charged Accounts;
(c) promptly send to you copies with respect to all the Charged
Accounts of all statements together with copies of all credits,
debits and notices given or made by us in connection with such
account;
<PAGE>
(d) upon receipt by us of a notice from you declaring that an event
of default has occurred under the Deed, not to permit or effect
any withdrawal or transfer from the Charged Accounts save for
withdrawals and transfers requested by you in writing to us
pursuant to the terms of this letter;
(e) comply with all instructions received by us from you from time to
time with respect to the conduct of the Charged Accounts provided
that such instructions are given in accordance with the terms of
this letter;
(f) comply with all instructions received by us from you from time to
time with respect to the movement of funds from the Charged
Accounts provided that:
(i) all instructions are received in writing, by facsimile, to
us at facsimile number o, attention: o; and
(ii) all instructions must be received by 2pm if they are to be
complied with on the same Business Day. Instructions
received outside such hours will be complied with on the
next Business Day following such receipt. Facsimile
instructions will be deemed received at the time of
transmission; and
(iii) all instructions are given in compliance with the mandate
entered into by you stipulating who may give instructions
to us.
(g) we shall not be obliged to comply with any instructions received
from you where:
(i) due to circumstances not within our direct control we are
unable to comply with such instructions; and
(ii) that to comply with such instructions will breach a Court
Order or be contrary to applicable law;
and in each case we shall give notice thereof to the Company and
Burdale as well as reasons why we cannot comply with such
instructions;
(h) in the event that we are unable to comply with any instructions
due to circumstances set out in paragraph (g) we shall not be
responsible for any loss caused to you or to the Company and in
any event we shall not be liable for any consequential, special,
secondary or indirect loss of or damage to goodwill, profits or
anticipated savings (however caused); and
(i) you acknowledge that we are obliged to comply with the terms of
this letter and that we have no notice of the particulars of the
charge granted to you by the Company other than as set out in the
Notice and this letter. You further acknowledge that subject to
the terms of this letter we shall not be liable to you in any
respect if the Company operates the Charged Accounts in breach of
any agreement entered into by the Company with you.
<PAGE>
We note that, for the purposes of this letter, all notices, copy notices,
advices and correspondence to be delivered to you shall be effectively delivered
if sent by facsimile to you at number 0171-935-5445 or by post at the address at
the top of this letter, in both cases marked for the attention of the Company
Secretary.
This letter is governed by and shall be construed in accordance with English
law.
Yours faithfully
.......................
for and on behalf of
[BANK]
We hereby acknowledge and accept the terms of this letter
.........................
for and on behalf of
BURDALE FINANCIAL LIMITED
<PAGE>
SCHEDULE 3
GROUP SHARES
COMPANY NAME TYPE OF SHARE NO. OF SHARES NOMINEE (IF ANY)
NONE AS AT THE DATE OF THIS DEED
<PAGE>
SCHEDULE 4
DETAILS OF CREDIT INSURANCE POLICIES
ACCOUNT DEBTOR INSURER POLICY NO. AGGREGATE INSURED AMOUNT
NONE AS AT THE DATE OF THIS DEED
<PAGE>
SCHEDULE 5
FORM OF NOTICE TO INSURER
[On the Headed Notepaper of the Company]]
[Date]
To: [Insurer]
[Address]
Attention: o
Dear Sirs,
We hereby give you notice that by a Deed of Debenture dated o, we have
absolutely and legally assigned to Burdale Financial Limited ("Burdale") all our
rights, title, interest and benefit in and to the following insurance policies
held with yourselves:
1. Policy No. o re account debtor o in an insured amount of (pounds)o, dated o;
2. Policy No. o re account debtor o in an insured amount of (pounds)o, dated o;
3. Policy No. o re account debtor o in an insured amount of (pounds)o, dated o;
(together the "POLICIES").
Please acknowledge receipt of this letter by returning a copy of the attached
letter on your own headed notepaper with a receipted copy of this notice
forthwith, to Burdale at 53 Queen Anne Street, London W1M 0HP, attention: the
Company Secretary.
Yours faithfully
.........................
for and on behalf of
CERPLEX LIMITED
<PAGE>
FORM OF ACKNOWLEDGEMENT FROM INSURER
[On the Headed Notepaper of the Insurer]
[Date]
To: Burdale Financial Limited ("BURDALE")
53 Queen Anne Street,
London W1M 0HP
Attention: Company Secretary
Dear Sirs,
Re: CERPLEX LIMITED (THE "COMPANY")
We refer to the notice, received today from the Company (a copy of which we
attach, receipted) (the "NOTICE").
Terms not defined in this letter shall have the meanings given to them in the
Notice.
WITH RESPECT TO THE NOTICE:
We hereby acknowledge that the Company has assigned to Burdale all of its
rights, title, interest and benefit in and to the Policies.
We note and accept that the Company is not entitled to agree to cancel or modify
the Policies in any way except with your prior written consent.
We agree that if the Company is in breach of any provision under any of the
Policies whether by failure to pay the premiums or otherwise, we shall before
terminating any of the Policies or otherwise enforcing our rights against the
Company, notify you in writing of the breach and allow you 14 (fourteen) days to
remedy the breach.
We hereby acknowledge that you are under no obligation or liability to remedy
any breach or otherwise to comply with any obligations on the part of the
Company under the Policies.
We note that for the purposes of this letter all notices, copy notices, advices
and correspondence to be delivered to you shall be effectively delivered if sent
by facsimile to you at number 0171-935 5445 or by post at the address at the top
of this letter, in both cases marked for the attention of the Company Secretary.
<PAGE>
This letter is governed by and shall be construed in accordance with English
Law.
Yours faithfully
..........................
for and on behalf of
[INSURER]
<PAGE>
SCHEDULE 6
NOTICE TO BE AFFIXED TO INVOICES AND SENT TO ACCOUNT DEBTORS
PART I
Please note that all our rights to the debt owed by you under this
invoice/invoice no. o have (if assignable) been assigned by us outright to
Burdale Financial Limited ("BURDALE"). If this debt is not assignable for any
reason, we have granted Burdale a fixed charge over all our rights in this debt.
Payment must be made (i) by cheque to us, PO Box o or (ii) by funds transfer to
account number o at [Bank], o Branch, Sort Code oo-oo-oo, otherwise, if it has
been assigned, you will not be discharged from this debt.
If you intend to withhold payment of this debt as a result of alleged default by
us, you must first notify Burdale at 53 Queen Anne Street, London, W1M 0HP,
Attention: Company Secretary.
Unless and until we give you notice to the contrary, we are not entitled to
transfer any of our interest or rights in this debt to any party (other than
Burdale).
PART II
Please note that now we have received your formal consent to our assigning all
our rights to the debt owed by you invoice no. o (the "DEBT") we have assigned
the Debt to Burdale Financial Limited ("BURDALE").
Payment must be made (i) by cheque, to us, PO Box o or (ii) by funds transfer,
to account no. o at [Bank], o Branch, sort code oo-oo-oo. You will not be
discharged from the Debt unless you make payment in this way.
<PAGE>
SCHEDULE 7
OTHER ACCOUNTS
BANK BRANCH SORT CODE ACCOUNT NO.
<PAGE>
SIGNATORIES
THE COMPANY
Signed on behalf of
CERPLEX LIMITED /s/ TE CHARLES MINCHIN
by its attorney for -----------------------
delivery as a deed in the TE CHARLES MINCHIN as attorney
presence of :
WITNESS:
ADDRESS:
OCCUPATION:
BURDALE
BURDALE FINANCIAL LIMITED
By:
By:
DATED DECEMBER 14, 1999
THE CERPLEX GROUP, INC.
and
BURDALE FINANCIAL LIMITED
-----------------------------------------------------
GUARANTEE AND INDEMNITY
------------------------------------------------------
THEODORE GODDARD
<PAGE>
THIS GUARANTEE is dated 1999
BETWEEN:
(1) THE CERPLEX GROUP, INC. a company incorporated under the laws
of Delaware in the United States of America (the "Guarantor")
and
(2) BURDALE FINANCIAL LIMITED (Registered in England and Wales No.
2656007) ("Burdale", which expression shall include its successors,
transferees and assigns).
BACKGROUND:
(A) At the request of the Guarantor, Burdale has agreed to provide
certain banking and financial accommodation to Cerplex Limited
(Registered in England and Wales No. 2953372) (the "PRINCIPAL").
(B) It is a condition of Burdale making such accommodation to the
Principal that certain security (including that constituted by this
Deed) be granted to Burdale.
(C) The execution of this Deed is for the commercial benefit of the
Guarantor and was approved as such pursuant to a board resolution on
or about today's date and by a unanimous resolution of its
shareholders also on or about today's date.
(D) The parties intend that this Deed take effect as a deed notwithstanding that
it may be executed under hand only.
IT IS AGREED as follows:
1. GUARANTEE
In consideration of Burdale providing banking and financial
accommodation from time to time to the Principal at the request of
the Guarantor, the Guarantor:
(a) guarantees to Burdale the due performance by the Principal of
its obligations to Burdale (whether actual or contingent and
whether owed jointly or severally or in any capacity
whatsoever) and promises to pay to Burdale on demand all sums
from time to time due and payable (but unpaid) by the
Principal pursuant to the Finance Documents entered into
between the Principal and Burdale; and
(b) agrees as a primary obligation to indemnify Burdale from time
to time on demand from and against any loss incurred by
Burdale as a result of any agreement between Burdale and the
Principal being or becoming void, voidable or unenforceable
for any reason whatsoever, whether or not known to Burdale,
the amount of such loss being the amount which Burdale would
otherwise have been entitled to recover from the Principal.
2. PRESERVATION OF RIGHTS
2.1 The obligations of the Guarantor contained in this Deed shall be in
addition to and not in substitution for any other guarantees or
security (together the "Security") which Burdale may at any time hold
in respect of any of the Principal's obligations and may be enforced
without Burdale first having recourse to any of the Security and
without Burdale first taking steps or proceedings against the
Principal or any third parties.
2.2 Neither the obligations of the Guarantor contained in this Deed, nor
the rights, powers and remedies conferred in respect of the Guarantor
upon Burdale by any agreement or by law shall be discharged, impaired
or otherwise affected by:
(a) the winding-up, dissolution, administration or
reorganisation of the Principal or any change in its status,
function, control or ownership;
(b) any of the obligations of the Principal to Burdale being
or becoming illegal, invalid or unenforceable in any respect;
(c) time or other indulgence being granted or agreed to be granted
by Burdale to, or any composition or other arrangement made
with or accepted from, the Principal in respect of its
obligations to Burdale or any person in respect of any of the
Security;
(d) any amendment of any of the Security or of any document
recording or evidencing the terms of any obligations owed by
the Principal to Burdale;
(e) any failure to realise or fully to realise the value of, or
any release, discharge, exchange or substitution of, any of
the Security;
(f) any failure (whether intentional or not) to take, or
fully to take, or perfect any of the Security; or
(g) any other act, event or omission which, but for this Clause
2.2, would or might operate to discharge, impair or otherwise
affect any of the obligations of the Guarantor contained in
this Deed or any of the rights, powers or remedies conferred
upon Burdale by any agreement or by law.
2.3 Any discharge given by Burdale to the Guarantor in respect of the
Guarantor's obligations under this Deed or any other agreement
reached between Burdale and the Guarantor in relation thereto shall
be, and be deemed always to have been, void if any act on the faith
of which Burdale gave the Guarantor that discharge or entered into
that agreement is subsequently avoided by or in pursuance of any
provision of law.
2.4 Burdale shall not be obliged before exercising any of the rights,
powers or remedies conferred upon it in respect of the Guarantor by
law:
(a) to make any demand other than a demand on the Principal
required by the terms of any agreement between the Principal
and Burdale;
(b) to take any action or obtain judgment in any court against the
Principal or any third party;
(c) to make or file any claim or proof in a winding-up,
receivership, administration, administrative receivership or
dissolution of the Principal; or
(d) to enforce or seek to enforce any Security.
2.5 After a demand has been made by Burdale under this Deed, so long
as the Principal is under any actual or contingent liability to
Burdale, the Guarantor shall not:
(a) exercise in respect of any amount paid by the Guarantor under
this Deed any right of subrogation or any other right or
remedy which the Guarantor may have in respect of such
payment; or
(b) except with Burdale' consent in writing, claim or receive
payment of any other monies for the time being due to the
Guarantor by the Principal or exercise any other right or
remedy which the Guarantor may have in respect of such monies;
or
(c) unless so required by Burdale, prove in a liquidation of the
Principal in competition with Burdale for any monies owing to
the Guarantor by the Principal on any account whatsoever.
Any monies obtained by the Guarantor from the Principal with such
consent or as required by or in breach of this Clause shall be held
by the Guarantor upon trust to pay the same to Burdale in or towards
discharge of the Guarantor's obligations under this Deed.
3. REPRESENTATIONS AND WARRANTIES
The Guarantor represents to Burdale that:
(a) The Guarantor is a corporation duly formed and existing under
the laws of the State of Delaware and has the power, capacity
and authority to own its property and conduct its business as
currently being carried on and to execute and deliver this
Deed and to enter into and exercise its rights and perform its
obligations under this Deed.
(b) All corporate and other action required to authorise the
execution and delivery by the Guarantor of this Deed and its
performance of obligations of the Guarantor under this Deed
has been duly taken.
(c) Under the laws of the State of Delaware in force at today's
date, the claims of Burdale against the Guarantor under this
Deed are direct, general and unconditional obligations of the
Guarantor which rank, or will when they arise rank, at least
pari passu with the claims of all its other unsecured and
unsubordinated creditors (present and future), save those
whose claims are preferred mandatorily by any bankruptcy,
insolvency, liquidation or other similar laws of general
application and all claims of the Guarantor against the
Principal from time to time will be subordinated to the claims
of Burdale against the Principal from time to time.
(d) All acts, conditions and things required to be done, fulfilled
and performed in order (i) to enable the Guarantor lawfully to
enter into and, as the case may be, exercise its rights under
and perform and comply with the obligations expressed to be
assumed by it in this Deed, (ii) to ensure that the
obligations expressed to be assumed by the Guarantor in this
Deed, are legal, valid and binding and (iii) to make this Deed
admissible in evidence in England and Wales and the State of
Delaware, have been or will be, done, and will (after they
have been done, fulfilled and performed) continue to be, done,
fulfilled and performed.
(e) All authorisations, approvals, consents, licences, exemptions,
filings, registrations and notarisations and payments of any
tax or any other actions required in connection with the entry
into, performance of, validity and enforceability of this Deed
have been, or will be, obtained and will be maintained in full
force and effect or have been made or taken by the Guarantor.
(f) All necessary filing, recording or enrolment of this Deed with
any court or other authority in the State of Delaware and any
stamp, registration or similar tax has been, or will be,
effected or paid in relation to or on this Deed.
(g) The obligations expressed to be assumed by the Guarantor in
this Deed are, subject to the application of insolvency laws
and equitable principles which limit the enforcement of
creditors' rights generally, its legal, valid and binding
obligations.
(h) In any proceedings taken in the State of Delaware in relation
to this Deed, the choice of English law as the governing law
of this Deed and any judgment obtained in England and Wales in
respect of this Deed will be recognised and enforced.
(i) The Guarantor has not taken any corporate action nor have any
other formal steps been taken or legal proceedings been
started or, so far as any of the Guarantor is aware to the
best of its knowledge and belief, threatened against the
Guarantor for its bankruptcy, winding-up, dissolution,
administration or re-organisation or for the appointment of a
receiver, administrator, administrative receiver, trustee or
similar officer of it or of any or all of its assets or
undertaking.
(j) The execution and delivery by the Guarantor of this Deed and
the performance by the Guarantor of its obligations under this
Deed will not:
(i) contravene any provision of any law, statute, rule or
regulation or any order or licence of any authority,
agency or court to which it or any of its assets or
revenues is subject; or
(ii) result in any breach of any of the terms, covenants
(including, without limitation, any limitation on
borrowing), conditions or provisions of, or constitute
a default under, any loan, security, agreement or any
other instrument or obligation to which it is a party;
or
(iii) violate any of its applicable constitutive documents.
(k) No litigation, arbitration or administrative proceedings are
current or, to its knowledge, pending or threatened against
the Guarantor which in any case would, if adversely
determined, result in a material adverse change.
(l) All of the written financial and other information relating to
the business and affairs of the Guarantor supplied by the
Guarantor or any person on its behalf to Burdale in connection
with any of the Documents is, as at the date to which it is
expressed to speak, true, complete and accurate in all
material respects and the Guarantor is not aware of any facts
or circumstances that have not been disclosed to Burdale and
which would, if disclosed, affect adversely the decision of a
person considering whether or not to provide finance to the
Principal.
(m) The Guarantor shall not, by reason of its execution of this
Deed, become obliged to create in favour of any person, any
Encumbrance over any of its property, revenues or assets.
4. PAYMENTS
4.1 All payments to be made by the Guarantor to Burdale under this
Deed shall
be:
(a) paid on the due date for such payment in freely available
funds and in the currency in which the liabilities of the
Principal, in respect of which such payments are made, were
expressed to be payable;
(b) made without set-off or counterclaim; and
(c) made free and clear of all and without deduction for or on
account of any tax, save to the extent that the Guarantor is
compelled by law to make such payment subject to any tax (a
"Required Tax")
4.2 The Guarantor will indemnify Burdale against any Required Tax imposed
on any payment by the Guarantor under this Deed. If any such Required
Tax (or any amount in respect of any Required Tax) must be deducted
from any such payment or any other deductions must be made from any
amounts paid by the Guarantor under this Deed, the Guarantor shall
pay to Burdale such additional amounts as may be necessary to ensure
that Burdale receives a net amount equal to the full amount which it
would have received had the payment not been made subject to the
Required Tax.
5. CURRENCY OF ACCOUNT
Moneys received or recovered by Burdale from the Guarantor in a
currency other than that in which the said sums are due and payable
from the Principal or under Clause 1 shall be converted into the
latter currency at the rate at which Burdale, acting reasonably,
would have sold the latter currency for the former at 11 a.m. on the
latest day before Burdale' receipt or recovery on which Burdale
quoted generally a rate of exchange for such a sale.
6. CONTINUING SECURITY
The security constituted by this Deed shall be a continuing security
to Burdale in respect of each and every one of the obligations owed
by the Principal to Burdale and shall not be (or be construed so as
to be) discharged by any intermediate discharge or payment of or on
account of the obligations of the Principal or any of them or any
settlement of accounts between Burdale and the Principal or anyone
else other than any settlement or discharge in full and finally by
the Guarantor of the obligations of the Principal to Burdale.
7. SET-OFF
Burdale may at any time after demand has been made set-off or combine
any account in its books in the name of the Guarantor (at whatever
branch and in whatever currency denominated) with any other such
account.
8. NOTICES
8.1 Each communication to be made under this Deed shall be made in
writing and shall be made by letter or facsimile.
8.2 Any communication or document to be made or delivered by one person
to another pursuant to this Deed shall (unless that other person has
by five Business Days' written notice to the other specified another
address) be made or delivered to that other person at the address
identified with its signature below and shall be deemed to have been
made or delivered, when received (as evidenced by a facsimile
transmission report, in the case of any communications made by
facsimile) or (in the case of any communication made by letter) when
delivered to that address provided that any communication or document
to be made or delivered to Burdale shall be effective only if the
same is expressly marked for the attention of the department or
officer identified with Burdale's signature below (or such other
department or officer as Burdale shall from time to time specify for
this purpose).
9. GOVERNING LAW
This Deed shall be governed by and construed in accordance with
English law.
10. JURISDICTION
10.1 For the benefit of Burdale, the Guarantor agrees that the courts of
England have jurisdiction to settle any disputes in connection with
this Deed and accordingly submits to the jurisdiction of the English
courts.
10.2 Without prejudice to any other mode of service, the Guarantor:
(a) irrevocably appoints the Principal (at its address for notices
as set out in the facility agreement dated today's date
between the Principal and Burdale) as its agent for service of
process relating to any proceedings before the English courts
in connection with this Deed;
(b) agrees that failure by a process agent to notify the Guarantor
of the process will not invalidate the proceedings concerned;
and
(c) consents to the service of process relating to any such
proceedings by prepaid posting of a copy of the process to its
address for the time being applying under Clause 8.2.
10.3 The Guarantor:
(a) waives objection to the English courts on grounds of
inconvenient forum or otherwise as regards proceedings in
connection with this Deed; and
(b) agrees that a judgement or order of an English court in
connection with this Deed is conclusive and binding on it and
may be enforced against it in the courts of any other
jurisdiction.
10.4 Nothing in this Clause 10 limits the right of Burdale to bring
proceedings against the Guarantor in connection with this Deed:
(a) in any other court of competent jurisdiction; or
(b) concurrently in more than one jurisdiction.
IN WITNESS of which this Deed has been duly executed as a deed the day and year
first above
<PAGE>
EXECUTED as a deed by
THE CERPLEX GROUP, INC.
By: /S/RICHARD ALSTON
Name: Richard Alston
Title: President and Chief Operating Officer
Address: 11 Pacifica Avenue
Suite 3000
Irvine
California 92618
USA
Facsimile No:
For the attention of:
Accepted and agreed:
BURDALE FINANCIAL LIMITED
By:
Address: 53 Queen Anne Street
London W1M 0HP
Facsimile No: 0171 486 3513
For the attention of: Company Secretary
DATED DECEMBER 14, 1999
CERPLEX LIMITED
and
BURDALE FINANCIAL LIMITED
-----------------------------
FACILITY AGREEMENT
-----------------------------
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
1. INTERPRETATION..........................................................................................1
2. CONDITIONS PRECEDENT...................................................................................14
3. THE FACILITY...........................................................................................14
4. RESTRICTIONS ON UTILISATIONS...........................................................................15
5. UTILISATION OF FACILITIES..............................................................................18
6. REPAYMENT AND PREPAYMENT...............................................................................22
7. INTEREST AND COMMISSION................................................................................25
8. RECEIVABLES, STOCK AND EQUIPMENT.......................................................................26
9. COLLECTION OF RECEIVABLES..............................................................................33
10. PAYMENTS AND TAXES.....................................................................................35
11. INCREASED COSTS........................................................................................37
12. ILLEGALITY AND MONETARY UNION..........................................................................38
13. GENERAL REPRESENTATIONS AND WARRANTIES.................................................................39
14. GENERAL UNDERTAKINGS...................................................................................42
15. EVENTS OF DEFAULT......................................................................................50
16. COSTS, EXPENSES AND FEES...............................................................................54
17. INDEMNITIES............................................................................................56
18. EVIDENCE OF INDEBTEDNESS...............................................................................58
19. NOTICES................................................................................................58
20. WAIVER, REMEDIES CUMULATIVE............................................................................59
21. INVALIDITY.............................................................................................60
22. ASSIGNMENT AND PARTICIPATION...........................................................................60
23. GOVERNING LAW AND JURISDICTION.........................................................................60
24. GOODS AND DOCUMENTS....................................................................................60
25. DISCLOSURE OF INFORMATION..............................................................................61
26. COUNTERPARTS...........................................................................................61
SCHEDULE 1...................................................................................................62
SCHEDULE 2...................................................................................................65
SCHEDULE 3...................................................................................................72
SIGNATORIES..................................................................................................75
</TABLE>
<PAGE>
THIS AGREEMENT is dated 1999
BETWEEN:
(1) CERPLEX LIMITED (Registered in England and Wales No. 2953372) (the
"COMPANY"); and
(2) BURDALE FINANCIAL LIMITED (Registered in England and Wales No. 2656007)
("BURDALE").
IT IS AGREED:
1. INTERPRETATION
1.1 DEFINITIONS
In this Agreement:
"ACCOUNT DEBTOR" means a debtor of the Company in respect of a
Receivable.
"ACCOUNT BANKS" means each bank at which a Charged Account is held and
which has been given and has acknowledged all notices required by the
Debenture.
"ACTUAL DAY OF PAYMENT" in relation to a Purchased Receivable means the
date on which full payment in respect of that Purchased Receivable is
made into the Blocked Account by the relevant Account Debtor or the
Company.
"ARTICLES" means the Articles of Association of the Company as in force
at the date of this Agreement.
"AVAILABILITY LIMITS" means the Receivables Limit, the Total Stock
Availability, the L/C Limit, the Forex Limit and each other limit on
Utilisations specified in Clause 4.
"AVAILABILITY PERIOD" means the period from the opening of business in
London on the date of this Agreement until:
(a) when designated "PURCHASE" or "REVOLVING", close of business in
London on the date falling five Business Days prior to the Final
Repayment Date;
(b) when designated "TERM", close of business in London on the date
five Business Days from the date of this Agreement;
or, in each case, such later date as Burdale may agree.
"AVAILABILITY RESERVES" means such amounts as Burdale may, acting in
good faith, from time to time establish and revise in order to
reflect:
(a) any events, conditions, or circumstances having a Material Adverse
Effect; and/or
<PAGE>
(b) Burdale's good faith belief that any report as to Collateral or
financial information provided by or on behalf of the Company to
Burdale is or may have been incomplete, inaccurate or misleading
in any material respect; and/or
(c) any circumstances which Burdale determines, in good faith, to
constitute an Event of Default; and/or
(d) the full amount of the liabilities at such time which have a right
imposed to provide for payment ranking or capable of ranking
senior to or pari passu with the liabilities of the Obligors under
the Finance Documents under local, national or supranational law,
regulation or directive including, but not limited, to claims for
debts due to the Inland Revenue, Customs and Excise, contributions
to social security, remuneration of employees or pension fund
obligations; and/or
(e) an Availability Reserve of (pound)600,000 which shall be from time
to time applied by Burdale (and the Company hereby irrevocably
authorises Burdale to make such application) in or towards all
payments due from Burdale to First Union Corporation under a
letter of credit or other guarantee which is to be issued or made
available by First Union Corporation on application in writing by
the Company to Burdale.
"BLOCKED ACCOUNT" means the Company's account with Barclays Bank plc,
PO Box 544, 54 Lombard Street, London EC3V 9EX, sort code 20-00-00,
account number 70066036 (as the same may be redesignated, renumbered or
renamed from time to time), or such other account as previously
approved by Burdale.
"BUSINESS DAY" means any day not being a Saturday, Sunday or Bank
holiday when banks are open for business in London.
"CASH REQUEST" means a request for Burdale to pay to the Company an
amount of unpaid Purchase Price and/or the proceeds of a Revolving Loan
in substantially the form set out in Schedule 2 Part II.
"CHARGED ACCOUNTS" means the Blocked Account and the Other Accounts.
"COLLATERAL" means any of the assets and undertaking of the Corporate
Obligors charged to Burdale pursuant to the Debenture.
"COMMISSION RATE" means the aggregate of LIBOR and 2% per annum.
"CONSOLIDATED TANGIBLE NET WORTH" means the aggregate of the amounts
paid-up or credited as paid-up on the Company's issued share capital
and the amount of the consolidated capital and revenue reserves of the
Borrower and its Subsidiaries all as shown by the balance sheet and
profit and loss accounts of the Borrower and its Subsidiaries contained
in the most recent accounts delivered pursuant to Clause 14(a)(ii), but
after:
(a) deducting any debit balance on such consolidated profit and loss
account;
<PAGE>
(b) deducting any amount shown in such consolidated balance sheet in
respect of goodwill and other intangible assets;
(c) deducting such part of the share capital or reserves as is, in the
opinion of Burdale (acting reasonably), attributable to any
writing up of book values of any fixed assets;
(d) deducting all amounts attributable to minority interests in
Subsidiaries;
(e) excluding any sums set aside for taxation and deducting, if not
otherwise taken into account, an estimate (satisfactory to Burdale
acting reasonably) of the tax liability which would arise on the
sale of the immovable property of the Company and its Subsidiaries
at its value as shown in such consolidated balance sheet;
(f) deducting any amounts distributed or proposed to be distributed
(other than to the Company or another Subsidiary) out of profits
accrued prior to the date of such consolidated balance sheet to
the extent that such distribution is not provided for therein; and
(g) making such adjustments as may be appropriate in the opinion of
Burdale (acting reasonably) to reflect any material variations
which shall have occurred since the date of such consolidated
balance sheet.
"CORPORATE OBLIGOR" means each Obligor which is not a natural person.
"DAILY RATE" means (pound)500 per person per day.
"DEBENTURE" means the debenture executed or to be executed by the
Company in favour of Burdale.
"DEFAULT" means any Event of Default and any event which with the
giving of notice and/or lapse of time and/or as a result of any
Utilisation and/or determination of materiality and/or fulfilment of
any condition (or any combination of the foregoing) may constitute an
Event of Default.
"DEFAULT RATE" means the rate determined by Burdale to be 3% above the
Interest Rate from time to time.
"DILUTION RATE" means the average monthly value of credit notes and
non-cash credits issued by the Company as a percentage of the average
monthly value of sales.
"DOCUMENTS" means any and all documents which represent or relate to
any Goods and/or the carriage of and/or possession of and/or ownership
of and/or title to and/or insurance of and/or warehousing of and/or any
other dealing in or with any Goods.
"DOUBLE TAXATION TREATY" means any convention between the government of
the United Kingdom and any other government for the avoidance of double
taxation and the prevention of fiscal evasion with respect to taxes on
income and capital gains.
<PAGE>
"ELIGIBLE FINISHED GOODS" means any Finished Goods which are not
Ineligible Stock.
"ELIGIBLE RAW STOCK" means all Raw Stock which is not Ineligible Stock.
"ELIGIBLE RECEIVABLES" means, at any time, any Receivables at such time
which are evidenced by an invoice rendered by the Company to the
relevant Account Debtors and which are not Ineligible Receivables.
"ELIGIBLE STOCK" means Eligible Finished Goods and Eligible Raw Stock.
"END DATE" in relation to an L/C means the earlier of the expiry date
of such L/C and the date on which the L/C is drawn in full.
"ENCUMBRANCE" means any mortgage or deed of trust, pledge,
hypothecation, assignment, deposit arrangements, lien, charge, claim,
security interest, easement or encumbrance or preference, priority or
other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, any agreement to sell
or otherwise dispose of any assets on terms whereby any such asset may
be leased to or reacquired or acquired by any Obligor or any title
retention agreement having substantially the same economic effect as
any of the foregoing).
"EQUIPMENT" means all the Company's present and future equipment,
machinery, computers and computer hardware and software (whether owned
or licensed), vehicles, tools, furniture and fixtures and all
attachments, accessories and property now or in future relating to them
or used in connection with them and replacements and substitutions for
them wherever located.
"EVENT OF DEFAULT" means any of the events specified in Clause 15.1.
"EXCHANGE RATE" means the prevailing spot rate of exchange of such bank
as Burdale may select for the purpose, at or around 11.00 a.m. on the
date on which any conversion of currency is to be made under this
Agreement.
"FACILITIES" means the Property Loan Facility, the Receivables Finance
Facility and the Revolving Credit Facility.
"FACILITY LIMIT" means (pound)4,000,000.
"FINAL REPAYMENT DATE" means 28 February 2001.
"FINANCE DOCUMENTS" means this Agreement, the Debenture, the Guarantee
and/or all other agreements, documents and instruments at any time
executed and/or delivered by any Obligor or the Guarantor (each a
"FINANCE DOCUMENT").
"FINANCIAL INDEBTEDNESS" includes:
(a) indebtedness in respect of money borrowed or raised in any manner
or extended under any facility;
<PAGE>
(b) any liability in respect of instalments under conditional sale
agreements or in respect of the deferred purchase price of
property or services in respect of which such person is liable,
contingently or otherwise, as obligor or otherwise;
(c) contingent or actual reimbursement and counter-indemnity
obligations with respect to letters of credit and similar
instruments;
(d) obligations under leases which have been or should be, in
accordance with accounting principles generally accepted in the
United Kingdom, recorded as capital leases;
(e) any liability under any debenture, bond, note, loan stock
commercial paper or other similar debt security or under any
acceptance credit or note purchase facility;
(f) any net liability under any agreement relating to an interest or
currency swap, or any other hedging or derivative agreement taking
into account any permitted netting of obligations;
(g) obligations and liabilities of others at any time secured by an
Encumbrance over any property or asset of such person;
(h) liabilities under arrangements entered into primarily as a method
of raising finance but not shown as a borrowing on any balance
sheet by reason of being contingent, conditional or otherwise; and
(i) (without double counting) any guarantee, indemnity or similar
assurance against financial loss in respect of the obligation of
any person in respect of any Financial Indebtedness of the kind
described in paragraphs (a) to (h) above.
"FINISHED GOODS" means, at any time, any finished goods of the Company
at such time which are located in England and Wales (or elsewhere as
Burdale may, in its sole discretion, specify to the Company).
"FINISHED GOODS AVAILABILITY" means the Finished Goods Percentage of
the Net Stock Value of Eligible Finished Goods as at the date of
calculation.
"FINISHED GOODS PERCENTAGE" means 0%.
"FOREIGN CURRENCY" means any currency other than Sterling which is
freely available and transferable.
"FOREX EXPOSURE" in relation to any unmatured Forex Transaction means
the Forex Percentage of such transaction.
"FOREX LIMIT" means (pound)nil.
"FOREX PERCENTAGE" means:
<PAGE>
(a) 10% in relation to Euro and United States Dollars; and
(b) 20% in relation to all other currencies,
or in each case, such higher percentage determined by Burdale having
regard to the nature of the currencies involved in any Forex
Transaction.
"FOREX REQUEST" means a request for a Utilisation of the Revolving
Credit Facility for the sale or purchase of a Foreign Currency
substantially in the form set out in Schedule 2 Part IV.
"FOREX TRANSACTION" means a foreign exchange transaction entered into
as a Utilisation of the Revolving Credit Facility.
"GAAP" means accounting principles, standards and practices generally
accepted in the United Kingdom as in effect from time to time.
"GOODS" means all produce and goods which are the subject of a purchase
by the Company and in respect of which any L/C has been issued.
"GUARANTEE" means the guarantee executed or to be executed by the
Guarantor in favour Burdale with respect to the obligations of the
Company to Burdale.
"GUARANTOR" means The Cerplex Group, Inc., a company incorporated under
the laws of Delaware, U.S.A.
"ICTA" means the Income and Corporation Taxes Act 1988.
"INELIGIBLE RECEIVABLES" means any Receivable:
(a) which does not arise from the actual and bona fide sale and
delivery of goods by the Company or rendering of services by the
Company in the ordinary course of its business which transactions
are completed in accordance with the terms and provisions
contained in any documents relating to such transactions;
(b) which remains fully or partly unpaid after its Maturity Date or
such longer period as may be agreed by Burdale;
(c) owing by a single Account Debtor if Receivables representing 50%
or more of the aggregate balance owing by such Account Debtor to
the Company are not Eligible Receivables by reason of the
operation of paragraph (b) above;
(d) with respect to which the Account Debtor is a director, officer,
employee, Subsidiary or affiliate of the Company;
(e) with respect to which the Account Debtor has or has asserted a
counterclaim or has a right of set off, to the extent of such
counterclaim or set off;
(f) with respect to which Burdale does not have a valid, equitable
assignment under the Finance Documents;
<PAGE>
(g) as to which performance has not been completed by the Company or
as to which all goods and services in connection with such
Receivable have not been delivered to or performed for the Account
Debtor or which has not been invoiced or is not fully assignable;
(h) with respect to which the Account Debtor is the subject of any
bankruptcy or insolvency proceeding in any jurisdiction or has
made an assignment for the benefit of creditors or whose assets
have been conveyed to a receiver, administrator, trustee or other
insolvency official;
(i) with respect to which the Account Debtor's obligation to pay the
Receivable is conditional upon the Account Debtor's approval or is
otherwise subject to any repurchase obligation or right of return,
as with sales made on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval (except with respect to
Receivables in connection with which Account Debtors are entitled
to return goods on the basis of the quality of those goods) or
consignment basis;
(j) with respect to which any of the representations and warranties
contained in Clause 8.4 proves to be incorrect in any respect;
(k) owed by an Account Debtor incorporated or resident outside the
United Kingdom, unless such Receivable is subject to valid and
enforceable credit insurance payable to Burdale issued by an
insurer on terms and in an amount acceptable to Burdale as
determined by it in good faith and the aggregate invoice values
owed by that relevant Account Debtor are within the insured limit;
(l) owed by an Account Debtor whose total indebtedness to the Company,
as determined by the Company in good faith, exceeds any credit
limit set by Burdale from time to time with respect to that
Account Debtor to the extent such Receivable breaches that credit
limit provided that any reduction in the credit limit as to a
particular Account Debtor will not cause any Receivables owing by
that Account Debtor as of the date of such reduction not to
qualify as Eligible Receivables;
(m) where there are proceedings or actions which are threatened or
pending against the Account Debtors with respect to such Accounts
which would result in any material adverse change in any such
Account Debtor's financial condition;
(n) where there are facts, events or occurrences which would impair
the validity, enforceability or collectability of that Receivable
or of reducing the amount payable or delaying payment of that
Receivable.
"INELIGIBLE STOCK" means, at any time, in relation to respectively
Finished Goods or Raw Stock, any Finished Goods or Raw Stock which:
<PAGE>
(a) are obsolete, slow-moving, not in good condition or not currently
usable or saleable in the ordinary course of the Company's
business;
(b) are held at third party premises but not held subject to
Warehouseman Association standard agreement;
(c) constitute materials over which Burdale does not have a valid
first ranking fixed or floating charge under the Debenture;
(d) constitute Finished Goods, raw materials or unfinished goods with
respect to which any of the warranties in this Agreement in
relation to Stock proves to be incorrect in any material respect;
(e) constitute consumables used in the Company's business or
constitutes packaging or shipping materials;
(f) constitute returned, damaged or defective materials;
(g) are held by the Company as consignee for a third party;
(h) are not the property of the Company by virtue of retention of
title or Romalpa provisions in favour of any person;
(i) are spare parts, scrap or only semi-finished or otherwise
constitutes work-in-progress;
(j) are in transit outside the Property or such other property as is
owned and controlled by the Company or any other Corporate Obligor
except in cases where they are (i) in transit by the Company or by
a courier on its behalf from one Property to another Property and
the aggregate value of such Finished Goods or such Raw Stock does
not at any time exceed the sum of(pound)10,000 or (ii) in transit
to the Company and Burdale has in its possession all originals of
the bills of lading or other documents of title with respect to
such Finished Goods or such Raw Stock and has received all such
agreements as Burdale requires in order to perfect first ranking
fixed or floating security in such Finished Goods or such Raw
Stock and to obtain possession of such Finished Goods or such Raw
Stock from any third party having possession of the same; or
(k) are determined in good faith by Burdale as being unsuitable for
forming the basis of a lending decision as a result of any change
in or introduction of or change in the interpretation or
application of any law, regulation, treaty or official directive
or official request having the force of law.
"INITIAL VALUATION" means the Valuation of the Mortgaged Property
carried out by a valuer appointed by Burdale prior to today's date.
"INTEREST ADVANCE" is defined in Clause 10.2(f).
"INTEREST RATE" means the aggregate of LIBOR and 2.5% per annum.
<PAGE>
"L/CS" means letters of credit, merchandise purchase or other
guarantees which are from time to time either (a) issued or opened by
Burdale for the account of the Company or (b) with respect to which
Burdale has agreed to indemnify the issuer or guaranteed to the issuer
the performance by the Company of its obligations to such issuer.
"L/C EXPOSURE" in relation to any L/C means:
(a) if the proposed L/C is by way of a letter of credit and for the
purpose of purchasing Eligible Stock:
(i) the face amount of the L/C; LESS
(ii) the Raw Stock Percentage or the Finished Goods Percentage
(depending on the nature of the goods) TIMES the cost of such
Eligible Stock for which such L/C was drawn; PLUS
(iii) freight, taxes, duty and other amounts which Burdale estimates
must be paid in connection with such Stock upon arrival and for
delivery to one of the Company's locations for Eligible Stock
within the United Kingdom; and
(b) if the proposed L/C is for any other purpose an amount equal to
100% of the face amount of such L/C and all other commitments and
obligations made or incurred by Burdale with respect to such L/C.
"L/C LIMIT" means (pound)nil.
"L/C REQUEST" means a request for a Utilisation of the Revolving Credit
Facility by way of the issue of an L/C in substantially the form set
out in Schedule 2 Part III.
"LIBOR" means:
(a) the thirty day LIBOR sterling rate quoted on the first Business
Day of each month in the Financial Times, London edition as
conclusively determined by Burdale; or
(b) (if for any reason the Financial Times, London edition ceases or
fails to quote such a rate) Burdale's cost of funds from whatever
source it may reasonably request.
"LOAN" means:
(a) when designated "PROPERTY", the principal amount of the borrowing
under this Agreement from the Property Loan Facility as reduced
by repayment or prepayment from time to time;
(b) when designated "REVOLVING", the principal amount of each
borrowing under this Agreement from the Revolving Credit Facility
(including all deemed drawings of Revolving Loans pursuant to
Clause 5.6) as reduced by repayment or prepayment from time to
time; and
<PAGE>
(c) without any such designation, the Property Loan or a Revolving
Loan as the context requires, and "LOANS" without any further
designation means some or all of the Property Loan and/or the
Revolving Loans as the context requires.
"MATERIAL ADVERSE EFFECT" means an effect that results in or causes, or
has a reasonable likelihood of resulting in or causing, a material
adverse change in any of:
(a) the business, performance, operations or properties of the
Corporate Obligors taken either individually or as a whole;
and/or
(b) the legality, validity or enforceability of any Finance Document;
and/or
(c) the perfection or priority of the Encumbrances granted to Burdale
under the Finance Documents; and/or
(d) the ability of any Obligor to perform its respective obligations
under any of the Finance Documents; and/or
(e) the rights and remedies of Burdale under any Finance Document.
"MATURITY DATE" means in respect of any Receivable the Business Day
which is, or immediately succeeds the earlier of (i) the date which is
60 past the due date for payment of the Receivable and (ii) the date
which is 90 days after the date of the invoice in respect of such
Receivable.
"MORTGAGED PROPERTY" means any Property which is from time to time
charged in favour of Burdale by way of a first legal mortgage.
"NET STOCK VALUE" means the net value of Stock as determined by the
Company in accordance with its customary practices and procedures (as
disclosed to Burdale prior to the date of this Agreement and as the same
may be varied from time to time with Burdale's written consent) and
advised to Burdale from time to time.
"OBLIGOR" means the Company and any other person (other than the
Guarantor) who guarantees and/or grants security for any of the
Company's indebtedness or other obligations to Burdale at any time.
"OTHER ACCOUNTS" means the bank accounts of the Corporate Obligors
specified as Other Accounts in the Debenture and/or such other bank
accounts of the Corporate Obligors with Account Banks as Burdale may
permit.
"OUTSTANDING PURCHASE PRICE" means the aggregate from time to time of
the Purchase Prices of Eligible Receivables paid to the Company in
respect of which Burdale has not received payment from the relevant
Account Debtor or the Company.
"PAYMENT ACCOUNT" means such account in the name of Burdale, as may be
notified to the Company by Burdale from time to time.
<PAGE>
"PROPERTY" means the Corporate Obligors' freehold, leasehold and rented
premises and land from time to time, wherever situated and in any
jurisdiction.
"PROPERTY LOAN FACILITY" is defined in Clause 3.1.
"PURCHASE COMMISSION" is defined in Clause 7.4.
"PURCHASE DATE" in relation to a Purchased Receivable means the date of
delivery of a Purchase Request by the Company with respect to such
Purchased Receivable.
"PURCHASE PRICE" means the purchase price to be paid by Burdale for
Purchased Receivables being 80% of the face value of each Eligible
Receivable to be purchased under the Receivables Finance Facility less
maximum discounts, credits and allowances of any nature which may be
taken by or granted to any Account Debtor or other person in connection
with such Eligible Receivable (all as determined by Burdale in
accordance with Clause 5.1(c)).
"PURCHASE REQUEST" means a Request for a Utilisation of the Receivables
Finance Facility in substantially the form set out in Schedule 2 Part I.
"PURCHASED RECEIVABLE" means a Receivable purchased or agreed to be
purchased by Burdale from the Company in accordance with the terms of
this Agreement as evidenced by an invoice rendered by the Company to the
relevant Account Debtor.
"QUALIFYING LENDER" means:
(a) a bank as defined in Section 840 of ICTA which, for the purposes
of Section 349 of ICTA, is within the charge to United Kingdom
corporation tax as regards any interest received by it under the
Finance Documents, but if that section is amended or repealed
Burdale shall have power after consultation with the Company, to
amend this paragraph of this definition in such manner as it may
reasonably determine to ensure that the new definition achieves,
to the extent possible, the same purposes as the current
definition (which amendments shall be binding on Burdale and the
Company); or
(b) a bank, financial institution or other lender which is entitled
to the benefit of a provision in a Double Taxation Treaty giving
exemption from United Kingdom taxation on interest which does not
carry on business in the United Kingdom through a permanent
establishment with which the indebtedness under the Finance
Document in respect of which the interest is paid is effectively
connected.
"RAW STOCK" means at any time any raw materials of the Company at such
time which are located in England and Wales (or elsewhere as Burdale
may, in its sole discretion, specify to the Company).
"RAW STOCK AVAILABILITY" means the Raw Stock Percentage of the Net
Stock Value of Eligible Raw Stock as at the date of calculation.
<PAGE>
"RAW STOCK PERCENTAGE" means 0%.
"RECEIVABLE" means, at any time, the aggregate present and future
obligations of an Account Debtor of the Company for the payment of
money to the Company at such time together with all connected rights,
claims, deposits and payments.
"RECEIVABLES FINANCE FACILITY" is defined in Clause 3.1.
"RECEIVABLES INFORMATION" means the information regarding Receivables
provided to Burdale pursuant to Clause 8.
"RECEIVABLES LIMIT" means (pound)2,000,000.
"RECEIVER" is defined in the Debenture.
"REQUEST" means a request substantially in the form set out in the
relevant Part of Schedule 2 for a Utilisation of one of the Facilities.
"REQUIRED DEDUCTION" is defined in Clause 10.2(f).
"REVOLVING CREDIT FACILITY" is defined in Clause 3.1.
"REVOLVING CREDIT LIMIT" means (pound)nil.
"STERLING" and "(pound)" means the lawful currency for the time being
of the United Kingdom.
"STOCK" means the Company's stock and inventory at any time which, for
the avoidance of doubt, includes Eligible Stock and any other finished
goods, raw materials or unfinished goods.
"SUBSIDIARY" has the meaning given to that term by Section 736 of the
Companies Act 1985 and includes a "Subsidiary Undertaking" as defined
in Section 258 of the Companies Act 1985 (inserted by Section 21 of the
Companies Act 1989).
"TAXES" includes all present and future income and other taxes, levies,
assessments, deductions, charges and withholdings of whatever nature
together with interest, additions to tax, penalties and fines in
relation to such items and "TAX" and "TAXATION" will be construed
accordingly.
"TOTAL STOCK AVAILABILITY" means at any time the lesser of (i)
(pound)nil and (ii) the Raw Stock Availability plus the Finished Goods
Availability at such time.
"UTILISATION" means a utilisation of a Facility under this Agreement
(with the delivery of a Purchase Request and the payment of Purchase
Price by Burdale pursuant to a Cash Request constituting separate
Utilisations of the Receivables Finance Facility).
"UTILISATION DATE" in relation to a Utilisation means the date on which
such Utilisation is made (being in relation to any Utilisation of the
Receivables Finance Facility, both the
<PAGE>
Purchase Date and the date on which any payment of Purchase Price is
made to the Company pursuant to a Cash Request).
"VALUATION" means a valuation of the Mortgaged Property (including the
Initial Valuation) carried out by a valuer appointed by Burdale on the
basis of estimated restricted realisation value as defined in the then
current Statements of Asset Valuation and Practice and Guidance Notes
issued by the Royal Institution of Chartered Surveyors.
"VAT" means Value Added Tax imposed in the United Kingdom and any
equivalent tax applicable in any European jurisdiction.
1.2 CONSTRUCTION
(a) In this Agreement, unless the contrary intention appears, a
reference to:
(i) "ASSETS" includes properties, revenues and rights of every
description, both present and future;
(ii) an "AUTHORISATION" or a "CONSENT" includes an approval,
authorisation, consent, exemption, filing, licence,
registration and resolution, in each case given or made in
writing;
(iii) financial statements or accounts includes the notes to
such statements or accounts;
(iv) a "MONTH" means a calendar month starting on any day;
(v) a "REGULATION" includes any directive, guideline,
regulation, request or rule (whether or not having the
force of law) of any governmental agency, body, department
or other regulatory or self-regulatory authority;
(vi) an enactment (be it express or implied) includes
references to any amendment, re-enactment, and/or
legislation subordinate to that enactment and/or any
permission of whatever kind given under that enactment;
(vii) a Finance Document or other document is a reference to
that Finance Document or other document as amended,
novated, supplemented or replaced (in whole or in part);
(viii) a "PERSON" includes any individual, company, corporation,
partnership, firm, joint venture, association,
organisation, trust, state or state agency (in each case
whether or not having separate legal personality);
(ix) any party or person includes any person deriving title
from it and any successor, transferee and assignee;
(x) a time of day is a reference to London time; and
(xi) Clauses and Schedules are to the clauses of and schedules
to this Agreement.
<PAGE>
(b) Unless the contrary intention appears, a term used in any other
Finance Document or in any notice relating to any Finance
Document has the same meaning in that Finance Document or notice
as in this Agreement.
(c) The headings in this Agreement do not affect its interpretation.
(d) Save where the context requires otherwise, words in the singular
shall import the plural and vice-versa.
2. CONDITIONS PRECEDENT
2.1 DOCUMENTARY CONDITIONS
(a) Subject to Clause (b) below, the obligations of Burdale to the
Company under this Agreement are subject to the condition
precedent that Burdale shall have received all of the documents
and evidence specified in Schedule 1 in a form and substance
satisfactory to it.
(b) The obligations of Burdale to the Company under the Property Loan
Facility are subject to the further condition precedent that
Burdale shall have received all of the documents and evidence
specified in Schedule 1 Part II in a form and substance
satisfactory to it.
2.2 FURTHER CONDITIONS
The obligations of Burdale in respect of any Utilisation are subject to
the further conditions precedent that both on the date of the relevant
Request and the proposed Utilisation Date:
(a) the representations and warranties set out in Clauses 8 and 13 to
be repeated on such dates are true and correct; and
(b) no Default has occurred and remains outstanding or would result
from the making of such Utilisation.
3. THE FACILITY
3.1 AVAILABLE FACILITIES
Subject to the terms of this Agreement and in reliance on the
representations and warranties set out in Clauses 8 and 13, Burdale
agrees to make available to the Company the following facilities:
(a) a Receivables Finance Facility pursuant to which Burdale will
from time to time during the Purchase Availability Period
purchase Receivables from the Company (the "RECEIVABLES FINANCE
FACILITY");
<PAGE>
(b) a revolving credit facility pursuant to which Burdale will during
the Revolving Availability Period (i) make Revolving Loans to the
Company up to the Total Stock Availability (ii) issue, or procure
the issue of, L/Cs for the account of the Company and (iii) buy
or sell Foreign Currency spot and/or for delivery at a future
date on behalf of the Company (the "REVOLVING CREDIT
FACILITY");and
(c) a term loan facility pursuant to which Burdale will make a single
Property Loan denominated in Sterling to the Company of up to the
lesser of 75% of the Initial Valuation of the Mortgaged Property
and (pound)2,200,000 during the Term Availability Period (the
"PROPERTY LOAN FACILITY").
3.2 PURPOSE
The Company will use the Facilities only for its general operating,
U.K. working capital and other proper corporate purposes and always in
a manner which is not inconsistent with the Finance Documents. Without
affecting the obligations of the Company in any way, Burdale is not
obliged to monitor or verify the application of the Facilities.
4. RESTRICTIONS ON UTILISATIONS
4.1 TERM LOAN
The Property Loan Facility must be drawn down in full in one amount
prior to the expiry of the Term Availability Period.
4.2 REVOLVING LOANS
No Cash Request may be delivered which would involve the drawing of a
Revolving Loan unless at the time of delivery either (a) the
Receivables Finance Facility is or would be following the delivery of
such Cash Request being utilised up to the Receivables Limit or (b) the
Company has no Receivables with which to utilise the Receivables
Finance Facility.
4.3 LETTERS OF CREDIT
No Request may be delivered for an L/C to be issued pursuant to the
Revolving Credit Facility unless and until the form of L/C has been
approved by Burdale, the relevant issuer and the proposed beneficiary
of such L/C.
4.4 OVERALL LIMIT
The aggregate amount of:
(a) the Property Loan;
(b) all Revolving Loans;
(c) Outstanding Purchase Price;
<PAGE>
(d) all L/C Exposures; and
(e) all Forex Exposures,
shall not at any time exceed the Facility Limit.
4.5 SPECIFIC LIMITS
(a) RECEIVABLES FINANCE FACILITY: The Outstanding Purchase Price
shall not at any time exceed the Receivables Limit.
(b) REVOLVING CREDIT FACILITY: The aggregate amount of:
(i) all Revolving Loans;
(ii) all L/C Exposures; and
(iii) all Forex Exposures,
shall not at any time exceed the Total Stock Availability at such
time.
(c) L/C UTILISATIONS: The aggregate amount of all L/C Exposures shall
not at any time exceed the L/C Limit.
(d) FOREIGN EXCHANGE UTILISATIONS: The aggregate amount of all Forex
Exposures shall not at any time exceed the Forex Limit.
(e) AVAILABILITY: The aggregate amount of:
(i) Outstanding Purchase Price;
(ii) all Revolving Loans;
(iii) all L/C Exposures; and
(iv) all Forex Exposures,
shall not at any time exceed the sum of:
(1) 80% of the face value of the Eligible Receivables
less maximum discounts, credits and allowances of
any nature which may be taken by or granted to any
Account Debtor or any other person in connection
with the Eligible Receivables; PLUS
(2) the Total Stock Availability; LESS
(3) the amount of Availability Reserves established by
Burdale,
at such time.
<PAGE>
4.6 PROHIBITION
No Utilisation may be made by the Company which would cause the
provisions of this Clause 4 to be breached.
4.7 AVAILABILITY LIMITS
Burdale will compute the Availability Limits from time to time and at
such intervals as it may, at its sole discretion, choose and will, upon
being requested by the Company in writing, inform the Company of any
change in any Availability Limit and the reason for any such change.
For the avoidance of doubt, Burdale may, in its discretion, from time
to time, upon not less than five days prior notice to the Company:
(a) reduce the Purchase Price to the extent that Burdale determines
in good faith that the Dilution Rate has increased;
(b) reduce the Total Stock Availability (or any component of it) to
the extent that Burdale determines that:
(i) the number of days of the turnover of the Stock for any
period has changed in any material respect; or
(ii) the liquidation value of the Eligible Stock, or any
category of Eligible Stock, has decreased; or
(iii) the nature and quality of the Stock has deteriorated; and
(c) adjust any Availability Limit to take account of:
(i) seasonality with respect to Stock and patterns of sales;
or
(ii) any reduction in the Facility Limit pursuant to Clause
6.7.
Any determination by Burdale of an Availability Limit at any time will
(save in the case of manifest error) be conclusive and binding on the
Company but any such determination may at any time at Burdale's
discretion (upon Burdale giving written notice simultaneously to the
Company) be amended, qualified or superseded by a further such
determination.
4.8 BURDALE'S RIGHTS NOT AFFECTED
In the event that the aggregate amount of Loans, Outstanding Purchase
Price, L/C Exposures and/or Forex Exposures exceeds the amounts
available under the lending formulas, the relevant Availability
Limit(s) or the Facility Limit, as applicable, such event shall not
limit, waive or otherwise affect any rights or Burdale in that
circumstance or on any future occasions and the Company shall, upon
demand by Burdale, which may be made at any time or from time to time,
immediately repay to Burdale the entire
<PAGE>
amount of any such excess(es) for which payment is demanded and such
amount shall be applied by Burdale so as to reduce such excess(es).
4.9 COMPANY'S LOAN ACCOUNT(S)
Burdale will maintain one or more loan accounts, receivable accounts
and foreign exchange accounts on its books in which will be recorded
(a) all Loans, all Utilisations of the Receivables Finance Facility,
all Utilisations of the Revolving Credit Facility and other liabilities
of the Company pursuant to the Finance Documents and details of the
Collateral, (b) all payments made by or on behalf of the Company and
(c) all other appropriate debits and credits as provided in this
Agreement, including, without limitation, fees, charges, costs,
expenses and interest. All entries in such account(s) shall be made in
accordance with Burdale's customary practices as in effect from time to
time.
4.10 STATEMENTS
Burdale will render to the Company each month a statement setting forth
the balance in the Company's loan account, receivables accounts and
foreign exchange accounts maintained by Burdale for the Company
pursuant to the provisions of this Agreement, including principal,
commission, interest, fees, costs and expenses. Each such statement may
be subject to subsequent adjustment by Burdale but shall, in the
absence of manifest error or omission, be considered correct and deemed
accepted by the Company and will be conclusively binding upon the
Company as an account stated except to the extent that Burdale receives
a written notice from the Company of any specific exception of the
Company within 30 days after the date such statement has been mailed by
Burdale. Until such times as Burdale has rendered to the Company a
written statement as provided above, the balance in the Company's loan
accounts, invoice discount accounts and foreign exchange accounts will
be prima facie evidence of the amounts due and owing to Burdale by the
Company.
5. UTILISATION OF FACILITIES
5.1 AVAILABILITY OF RECEIVABLES FINANCE FACILITY
(a) Subject to the terms of this Agreement, the Company shall offer
to sell its Receivables to Burdale by delivering to Burdale from
time to time duly completed Purchase Requests (together with all
deeds and documents referred to in such Purchase Request),
delivery of which shall oblige the Company to sell the
Receivables stated in such Purchase Request upon the terms and
subject to the conditions of this Agreement.
(b) A Purchase Request will not be regarded as having been duly
completed unless it is in substantially the form set out in
Schedule 2 Part I.
(c) As soon as reasonably practicable following delivery of a
Purchase Request, Burdale shall determine the Purchase Price for
the Receivables specified in such Purchase Request and will, upon
being requested by the Company, advise the Company of such
determination.
<PAGE>
5.2 UTILISATION OF RECEIVABLES FINANCE FACILITY AND REVOLVING CREDIT
FACILITY
(a) Subject to the terms of this Agreement, the Company may from time
to time request that Burdale pay sums to the Company of up to the
aggregate of (a) the amount of any unpaid Purchase Price and (b)
the amount available for drawing by way of Revolving Loan, by
delivering a duly completed Cash Request to Burdale not later
than 11.00 a.m. on the proposed Utilisation Date for such
payment.
(b) A Cash Request will not be regarded as having been duly completed
unless it is in substantially the form set out in Schedule 2 Part
II and, in particular, specifies:
(i) the proposed Utilisation Date, being a Business Day
falling during the Purchase Availability Period and/or the
Revolving Availability Period (as the case may be);
(ii) the amount of the sum to be paid by Burdale which must be
less than or equal to the aggregate of unpaid Purchase
Price and the amount available for drawing by way of
Revolving Loan; and
(iii) if not already notified to Burdale, the details of the
Other Account into which the payment is to be made on the
Utilisation Date.
(c) Payments made by Burdale pursuant to a Cash Request shall be
deemed to be first payments of any unpaid Purchase Price to the
full extent of such unpaid Purchase Price and second, to the
extent of any surplus, to be the drawing of a Revolving Loan.
(d) Burdale's obligation to pay the Purchase Price of any Receivable
(or any unpaid portion of it as the case may be) shall be
terminated on the earlier of the Actual Day of Payment and the
Maturity Date of such Receivable.
5.3 L/C UTILISATIONS
(a) Subject to the terms of this Agreement, the Company may request
the issue of an L/C by delivering a duly completed L/C Request to
Burdale not later than 11.00 a.m. at least one Business Day
before the proposed Utilisation Date for that L/C.
(b) An L/C Request will not be regarded as having been duly completed
unless it is substantially in the form attached in Schedule 2
Part III and, in particular, specifies:
(i) the proposed Utilisation Date, being a Business Day
falling during the Revolving Availability Period;
(ii) the amount of the L/C required, the L/C Exposure of which
must be equal to or less than the undrawn/unutilised
amount of the Revolving Credit Facility and within the
relevant Availability Limits as at the proposed
Utilisation Date;
<PAGE>
(iii) if not already notified to Burdale, the details of the
beneficiary, payee or addressee of such L/C.
5.4 GENERAL PROVISIONS REGARDING L/CS
(a) Nothing in this Agreement shall be deemed or construed to grant
the Company any right or authority to pledge the credit of
Burdale in any manner. Burdale shall have no liability of any
kind with respect to any L/C provided by an issuer other than
Burdale unless Burdale has duly executed and delivered to such
issuer the application or a guarantee or indemnification in
writing with respect to such L/C. The Company shall be bound by
an interpretation made in good faith by Burdale, or any other
issuer or correspondent under or in connection with any L/C or
any documents, drafts or acceptances in relation to any L/C,
notwithstanding that such interpretation may be inconsistent with
any instructions of the Company. Burdale shall have the sole and
exclusive right and authority to, and the Company shall not:
(i) at any time an Event of Default exists or has occurred and
is continuing:
(1) approve or resolve any questions of non-compliance
of documents;
(2) give any instructions as to acceptance or rejection
of any documents or goods; or
(3) execute any and all applications for steamship or
airway guarantees, indemnities or delivery orders
and at all times;
(ii) at any time:
(1) grant any extensions of the maturity of, time of
payment for, or time of presentation of, any drafts,
acceptances, or documents; and
(2) agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of
the terms or conditions of any of the applications,
L/Cs, or documents, drafts or acceptances in
relation to any L/C or any letters of credit
included in the Collateral. Burdale may take such
actions either in its own name or in the Company's
name.
(b) Any rights, remedies, duties or obligations granted or undertaken
by the Company to any issuer or correspondent in any application
for any L/C, or any other agreement in favour of any issuer or
correspondence relating to any L/C, shall be deemed to have been
granted or undertaken by the Company to Burdale. Any duties or
obligations undertaken by Burdale to any issuer or correspondence
in any application for any L/C, or any other agreement by Burdale
in favour of any issuer or correspondence relating to any L/C,
shall be deemed to have been undertaken by the Company to Burdale
and to apply in all respects to the Company.
<PAGE>
(c) None of Burdale, any L/C issuer (or any of their respective
correspondents) or any advising, negotiating or paying bank with
respect to any L/C shall be responsible in any way for:
(i) the performance by any beneficiary under any L/C of that
beneficiary's obligations to the Company; or
(ii) the form, sufficiency, correctness, genuineness, authority
of any person signing or the legal effect of any documents
called for under any L/C if such documents appear on their
face to be in order.
5.5 FOREX UTILISATIONS
(a) Subject to the terms of this Agreement, the Company may request a
Utilisation of the Revolving Credit Facility by way of the sale
or purchase of Foreign Currency by delivering a duly completed
Forex Request to Burdale not later than 11.00 a.m. at least five
Business Days before the proposed date of the contract for the
sale or purchase of Foreign Currency.
(b) A Forex Request will not be regarded as having been duly
completed unless it is in substantially the form set out in
Schedule 2 Part IV and, in particular, specifies:
(i) the proposed date of effect of the sale or purchase of
Foreign Currency being a Business Day falling during the
Revolving Availability Period; and
(ii) the value of the contract for the sale or purchase of
Foreign Currency required and the Foreign Currency
required to be purchased which must be such that the Forex
Exposure with respect to such Utilisation when aggregated
with all other Forex Exposures is equal to or less than
the Forex Limit as at the proposed Utilisation Date and,
the value of the transaction must be in a minimum amount
of (pound)10,000 or a higher integral multiple of
(pound)5,000 or in such other amount as Burdale may in
writing agree as calculated at the Exchange Rate on the
date or calculation.
5.6 DEEMED LOANS
All payments made by Burdale:
(a) in accordance with the terms of any L/C or any guarantee or
indemnity given by Burdale to the issuer of any L/C (as the case
may be); and
(b) on the maturity of any Forex Transaction,
shall be deemed to be Revolving Loans to the Company in an amount equal
to such payment, drawn down on the date of such payment and subject to
the provisions of this Agreement with respect to Revolving Loans
(including, without limitation, as to interest and repayment).
<PAGE>
5.7 TERM LOAN
(a) Subject to the terms of this Agreement, the Company may request
that the Property Loan be made to it by delivering a duly
completed Request to Burdale not later than 11.00 a.m. on the
proposed Utilisation Date of such Loan.
(b) A Request for the Property Loan will not be regarded as having
been duly completed unless it is in substantially the form set
out in Schedule 2 Part V and, in particular, specifies:
(i) the proposed Utilisation Date, being a Business Day
falling during the Term Availability Period;
(ii) the amount of the Loan which must be equal to or less than
the undrawn amount of the Property Loan Facility and
within the relevant Availability Limits as at the proposed
Utilisation Date;
(iii) if not already notified to Burdale, the details of the
Other Account into which the proceeds of the Loan are to
be paid on the Utilisation Date.
6. REPAYMENT AND PREPAYMENT
6.1 RECEIVABLES FINANCE FACILITY
(a) If in relation to a Purchased Receivable Burdale determines on
the Maturity Date in respect of such Purchased Receivable that it
has not received payment in accordance with Clause 9.1 of the
full amount of such Purchased Receivable, the Company shall, on
demand by Burdale pay to Burdale an amount equal to the
Outstanding Purchase Price of such Purchased Receivable for which
payment has not been received PROVIDED THAT this provision shall
not restrict (nor oblige) Burdale in any way in or from pursuing
and obtaining payment in respect of such Purchased Receivable
from the Account Debtors or otherwise (which payment shall be
made into the Blocked Account) and the Company undertakes that it
will do all such reasonable acts or things necessary or desirable
to help Burdale in pursuing and obtaining such payment.
(b) Burdale shall be entitled to deduct from payments made by Account
Debtors and/or the Company into the Blocked Account in respect of
Purchased Receivables the then Outstanding Purchase Price in
respect of such Purchased Receivables and the balance remaining
after such deduction shall be applied in accordance with Clause
6.2.
6.2 OTHER UTILISATIONS
Subject as provided below all amounts standing to the credit of the
Blocked Account from time to time following the deductions referred to
in Clause 6.1(b) shall be applied as follows:
<PAGE>
(a) FIRST in repayment of the outstanding principal amount of any
Revolving Loans;
(b) SECOND in or towards satisfaction of any amount of principal due
to be made pursuant to Clauses 6.5 or 6.6;
(c) THIRD in payment of any fees, costs and expenses due from the
Company to Burdale under the Finance Documents;
(d) FOURTH in payment of (i) all amounts of interest due on the Loans
(including any deemed Revolving Loans pursuant to Clause 5.6)
(ii) all Interest Advances and (iii) all Purchase Commission (or
in making provision for Purchase Commission which will fall due
for payment on the last Business Day of the current calendar
month);
(e) FIFTH in or towards satisfaction of any other payment obligation
of the Company under the Finance Documents; and
(f) SIXTH to the Company by way of payment into such Other Account as
the Company may specify to Burdale in writing from time to time.
Notwithstanding the above, at all times following the occurrence of an
Event of Default and whilst the same is continuing, amounts standing to
the credit of the Blocked Account shall be applied to such of the
liabilities of the Company under the Finance Documents and in such
order as Burdale may in its absolute discretion determine.
6.3 REUTILISATION
(a) RECEIVABLES FINANCE FACILITY: Subject to the terms of this
Agreement, all amounts of Outstanding Purchase Price recovered
and paid to Burdale, may, subject to the terms of this Agreement,
be reutilised as Utilisations of the Receivables Finance
Facility.
(b) REVOLVING CREDIT FACILITY: Subject to the terms of this
Agreement, all Revolving Loans repaid and all amounts recovered
and paid to Burdale in relation to L/Cs and Forex Transactions,
may, subject to the terms of this Agreement, be redrawn or
reutilised as Utilisations of the Revolving Credit Facility.
6.4 PREPAYMENT - REVOLVING CREDIT/RECEIVABLES FINANCE
If at any time the outstanding Utilisations or any part of them cause
any Availability Limit to be exceeded then the Company will immediately
repay such amount of the Revolving Loans together with cash collateral
in respect of Outstanding Purchase Price and/or any contingent
obligation of Burdale in relation to any L/C or other Utilisation, by
payment into the Payment Account together with interest on the
Revolving Loans, to the extent required to ensure compliance with that
Availability Limit and, until such time as that Availability Limit is
no longer breached, no further Utilisations may be requested
(including, for the avoidance of doubt, pursuant to a Cash Request) or
will, at Burdale's option, be made or issued.
<PAGE>
6.5 REPAYMENT OF TERM LOAN
Subject to Clause 6.6, the Company shall repay the Property Loan in
full by equal monthly instalments on the basis of a 48 month
amortisation on the first day of each month commencing on the first day
of the month following drawdown of the Property Loan and shall pay the
then outstanding Property Loan in full on the Final Repayment Date.
6.6 PREPAYMENT - TERM LOAN
(a) PROPERTY LOAN: The Company shall ensure that the Property Loan
shall at all times be less than or equal to 75% of the estimated
restricted realisation value of the Mortgaged Property as
determined in accordance with the then most recent Valuation and
shall from time to time on demand by Burdale prepay such amount
of the Property Loan as may be required to ensure compliance with
this Clause 6.6(a).
(b) REDUCTIONS: Any prepayment of the Property Loan shall be applied
against the repayment instalments specified in Clause 6.5 in
reverse order of maturity.
6.7 REDUCTION OF FACILITY LIMIT
At the request of the Company by giving not less than ten Business
Day's prior written notice to Burdale, the Facility Limit may from time
to time be reduced provided that on or before the effective date for
such reduction the Company shall pay to Burdale:
(a) such amount as may be necessary in prepayment of the Loans and/or
as cash collateral for Outstanding Purchase Price and/or
Burdale's contingent obligations under any issued L/C or
unmatured Forex Transaction to ensure that the Company remains in
compliance with the Availability Limits (as adjusted to take
account of such reduction in the Facility Limit pursuant to
Clause 4.7); and
(b) (subject to paragraph (c) below) a fee calculated by applying to
the amount of the reduction the applicable percentage set out in
column (2) below:
<TABLE>
<CAPTION>
(1) (2)
DATE OF REDUCTION APPLICABLE PERCENTAGE
<S> <C>
On or before the first anniversary of the 2%
first Utilisation Date
After the first but on or before the second 1.5%
anniversary of the first Utilisation Date
</TABLE>
(c) in the event that the Company prepays the Property Loan in full
on or before 30 June 2000, the Company may (at the same time as
it makes such prepayment) request that the Facility Limit be
reduced by an amount not exceeding the amount
<PAGE>
of the Property Loan Facility without incurring the fee referred
to in paragraph (b) above with respect to such reduction.
Any exercise by Burdale of its rights under Clause 15.2(b) and/or 15.3
and/or the operation of Clause 12.1 shall be deemed for the purposes of
paragraph (b) above to be a reduction in the Facility Limit in an
amount equal to the amount of the Facility or Facilities so cancelled.
6.8 FINAL REPAYMENT
The Company will, on the Final Repayment Date, pay to Burdale in full
all outstanding and unpaid liabilities under the Finance Documents
(whether by way of principal, interest, commission, fees, costs,
expenses or otherwise) and shall pay to Burdale such amount as is
necessary to provide full cash collateral for Outstanding Purchase
Price and any contingent obligations which Burdale may have in respect
of any L/C, Forex Transaction or other outstanding Utilisation. Such
payment shall be denominated in Sterling and will be made by wire or
other automatic transfer to the Payment Account. If the amounts so paid
are received in the Payment Account later than 1.00 p.m. on the Final
Repayment Date then the Company will pay interest on such amounts to
Burdale at the Default Rate until payment has been made in full.
7. INTEREST AND COMMISSION
7.1 INTEREST
(a) The Company will pay Burdale interest on each Loan at the
Interest Rate.
(b) Except as otherwise provided in this Agreement, accrued interest
on each Loan shall be paid by the Company in arrear on the last
Business Day of each month and on the Final Repayment Date. All
interest accruing on or after the date of any Event of Default or
the Final Repayment Date shall be payable on demand.
(c) Interest will be calculated on the basis of a 365 day year and
actual days elapsed and will accrue and be calculated on a daily
basis.
7.2 INTEREST ON EXPOSURES
(a) The Company will pay to Burdale an amount equal to the Interest
Rate applied to:
(i) the L/C Exposure of each L/C from the date of issue until
its End Date; and
(ii) the Forex Exposure of each unmatured Forex Transaction.
(b) Amounts accrued in accordance with paragraph (a) above shall be
paid by the Company in arrear on the last Business Day of each
month and:
(i) the End Date of the relevant L/C; or
<PAGE>
(ii) the maturity date of the relevant Forex Transaction,
as the case may be.
(c) Amounts payable by the Company under paragraph (a) above will be
calculated on the basis of a 365 day year and actual days elapsed
and will accrue and be calculated on a daily basis.
7.3 DEFAULT INTEREST
(a) Upon the occurrence of an Event of Default and whilst the same is
continuing unremedied or unwaived, all amounts outstanding under
this Agreement shall bear interest (both before and after
judgment) at the Default Rate.
(b) Interest at the Default Rate will be compounded at the end of
each period designated by Burdale and will be determined by
Burdale on the first Business Day of each such period.
7.4 PURCHASE COMMISSION
The Company shall pay to Burdale commission in respect of each
Purchased Receivable at a rate equivalent to the Commission Rate
applied to the Outstanding Purchase Price for such Receivable from the
date on which Burdale paid such Purchase Price to the Company down to
the Actual Date of Payment (the "PURCHASE COMMISSION"). Burdale shall
calculate the Purchase Commission on a daily basis and it shall be paid
by the Company monthly in arrears on the last Business Day of each
month.
8. RECEIVABLES, STOCK AND EQUIPMENT
8.1 DETERMINATION
Any reasonable determination by Burdale in good faith of the value or,
as the case may be, the face amount of any Receivable or other
Collateral at any time will (save in the case of manifest error) be
conclusive and binding on the Company but any such determination may at
any time and at Burdale's discretion be amended, qualified or
superseded by a further such determination.
8.2 REPORTING REGARDING RECEIVABLES AND STOCK
The Company will provide Burdale with the following documents with all
amounts expressed in Sterling and otherwise in a form satisfactory to
Burdale:
(a) on a daily basis with a schedule of Receivables, collections
received and credits issued and, at any time when Burdale has
made available any amount or financial accommodation under the
Revolving Credit Facility, on a monthly basis with a stock report
substantially in the form set out in Schedule 3 Part II together
with such further information regarding Receivables as Burdale
may reasonably request;
<PAGE>
(b) as soon as practicable and in any event within 15 days of the end
of each month or more frequently as Burdale may reasonably
request:
(i) ageings of creditors and Receivables with details of all
dated invoices; and
(ii) at any time when Burdale has made available any amount or
financial accommodation under the Revolving Credit
Facility, full details of all Stock by category, location
and supplier; and
(iii) an analysis of preferential creditors in substantially the
form set out in Schedule 3 Part III;
all in a format to be agreed with Burdale (acting reasonably).
(c) promptly from time to time as Burdale may reasonably request:
(i) at any time when Burdale has made available any amount or
financial accommodation under the Revolving Credit
Facility, copies of shipping and delivery documents
relating to Stock and Equipment;
(ii) at any time when Burdale has made available any amount or
financial accommodation under the Revolving Credit
Facility, copies of purchase orders, invoices and delivery
documents relating to Stock and Equipment and ageings of
all Receivables paid to the Company, on a monthly basis by
invoice date;
(iii) full details of all Account Debtors (including their
addresses) together with copies of customer statements and
credit notes, remittance advices, collection schedules and
reports and copies of deposit slips and all monthly bank
statements of the Company and its Subsidiaries or
statements for such other period as Burdale may require;
(iv) such other reports regarding the Collateral as Burdale may
reasonably request from time to time;
(d) on a daily basis, details of any Receivables which have become or
are purported to be, by the relevant Account Debtor or otherwise,
subject to any prohibitions or restriction on charge or
assignment; and
(e) immediately upon becoming aware of the same, details of any
creditor of the Company whose ordinary terms of business include
title retention provisions which are not already specified in
Schedule 3 Part I.
8.3 REPORTING REGARDING ACCOUNT DEBTORS
(a) NOTIFICATION: The Company will notify Burdale promptly of:
(i) any material delay in the Company's performance of any of
its obligations to any Account Debtor or the assertion of
any claims, offsets, defences or
<PAGE>
counterclaims by any Account Debtor, or any material
disputes with Account Debtors, or any settlement,
adjustment or compromise of any such matter;
(ii) all material adverse information known to the Company
relating to the financial condition of any Account Debtor;
and
(iii) any event or circumstance which, to the Company's
knowledge, would cause Burdale to consider any then
existing Receivables as no longer constituting Eligible
Receivables.
(b) DISPUTES AND SETTLEMENTS WITH ACCOUNT DEBTORS: No credit,
discount, allowance or extension or agreement for any of the
foregoing will be granted to any Account Debtor without Burdale's
consent, except in the ordinary course of the Company's business
in accordance with proper practices and policies operated by the
Company prior to the date of this Agreement. At any time while an
Event of Default is outstanding, Burdale will, at its option,
have the exclusive right to settle, adjust or compromise any
claim, offset, counterclaim or dispute with any Account Debtor
and to grant any credits, discounts or allowances in relation to
such matters.
(c) RETURN OF STOCK: The Company will promptly report to Burdale any
return of Stock by an Account Debtor where that Stock has a value
in excess of (pound)50,000. At any time that any Stock
(irrespective of its value) is returned, reclaimed or
repossessed, the related Receivable will be deemed an Ineligible
Receivable. In the event any Account Debtor returns Stock when an
Event of Default has occurred and is continuing, the Company
will, upon Burdale's request:
(i) hold the returned Stock on trust for Burdale;
(ii) segregate all returned Stock from all of its other
property;
(iii) dispose of the returned Stock solely according to
Burdale's instructions; and
(iv) not issue any credits, discounts or allowances with
respect to such returned stock without Burdale's prior
written consent.
8.4 REPRESENTATIONS AND UNDERTAKINGS AS TO RECEIVABLES
With respect to each Receivable, the Company represents and warrants to
Burdale that and undertakes to ensure that at all times:
(a) the amounts shown on any invoice delivered to Burdale and in any
Receivables Information delivered to Burdale are true and
complete;
(b) no payments have been or will be made on such Receivable except
payments collected by the Company and immediately transmitted or
delivered to Burdale or elsewhere pursuant to the terms of this
Agreement;
<PAGE>
(c) no credit, discount, allowance or extension or agreement for any
of the foregoing will be granted to any Account Debtor except as
reported to and agreed by Burdale except for credits, discounts,
allowances or extensions made or given in the ordinary course of
the Company's business in accordance with its proper practices
and policies operated prior to today's date as disclosed to
Burdale in writing;
(d) to the best of the Company's knowledge, there are no set-offs,
deductions, defences, counterclaims or disputes existing or
asserted with respect to such Receivable except as reported to
and agreed by Burdale;
(e) none of the transactions giving rise to any Receivable breach any
applicable law or regulation and all documentation relating to
such Receivable is legally enforceable in accordance with its
terms;
(f) each Receivable is genuine, is and will be in all respects what
it purports to be, and is not the subject of a court judgment;
(g) each Receivable represents undisputed, bona fide transaction(s)
completed in accordance with the terms and provisions contained
in any documents delivered to Burdale with respect to such
Receivable;
(h) the amounts shown on the relevant Receivables Information, the
Company's books and records and all invoices and statements which
may be delivered to Burdale with respect thereto are actually and
absolutely owing to the Company and are not in any way
contingent;
(i) to the best of the Company's knowledge, there are no facts,
events or occurrences which in any way impair the validity or
enforceability of any such Receivable or tend to reduce the
amount payable in respect of such Receivable as shown on the
relevant Receivables Information, the Company's books and records
and all invoices and statements delivered to Burdale with respect
to such Receivable;
(j) to the best of the Company's knowledge, all Account Debtors have
the capacity to contract and are solvent;
(k) the services furnished and/or goods sold giving rise to each
Receivable are not subject to any Encumbrance (except for an
Encumbrance which is permitted by Clause 14(p)); and
(l) to the best of the Company's knowledge, there are no proceedings
or actions which are threatened or pending against any Account
Debtor which might reasonably be expected to result in a material
adverse change in such Account Debtor's financial condition.
8.5 VERIFICATION
Burdale will have the right from time to time, in the name of any
nominee, to verify the validity, amount or any other matter relating to
any Receivable or other Collateral, by mail, telephone, facsimile or
otherwise.
<PAGE>
8.6 RIGHTS AFTER AN EVENT OF DEFAULT
(a) DEALING WITH COLLATERAL AND RECEIVABLES: Burdale may, at any time
that a Default has occurred and is continuing and without
prejudice to any of its rights under Clause 15.2 or otherwise
under this Agreement or any other Finance Document exercise all
its rights then exercisable pursuant to the Debenture, including,
without limitation:
(i) extend the time of payment of, compromise, settle or
adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all
Receivables or other obligations included in the
Collateral and thereby discharge or release any Account
Debtor or any other party or parties in any way liable for
payment of any Receivable without affecting any of the
Receivables, demand or enforce payment of any Receivables,
but without any duty to do so, and Burdale will not be
liable for its failure to enforce the payment of any
Receivable nor for the negligence of its agents or
attorneys with respect to any Receivable; and
(ii) take whatever other action Burdale may deem necessary for
the protection of its interests in the Collateral.
(b) NOTICE TO DEBTORS: At any time that a Default is outstanding,
Burdale, any Receiver or their respective nominees may, at
Burdale's or Receiver's discretion as the case may be do any of
the following:
(i) having given prior notification to the Company, notify any
or all Account Debtors that the Receivables have been
assigned to Burdale and that payments in respect of
Receivables are to be redirected to such account as is
specified by Burdale;
(ii) request the Company to give the notification referred to
in Clause 8.6(b)(i) above and/or to ensure that all
invoices and statements in respect of Receivables issued
to the Account Debtors state the information referred to
in Clause 8.6(b)(i); and
(iii) direct any or all relevant Account Debtors to make all
payments in respect of Receivables direct to Burdale at
such account as Burdale may specify.
(c) ORIGINALS: At any time that an Event of Default is outstanding,
the Company will deliver to Burdale the originals of all
documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Receivables as Burdale
may require.
8.7 UNDERTAKINGS REGARDING STOCK
With respect to the Stock:
<PAGE>
(a) the Company will at all times maintain perpetual stock records
reasonably satisfactory to Burdale, keeping correct and accurate
records itemising and describing the kind, type, quality and
quantity of Stock and finished goods, the Company's cost in
relation to such Stock and daily withdrawals from and additions
to the Stock;
(b) the Company will conduct a physical count of the Stock at least
once each year and at any time or times as Burdale may request
while an Event of Default is outstanding, and promptly following
such physical count will supply Burdale with a report in a form
and containing such specific information as may be reasonably
satisfactory to Burdale concerning such physical count;
(c) the Company will not remove any Stock from the Property or such
other property as is owned and controlled by it or any other
Corporate Obligor or to or from a public warehouse without the
prior written consent of Burdale, except for sales of Stock in
the ordinary course of the Company's trade and except to move
Stock directly from such property to another location previously
agreed to by Burdale;
(d) upon Burdale's request, the Company will, at its expense, not
more than once in any twelve month period, but at any time or
times as Burdale may request while an Event of Default is
outstanding, deliver or cause to be delivered to Burdale written
reports or appraisals regarding the Stock in form and substance
acceptable to Burdale and by an appraiser acceptable to Burdale,
addressed to Burdale and upon which Burdale is expressly
permitted to rely;
(e) the Company will produce, use, store and maintain the Stock with
all reasonable care and caution and in accordance with applicable
standards relating to any insurance and in conformity with
applicable laws and regulations;
(f) the Company assumes all responsibility and liability arising from
or relating to the production, use, sale or other disposition of
the Stock;
(g) in respect of Stock exceeding (pound)10,000 the Company will not,
without prior notice to Burdale, sell such Stock to any customer
on sale or return, or on any other basis which entitles the
customer to return or may oblige the Company to repurchase such
Stock; and
(h) the Company will keep the Stock in good and marketable condition
and will not, without the prior written consent of Burdale,
acquire or accept any consignment Stock.
8.8 UNDERTAKINGS REGARDING EQUIPMENT
With respect to the Equipment:
(a) the Company will keep the Equipment in good order, repair and
marketable condition (fair wear and tear excepted);
<PAGE>
(b) the Company will use the Equipment with all reasonable care and
caution and in accordance with applicable standards of any
insurance policy relating to any Equipment and in conformity in
all material respects with all applicable laws and regulations;
(c) the Equipment is and will be used only in the Company's ordinary
course of trade and not for any personal use; and
(d) the Company assumes all responsibility and liability arising from
the use of the Equipment.
8.9 BURDALE'S RIGHT TO CURE
Burdale may, at its option:
(a) after giving five days notice to the Company, cure any default by
the Company under any agreement with an Account Debtor in respect
of a Receivable (other than bona fide disputes in the ordinary
course of the Company's business where no Event of Default has
occurred and is continuing) or under any other agreement with a
third party as may be required by Burdale in good faith to
facilitate the collection of the Receivables or to enable Burdale
to have access to any of the Collateral or any Equipment;
(b) after giving five days notice to the Company, pay or make a bond
in respect of or appeal any judgment entered into against the
Company which, upon execution, attachment or the exercise of any
similar remedy in respect of such judgment, would result in an
Encumbrance being imposed on the Collateral or would impair
Burdale's ability to obtain possession of, realise or collect any
of the Collateral;
(c) discharge taxes, Encumbrances or other encumbrances at any time
levied on or existing with respect to the Collateral; and
(d) pay any amount, incur any expense or perform any act including
without limitation the payment to any creditors in respect of
plant and/or machinery, which, in Burdale's judgment, is
necessary or appropriate to reserve, protect, insure or maintain
the Collateral and the rights of Burdale with respect to it.
Burdale may charge any monies so expended or costs so incurred by it to
the Company's account, such amounts to be repayable by the Company on
demand. Burdale will be under no obligation to effect any such cure or
payment or incur any such cost and will not, by doing so, be deemed to
have assumed any obligation or liability of the Company. Any payment
made or other action taken by Burdale under this Clause will be without
prejudice to any right it may have to assert an Event of Default under
this Agreement and to proceed accordingly.
<PAGE>
8.10 ACCESS TO PROPERTY
From time to time as requested by Burdale on one Business Day's notice
except in the case of emergency as determined by Burdale (but subject
to Clause 16.1(d) regarding daily charge rates), at the cost and
expense of the Company:
(a) Burdale, a Receiver or their respective nominees will have
complete access to all of the Company's Property during normal
business hours and having given prior notice to the Company, or
at any time and without notice to the Company if an Event of
Default is outstanding, for the purposes of inspecting, verifying
and auditing the Collateral and all of the Company's books and
records;
(b) the Company will promptly furnish to Burdale, any Receiver or
their respective nominees such copies of or extracts from such
books and records as may be reasonably requested from the
Company; and
(c) Burdale, a Receiver or their respective nominees may have access
to, during normal business hours, and use, such of the Company's
personnel, equipment, supplies and Property as may be reasonably
necessary for the purpose of inspecting, verifying and auditing
the Collateral and all of the Company's books and records and if
an Event of Default has occurred and is continuing for the
collection of the Receivables and the realisation of the other
Collateral.
8.11 BURDALE'S DISCLAIMER
Burdale will not be responsible for the safekeeping of, any loss or
damage to, any diminution in value of or any act or default of any
carrier, warehouseman, bailee or other person in relation to the Stock,
finished goods, Equipment or Receivables.
9. COLLECTION OF RECEIVABLES
9.1 FLOW OF FUNDS
Subject to Clause 9.2, the Company undertakes that during the period
commencing on the date of this Agreement and ending when all its
liabilities under the Finance Documents have been discharged in full
and Burdale is under no further obligation under any of the Finance
Documents
(a) the Company will collect as agent and trustee for Burdale all
Receivables and immediately pay (or procure that payment is made)
all amounts due in respect of each Receivable into the Blocked
Account, provided however that until payment into the Blocked
Account it will hold all money so received upon trust for Burdale
and will not commingle in any Charged Account any monies which
are not Receivables or which are not payable to Burdale;
(b) without prejudice to the Company's obligations under Clause
14(k)(iii), in the event that any Account Debtor makes a payment
in respect of Receivables into another Charged Account or other
account which is not the Blocked Account, the Company will ensure
that the amounts representing such payment are promptly
transferred into the Blocked Account and will immediately direct
the relevant Accounts Debtor to make all future payments to the
Blocked Account; and
<PAGE>
(c) all the transfers and collections referred to in paragraphs (a)
and (b) above shall be carried out daily prior to the occurrence
of any Default and thereafter at such intervals as Burdale may,
at its discretion, specify to the Company.
9.2 FAILURE OF DEBENTURE
In the event that the Debenture in respect of any Account Bank is not,
at any time, effective or is not in full force and effect, the Company
will (unless otherwise directed by Burdale and without prejudice to
Burdale's rights and remedies under the Finance Documents), for so long
as the Debenture is ineffective or not in full force and effect and
ending on the date when all the liabilities of the Company under the
Finance Documents have been repaid or discharged in full and Burdale is
under no further obligation under any of the Finance Documents, collect
as agent and trustee for Burdale all Receivables which would otherwise
have been payable into the Blocked Account and immediately pay (or
procure the payment of) all amounts due in respect of those Receivables
into the Blocked Account.
9.3 NO VARIATION
The Company will not be entitled to close or vary the operation of the
Blocked Account without Burdale's prior written consent or to withdraw
moneys from the Blocked Account other than strictly in accordance with
the Finance Documents and will take such steps as are necessary to
ensure that the Blocked Account is at all times operated by the
relevant Account Bank so as to give effect to the arrangements set out
in the Debenture and will at all times procure that the Blocked Account
is subject to the Debenture.
9.4 REIMBURSEMENT
The Company agrees to reimburse Burdale on demand for any liability of
Burdale to any Account Bank or any other bank or person involved in the
transfer of funds to or from the Blocked Account arising out of
Burdale's payments to or indemnification of that bank or person, and
this obligation to reimburse shall survive the termination or
non-renewal of this Agreement.
9.5 EXCESS AMOUNTS
Any amounts received by Burdale from or for the account of the Company
in excess of the amounts then due and payable by the Company will be
dealt with in accordance with the terms of Clause 6 and the Debenture.
9.6 TIME OF APPLICATION
For the purposes of calculating interest in respect of the Loans and
for calculating any Purchase Commission or commission in respect of the
Forex Transactions, payments or other funds received by Burdale will be
applied (conditional upon final collection) in satisfaction or
reduction of the Company's liabilities under the Finance Documents two
Business Days following the date of receipt of funds by Burdale in the
Payment
<PAGE>
Account. For the purposes of calculating the amount of the Revolving
Loans available to the Company, the Receivables Limit and the Forex
Limit such payments will be applied (conditional upon final collection)
in satisfaction or reduction of the Company's liabilities under the
Finance Documents on the Business Day of receipt by Burdale in the
Payment Account, provided that such payments are received within
sufficient time (in accordance with Burdale's usual and customary
practices as in effect from time to time) to credit the Company's loan
and receivable and foreign exchange account on such day, and if not,
then on the next Business Day.
10. PAYMENTS AND TAXES
10.1 PAYMENTS
(a) Subject to Clause 9, all payments to be made by the Company to
Burdale under the Finance Documents will be made on or before
their due date in Sterling in cleared funds for value not later
than 11.00 a.m. on the day in question to the Payment Account.
(b) If any payment under the Finance Documents would otherwise be due
on a day which is not a Business Day, it will be due on the next
succeeding Business Day or, if that Business Day falls in the
following month, on the preceding Business Day.
(c) If after receipt by Burdale of any payment of, or proceeds of
Collateral applied to the payment of, any of the Company's
payment liabilities, Burdale is required to surrender or return
such payment or proceeds to any person for any reason, then the
payment liabilities intended to be satisfied by such payment or
proceeds shall be treated as not having been received by Burdale.
The Company shall be liable to pay to Burdale, and indemnifies
and holds Burdale harmless for, the amount of any payments or
proceeds so surrendered or returned. This Clause 10.1(c) shall
remain effective notwithstanding any action which may be taken by
Burdale in reliance upon such payment or proceeds and will
survive the termination or non-renewal of this Agreement.
10.2 TAXES
(a) Subject to Clause 10.2(c), all Taxes (other than Tax on the
overall net income of Burdale) due in respect of this Agreement
or any amounts paid or payable under the Finance Documents will
be paid by the Company when due and in any event prior to the
date on which penalties attach to such Taxes, and the Company
will indemnify Burdale for any cost, loss or liability incurred
by Burdale in respect of all such Taxes.
(b) Subject to Clause 10.2(c), all payments by the Company of any
nature under the Finance Documents will be made without regard to
any equities between the Company and Burdale and in full and free
and clear of, and without any deduction or withholding (whether
in respect of set-off, restriction, counterclaim, Taxes or
otherwise whatsoever) unless the deduction or withholding is
required by law, in which event the Company will:
<PAGE>
(i) ensure that the deduction or withholding does not exceed
the minimum amount legally required;
(ii) subject to paragraph (e) below, pay to Burdale (or procure
the payment to Burdale of) an additional amount being the
amount required to procure that the aggregate net amount
received by Burdale will equal the full amount which would
have been received by it had no deduction or withholding
been made (including, for the avoidance of doubt, any
withholding or deduction on any additional amount paid);
(iii) pay to the relevant taxation or other authorities within
the period for payment permitted by the applicable law
such amount as is required to be paid in consequence of
the deduction or withholding (including, but without
prejudice to the generality of the foregoing, the full
amount of any deduction or withholding from any additional
amount paid pursuant to paragraph (ii) above) and supply
Burdale with written evidence that it has made the
appropriate payment; and
(iv) indemnify Burdale against any costs, loss or liability
incurred by it by reason of any failure of the Company to
make any deduction or withholding or by reason of any
increased payment not being made on the due date for
payment.
(c) If the Company has made an additional payment under Clause
10.2(b) in respect of any Tax and such Tax was not properly or
legally been charged or levied then Burdale will, upon the
Company's request and at the Company's expense, provide such
documents to the Company as it may reasonably request to enable
it to contest the imposition of such Tax provided always that the
provision of such documents and the contesting of the relevant
Tax liability shall have no reasonable likelihood of resulting in
any liability for Burdale.
(d) If the Company has made an additional payment under Clause
10.2(b) in respect of any Tax and Burdale subsequently receives a
credit, relief or allowance in respect of that payment then
Burdale will, once a year during the term of this Agreement or
immediately after the term of this Agreement (if applicable),
apply the total amount of such credits, reliefs or allowances to
the reduction of the Company's liabilities under the Finance
Document in such manner as it thinks fit (provided that (A) such
payment to the Company does not result in any additional
liability for Burdale, (B) the Company has made all the
additional payments due from it under Clause 10.2(b) and (C) the
Company has supplied evidence of such payments to Burdale) and
thereafter account to the Company for any balance. Burdale will
use reasonable endeavours to obtain a tax credit as referred to
above provided that it will not be required to seek any such
credit if that will result in additional costs or legal or
regulatory burdens on it which are deemed by Burdale, in good
faith, to be material. Burdale shall have an absolute discretion
as to whether to claim any tax credit and if it does claim, the
extent, order and manner in which it does so. Burdale shall not
be obliged to disclose any information regarding its tax affairs
or computations to any other party.
<PAGE>
(e) The Company shall not be liable to pay to Burdale any amount for
taxes imposed by the United Kingdom Inland Revenue by virtue of
Burdale not being a bank (as defined by section 840A ICTA) for
the purposes of Section 349 of ICTA but in such circumstances the
remaining provisions of this Clause 10.2 shall apply.
(f) Where, pursuant to paragraph (e) above, the Company makes a
deduction (a "REQUIRED DEDUCTION") in respect of any interest
payment to Burdale, the Company shall, on the date on which such
interest is due to be paid to Burdale, advance to Burdale an
interest free, unsecured loan in an amount equal to the amount of
such Required Deduction (an "INTEREST ADVANCE") repayable in
accordance with paragraph (g).
(g) Each Interest Advance shall be repayable by Burdale upon demand
by the Company provided that no such demand may be made and
Burdale shall be under no obligation to repay any Interest
Advance unless:
(i) the Company provides to Burdale a copy of Form CT61 (or
any successor form) in relation to (amongst other things)
the Required Deduction (and Burdale shall give all such
assistance as may reasonably be necessary to enable the
Company to complete such form);
(ii) the Company provides to Burdale such other documents as
are required by Burdale to enable it to obtain a tax
credit for the amount of such Required Deduction; and
(iii) the demand specifies that the relevant Interest Advance is
to be repaid by Burdale by it paying the amount of such
Interest Advance to the Inland Revenue in or towards
satisfaction of the Company's payment obligation to the
Inland Revenue with respect to the Required Deduction.
(h) In the event that the Company receives any written notification
from the Inland Revenue requiring it to make payments in respect
of any Required Deduction otherwise than in the manner provided
for in this Clause 10.2, then the parties shall make such
amendments to this Clause 10.2 as may be necessary to comply with
the terms of such notification from the Inland Revenue and so far
as possible to put the parties in the same position as they would
have been had the provisions of paragraphs (g) and (h) above been
implemented.
11. INCREASED COSTS
11.1 INCREASED COSTS
If the result of any change in or introduction of or change in the
interpretation or application of any law, regulation, treaty or
official directive or official request (whether or not having the force
of law but, if not, being of a type with which Burdale is accustomed to
comply) or compliance by Burdale with the same including, without
limitation, those relating to Taxation (but not Tax on overall net
income of Burdale), or any other form of banking or monetary controls
is to:
<PAGE>
(a) increase the cost to Burdale of entering into this Agreement or
making or maintaining the Facilities (or any of them) or
maintaining any of its commitments under the Finance Documents;
(b) increase the cost to Burdale of funding or having outstanding any
other amount paid out by it under the Finance Documents;
(c) reduce any amount payable to Burdale under the Finance Documents
or the effective return on its capital; or
(d) result in Burdale making any payment or foregoing any interest or
other return on or calculated by reference to any amount received
or receivable by it from the Company under the Finance Documents,
then and in each such case:
(i) Burdale will notify the Company in writing and provide to
the Company reasonable details of such event promptly upon
its becoming aware of the same; and
(ii) upon demand from time to time by Burdale, the Company will
pay to Burdale such amount as is necessary to compensate
Burdale for such increased cost (or the proportion of such
increased cost as is, in the reasonable opinion of
Burdale, attributable to its entering into this Agreement
or making or maintaining the Facilities (or any of them)
or maintaining any commitment under the Finance
Documents), reduction, payment or foregone interest or
other return.
11.2 CERTIFICATE CONCLUSIVE
The certificate of Burdale specifying the amount of compensation
payable under Clause 11.1 will, in the absence of manifest error, be
conclusive. Burdale will provide calculations in reasonable detail
showing the calculation of any such amount, provided that Burdale will
not be obliged to reveal any information which is confidential to
Burdale.
12. ILLEGALITY AND MONETARY UNION
12.1 ILLEGALITY
In the event that any change in or introduction of or change in the
interpretation or application of any law, regulation, treaty, or
official directive or official request (whether or not having the force
of law but, if not, being of a type with which Burdale is accustomed to
comply) makes it unlawful (or contrary to such directive or request) in
any jurisdiction applicable to Burdale for Burdale to make available or
maintain the Facilities (or any of them) or to give effect to its
obligations under the Finance Documents, Burdale may give seven
Business Days written notice to that effect to the Company whereupon
the Facilities will be cancelled and all the provisions of this
<PAGE>
Agreement will apply as if the cancellations or terminations had been a
reduction of the Facility Limit to zero pursuant to Clause 6.7.
12.2 EFFECT OF MONETARY UNION
If the country of any national currency in which any amount is
expressed to be payable under this Agreement participates in Economic
and Monetary Union in accordance with article 109J of the treaty on
European Union, then:
(a) any amount expressed to be payable under this Agreement in that
national currency shall be made in that national currency or in
euro as Burdale may, by not less than three Business Days' notice
to the Company to that effect, require;
(b) any amount so required to be paid in euro shall be converted from
that national currency at the rate stipulated pursuant to Article
109L(4) of the Treaty on European Union and payment of the amount
in euro derived from such conversion shall discharge the
obligation of the relevant party to pay such national currency
amount in accordance with, and subject to, the Regulation(s) made
pursuant to Article 109L(4);
(c) after consultation with the Company, Burdale shall be entitled to
make such amendments to this Agreement as it may reasonably
determine to be necessary to take account of monetary union and
any consequent changes in market practices (whether as to the
settlement or rounding of obligations, the calculation of
interest or otherwise howsoever).
Any amendment so made to this Agreement by Burdale shall be promptly
notified to the Company and shall be binding on the Company.
13. GENERAL REPRESENTATIONS AND WARRANTIES
13.1 ACKNOWLEDGEMENT AND WARRANTIES
The Company represents and warrants to Burdale that:
(a) INCORPORATION: It, each other Corporate Obligor and the Guarantor
is duly incorporated and validly existing with limited liability
in the case of the Corporate Obligors under the laws of England
and Wales and in the case of the Guarantor under the laws of
Delaware and has the power to own its property and assets and to
carry on its business as it is presently conducted;
(b) DUE AUTHORITY: All necessary corporate, shareholder and other
action has been taken and all authorisations and consents have
been duly and unconditionally obtained and are in full force and
effect and all other things required by the laws of England and
Wales and every other applicable jurisdiction have been done,
which in each such case are required:
(i) to authorise each Corporate Obligor and the Guarantor to
carry on its business as it is now being conducted;
<PAGE>
(ii) to authorise each Obligor and the Guarantor to execute,
deliver and perform its obligations under the Finance
Documents to which it is party; and
(iii) to ensure that the Finance Documents to which each Obligor
and the Guarantor is party will, when executed, create
legal, valid and binding obligations upon such Obligor or
the Guarantor (as the case may be) enforceable in
accordance with their terms (subject to laws affecting
creditors' rights generally).
(c) NO CONTRAVENTION: The execution and delivery of and the
performance by each Obligor and the Guarantor of its obligations
under the Finance Documents to which it is party will not:
(i) contravene or constitute a default under any provision
contained in any agreement, instrument, law, judgment,
order, licence, permit or consent by which such Obligor or
the Guarantor (as the case may be) is or any of the assets
of such Obligor or the Guarantor (as the case may be) are
bound or affected; or
(ii) conflict with the constitutional documents of any
Corporate Obligor or the Guarantor.
(d) LITIGATION: No litigation, arbitration or administrative
proceeding or claim which would have by itself or together with
any other such proceedings or claims a Material Adverse Effect is
current or pending or, to the best of the knowledge of the
Company, threatened against any Obligor or the Guarantor or any
Obligor's or the Guarantor's assets.
(e) PARI PASSU: The obligations of each Obligor and the Guarantor
under the Finance Documents rank and will rank at least pari
passu with all other unsecured, unsubordinated obligations of
such Obligor or the Guarantor (as the case may be).
(f) MATERIAL DISCLOSURES: All information furnished by or on behalf
of any Obligor and the Guarantor in writing to Burdale in
connection with the Finance Documents is true and correct in all
material respects as of the date such information is dated or
certified and does not omit any material information and is not
misleading. No event or circumstance has occurred which has or
could reasonably be expected to have a Material Adverse Effect
which has not been fully and accurately disclosed to Burdale.
(g) INFORMATION: All financial statements and management and other
accounts and all other information of whatsoever nature supplied
to Burdale in writing by or on behalf of any Obligor or the
Guarantor are true and accurate in all material respects and not
misleading.
(h) ENCUMBRANCES: Other than an Encumbrance which does not contravene
Clause 14(p), none of the assets of any Corporate Obligor are
affected by any Encumbrance and no Corporate Obligor is a party
to, nor is it or any of its assets
<PAGE>
bound by, any order, agreement or instrument under which such
person is, or in certain events may be, required to create,
assume or permit to arise any Encumbrance.
(i) NO GUARANTEES: No Obligor has given any guarantee, indemnity or
assurance in respect of financial loss of any kind whatsoever
other than to Burdale.
(j) NO SUBSIDIARIES: The Company does not have any Subsidiaries
except as disclosed in writing to Burdale prior to today's date
or as consented to by Burdale in accordance with Clause 14(e).
(k) INSURANCES: Each Corporate Obligor has taken out and there are in
full force and effect all insurances (placed with insurers of
substance and repute) (i) as would normally be effected by
persons carrying on businesses, and having the assets,
liabilities and responsibilities, of a similar nature to those of
such Corporate Obligor and (ii) as are necessary to comply with
the insurance obligations set forth in the Debenture and Clause
14(m) respectively and no Corporate Obligor is aware of any fact
or circumstance which might render any of such insurances void or
voidable at the option of the insurers.
(l) OWNERSHIP OF ASSETS:
(i) Each Corporate Obligor is the beneficial owner or licensee
of all material patents, trademarks, service-marks, logos,
design rights, tradenames, trade secrets, know-how,
copyrights, licences and other rights with respect to the
foregoing (together the "INTELLECTUAL PROPERTY") which are
necessary for the operation of its business as presently
conducted by it and, to the best of the Company's
knowledge, no product, process, method, substance, part or
other material currently sold or intended for sale by any
Corporate Obligor or employed by any Corporate Obligor
infringes the intellectual property of any other person
and, to the best of its knowledge, no dispute or
litigation is pending or threatened as regards the
intellectual property of any Corporate Obligor.
(ii) The Corporate Obligors are the beneficial owner of all the
Collateral free from all Encumbrances (except as permitted
by Clause 14(p)) and other third party rights or interests
except for hire purchase and lease purchase assets
disclosed in writing to and consented to by Burdale and
such Collateral is capable of being disposed of by it to
Burdale by way of security or otherwise so that good title
to it, free of any claim or encumbrance, can be passed to
Burdale.
(m) DEFAULT: No Event of Default has occurred and is continuing.
(n) FINANCIAL STATEMENTS: The latest audited financial statements of
each Corporate Obligor (i) have been reported upon by its
auditors without qualification, (ii) have been prepared in
accordance with GAAP as required by Clause 14(f) and give a true
and fair view of the results of the operations of such
<PAGE>
Corporate Obligor and its assets and liabilities for the relevant
period and of the state of the such Corporate Obligor's affairs
at the relevant date, and (iii) in particular, accurately
disclose or reserve against all liabilities (actual or
contingent), and there has been no change in the assets,
financial condition or prospects of such Corporate Obligor since
the date of those financial statements such that such Corporate
Obligor may reasonably be expected to be unable to perform and
comply with any one or more of its material obligations under any
of the Finance Documents.
(o) BANK ACCOUNTS: All the accounts maintained or used by any
Corporate Obligor at any bank or financial institution as at the
date of this Agreement have been included within the definition
of Charged Accounts.
(p) VALUATION:
(i) All information provided by or on behalf of any Obligor to
the valuer for the purposes of the Valuation is accurate
in all material respects and, to the best of its knowledge
and belief after having made all due enquiries, no
information has been omitted by it which would make that
information misleading in any material respect;
(ii) To the best of the Company's knowledge and belief and
after having made all due enquiries, there has been no
change to the information provided pursuant to paragraph
(i) above in relation to the Valuation between the dates
such information was provided and today's date; and
(iii) No information has been withheld by it from the valuer
which to the best of its knowledge and belief after having
made all due enquiries, may be material to the Valuation.
(q) YEAR 2000 COMPLIANCE: The computer equipment (including
peripheral equipment) and/or computer software presently used
and/or owned by the Company (together the "SYSTEMS") has the
ability properly to recognise and perform its intended function
and will not suffer any adverse effect on account of any
inability to recognise any date prior to, on or after 31 December
1999 or on account of it treating any date prior to, on or after
31 December 1999 other than as the specific date in question.
13.2 REPETITION
The representations and warranties in Clauses 8 and 13.1 will be deemed
to be repeated by the Company on each date a Request is submitted and
on each Utilisation Date and on each date an interest payment is due
under the Finance Documents as if made with reference to the facts and
circumstances existing on each such date.
14. GENERAL UNDERTAKINGS
The Company undertakes to Burdale that:
<PAGE>
(a) PROVISION OF ACCOUNTS AND SHAREHOLDER INFORMATION: The Company
will deliver to Burdale, in each case copies certified as true,
complete and up-to-date by the finance director of the Company:
(i) as soon as practicable and in any event within 120 days
from the end of each relevant financial year (commencing
with the Company's financial year ending immediately after
the date of this Agreement), copies of each Corporate
Obligor's audited (and consolidated if applicable)
accounts for that year prepared in accordance with Clause
14(f) together with copies of any letters from the
auditors to management in connection with such accounts;
(ii) as soon as practicable and in any event within 30 days
from the end of each monthly management accounting period
and in each case in a format satisfactory to Burdale, full
individual and, if applicable, consolidated accounts in
each case prepared in Sterling in respect of that period
including Stock figures and valuations for that month, a
breakdown of the value and identity of preferential
creditors for that month and details of all input and
output VAT at the end of each VAT Quarter;
(iii) copies of all notices, circulars, reports and statements
sent to any Corporate Obligor's shareholders or creditors
generally (or any class of them) at the same time as they
are made available to such shareholders or creditors; and
(iv) such further information relating to the financial
condition or operations of it or any Corporate Obligor
which Burdale may reasonably require at such time as
Burdale may reasonably require it.
Without prejudice to the foregoing provisions of this Clause
14(a), Burdale will be entitled to monitor the operations
(financial and otherwise) of the Corporate Obligors and if so
requested every such company will provide such information and
afford such assistance to Burdale as it may reasonably require.
(b) AUTHORISATIONS: It will ensure that the Obligors and the
Guarantor maintain in full force and effect all relevant
authorisations (governmental and otherwise including exchange
control authorisations) necessary, and will promptly obtain and
procure that all other Obligors and the Guarantor will obtain any
further authorisation which may become necessary, to enable any
Obligor or the Guarantor (as the case may be) to perform all of
the transactions contemplated by the Finance Documents and to
carry on its business.
(c) DEFAULT: It will notify Burdale forthwith upon becoming aware of
the occurrence of any Default and will provide Burdale with full
details of any steps which it is taking, or is considering
taking, in order to remedy or mitigate the effect of the Default.
(d) AMALGAMATIONS: It will not, and will procure that no Corporate
Obligor will, amalgamate, merge or consolidate with or into any
corporation or other person or
<PAGE>
be the subject of any reconstruction except with the prior
written consent of Burdale.
(e) NATURE OF BUSINESS AND ACQUIRING SUBSIDIARIES: It will ensure
that each of its Subsidiaries is an Obligor and that there is no
material change in the nature of its business or the business of
any of its Subsidiaries. It will not create or acquire any
Subsidiary after today's date except with the prior written
consent of Burdale (which consent shall not be unreasonably
withheld and which consent may be subject to conditions
including, without limitation, a requirement that the relevant
Subsidiary becomes an Obligor and grants security to Burdale in a
form satisfactory to Burdale but on terms no more onerous than
those comprised in the Debenture).
(f) ACCOUNTING POLICIES AND TAX FILINGS: It will and will ensure that
each Corporate Obligor will:
(i) prepare all accounts and financial information required by
Clause 14(a) in a consistent manner, in accordance with
GAAP and in compliance with the Companies Act 1985;
(ii) ensure that all such accounts and financial information
present a true and fair view of the financial condition of
the relevant Corporate Obligor individually and (where
consolidation is required) as a group as a whole
(iii) promptly file all tax returns and declarations required
from it by the United Kingdom Inland Revenue, Customs &
Excise and other competent taxation and/or regulatory
authorities in the United Kingdom; and
(iv) duly pay all taxes, contributions and levies lawfully
required of it by such authorities.
(g) DISPOSALS: It will not, and will procure that no Corporate
Obligor will, sell, transfer, lease, lend or otherwise dispose of
or cease to exercise direct control over the whole or any part of
its or their present or future undertakings, assets or revenues
and whether by one or a series of transactions whether related or
not, save that the restriction contained in this Clause 14(g)
will not apply to the following transactions (but without
prejudice to the proprietary and security rights conferred upon
Burdale under the Debenture):
(i) the disposal of Stock in the ordinary course of trading;
or
(ii) the application of cash in the purchase or acquisition of
goods and services in the ordinary course of trading or in
any manner not prohibited by any of the Finance Documents;
or
(iii) the disposal of obsolete assets where the proceeds of sale
(if any) are paid into the Blocked Account; or
<PAGE>
(iv) the sale of the Mortgaged Property in existence as at
today's date at or above the Initial Valuation where the
proceeds of sale are applied first in repayment of the
Property Loan and second are paid into the Blocked
Account; or
(v) any disposal of any Equipment on arms length terms the
proceeds of which do not exceed(pound)5,000 PROVIDED THAT:
(1) such proceeds, when aggregated with the proceeds of
all other such disposals permitted by this
sub-clause (v), do not at any time exceed
(pound)50,000 during the next succeeding twelve
month period; and
(2) all such proceeds of sale are paid into the Blocked
Account.
(vi) any disposal in respect of which Burdale has given its
prior written consent.
(h) ACQUISITIONS: It will not, and will procure that no Corporate
Obligor will, except in the ordinary course of trade acquire any
business, undertaking or assets of any kind whatsoever save as
permitted by Clause 14(d).
(i) INTRA-GROUP ARRANGEMENTS: It will not, and will procure that no
Corporate Obligor will, without obtaining Burdale's prior written
consent:
(i) pay any dividend or make any other distribution of any of
its assets to its shareholders or any of them or prepay
any inter-company indebtedness borrowed from any member of
the Company's group; or
(ii) pay any other moneys, whether by way of interest,
management fees or otherwise howsoever, to any affiliate,
subsidiary or any shareholder, director or employee except
for payments in the ordinary course of, and pursuant to
the reasonable requirements of, trading and on arms length
commercial terms; or
(iii) redeem any of its ordinary or preference share capital.
(j) AUDITS BY BURDALE: It will permit Burdale or its appointed
representatives or agents at the Company's expense to conduct an
audit of its financial records, systems and forecasts on a
quarterly basis or, following a Default at more frequent
intervals as Burdale may stipulate and will afford all
co-operation to Burdale and its representatives or agents to
enable such audit to take place.
(k) INCURRING INDEBTEDNESS:
(i) LOANS: It will not, and will procure that no Corporate
Obligor will, enter into or have outstanding any
arrangements whatsoever with any bank or financial
institution (other than Burdale) or corporation or other
person for the provision to it or any Corporate Obligor of
any loan or other form of financial accommodation except
for (A) normal trade credit granted to it in the ordinary
course of its trade and (B) Financial Indebtedness
incurred in
<PAGE>
respect of equipment, vehicle and operating leases and
hire purchase transactions entered into in the ordinary
course of its trade where the total value of such leases
and transactions for the Corporate Obligors as a whole
does not exceed the (pound)50,000 at any one time PROVIDED
THAT:
(1) in the case of Financial Indebtedness under (B)
above, the relevant Corporate Obligor may only make
regularly scheduled payments of principal and
interest in respect of such indebtedness in
accordance with the terms of the agreement or
instrument evidencing or giving rise to such
indebtedness as in effect on today's date;
(2) in the case of Financial Indebtedness under (B)
above, the relevant Corporate Obligor shall not,
directly or indirectly (I) amend, modify, alter or
change the terms of such indebtedness or any
agreement, document or instrument relating to it as
in effect on today's date or (II) redeem, retire,
defease, purchase or otherwise acquire such
indebtedness, or set aside or otherwise deposit or
invest any sums for such purpose; and
(3) in each case, the relevant Corporate Obligor shall
furnish to Burdale all notices or demands in
connection with such indebtedness either received
by the relevant Corporate Obligor or on its behalf,
promptly after receipt, or sent by the relevant
Corporate Obligor or on its behalf, concurrently
with sending, as the case may be.
(II) MAKING LOANS: It will not, and will procure that no
Corporate Obligor will, make any loans or financial
accommodation available to any person except for the grant
of normal trade credit in the ordinary course of its
trade; and
(III) BANK ACCOUNTS: It will not, and will procure that no
Corporate Obligor will, open or maintain any account of
any type with any bank or financial institution providing
like services other than the Charged Accounts.
(l) NO GUARANTEES: It will not, and will procure that no Corporate
Obligor will, give any guarantee, indemnity or assurance against
financial loss of any kind whatsoever provided that it may give
an indemnity or assurance in the ordinary course if its trade
where such indemnity or assurance is not, or is not in respect
of, Financial Indebtedness.
(m) INSURANCE: It will, and will procure that each Corporate Obligor
will:
(i) observe and perform all obligations as to insurance
imposed upon it in a lease relating to any of the Property
and supply to Burdale such proof as it may reasonably
require that it has so complied and will apply any sums
received pursuant to such insurance as required by any
relevant lease;
(ii) as regards all its assets and property of any kind and
businesses arrange and maintain in full force and effect
insurances (including consequential loss, business
interruption and public liability and damage and other
insurances
<PAGE>
usually maintained by companies carrying on the same type
of business as its own business) with such insurers as
Burdale approves and on such terms (including a
requirement that the relevant insurer must give at least
30 days' prior written notice to Burdale of any
cancellation or reduction of insurance cover) and in such
amounts as Burdale may reasonably require and is customary
for an enterprise engaged in the same or similar business
and in the same or similar localities and against such
risks as Burdale shall reasonably request and will procure
that Burdale's interest is noted on all policies relating
to insurances so arranged in such manner as Burdale may in
its absolute discretion require and, as regards all
policies relating to the Collateral, will use all
reasonable endeavours to ensure that Burdale is named as
sole loss payee (but without having any obligation for
premiums) and as joint insured in relation to all those
policies ensure that every policy of insurance contains a
standard mortgagee clause, whereby such insurance will not
be invalidated, vitiated or avoided as against a mortgagee
in the event of any misrepresentation, act, neglect or
failure to disclose on the part of the insured provided
that where the insurers will not agree such terms, terms
acceptable to Burdale in Burdale's absolute discretion are
agreed and will supply to Burdale copies of all such
policies of insurance and all endorsements and renewals of
such policies;
(iii) duly and punctually pay all premiums in respect of
insurances required to be arranged and/or maintained in
accordance with this Clause 14(m) and not do or omit to do
any act, matter or thing whereby any such insurance may be
or becomes void or voidable at the option of the insurers
or settle any claim in respect of those insurances without
the prior written consent of Burdale, such consent not to
be unreasonably withheld or delayed;
(iv) it shall comply with, enforce and not waive, release,
terminate or vary (or agree so to do) any obligations
arising under all policies of insurance and in particular,
but without limitation, it shall notify Burdale
immediately upon receiving notice from any insurer that
the details of any insurance policy are to change in any
way and upon receiving notice from any insurer terminating
any insurance policies;
(v) in the event that it receives from any insurer notice that
such insurer is terminating any insurance policy, the
Company shall use all reasonable endeavours to enter into
an agreement on substantially the same terms as those
contained in the original insurance policy with such other
insurer as approved by Burdale and to the extent that the
same terms or substantially the same terms are not
available from the insurer, such terms as are acceptable
to Burdale in its absolute discretion, to take effect on
or before the expiry of such notice and shall use all
reasonable endeavours to procure that such insurer gives
to Burdale such acknowledgements and undertakings in
relation to this Deed as Burdale may in its absolute
discretion require;
(vi) indemnify Burdale fully forthwith at a minimum of the
Daily Rate upon demand for any and all costs and expenses
incurred by Burdale from time to time in obtaining from
time to time a report or reports or an audit or
<PAGE>
audits on the adequacy of the insurances referred to in
Clause 14(m)(ii) above from an insurance adviser appointed
by Burdale;
(vii) produce to Burdale on request copies of all policies and
all receipts for the current premiums with respect to the
insurance; and
(viii) immediately give notice to Burdale of any occurrence which
gives rise, or might give rise, to a claim under any
policy of insurance.
If the Company at any time fails to perform any of its
obligations contained in this Clause, Burdale may effect or renew
such insurance as Burdale thinks fit and the Company shall
reimburse Burdale for the costs thereby incurred on demand.
(n) INSURANCE MONIES:
(i) The Company shall apply all monies received by virtue of
any insurance relating to the whole or any part of the
Collateral in making good, or in recouping expenditure
incurred in making good, any loss or damage or, if Burdale
in its discretion so requires, towards discharge of the
Company's liabilities under the Finance Documents.
(ii) The Company shall ensure that all such monies as are
referred to in Clause 14(n)(i) which are not paid directly
by the insurers to Burdale shall be held by the recipient
upon trust for Burdale and be applied by the Company in
accordance with Clause 14(n)(i).
(o) MATERIAL ADVERSE EFFECT: It will notify Burdale forthwith upon
becoming aware of the occurrence of any event which constitutes
or could reasonably be expected to produce a Material Adverse
Effect.
(p) NEGATIVE PLEDGE: It will not, and will procure that no Corporate
Obligor will, create or permit to subsist any Encumbrance on the
whole or any part of the present or future assets, property or
undertaking (including, without limitation, the Collateral) of
itself or any such Corporate Obligor, except for the following:
(i) liens securing obligations which arise by operation of law
in the ordinary course of trading of the relevant entity
and which are not more than 30 days overdue;
(ii) Encumbrances arising out of title retention provisions in
a supplier's terms and conditions of supply of goods
acquired in the ordinary course of business and which are
specified in Schedule 3 Part I or which are otherwise
notified to Burdale and consented to by it; and
(iii) Encumbrances arising under the Finance Documents.
(q) TRANSACTIONS SIMILAR TO SECURITY: Except with the prior written
consent of Burdale, it will not, and will procure that no
Corporate Obligor will:
<PAGE>
(i) sell or otherwise dispose of a significant portion of its
Collateral on terms whereby such Collateral is or may be
leased to or re-acquired or acquired by it or any Corporate
Obligor or any of their respective related entities; or
(ii) sell, charge, factor, discount, assign or otherwise dispose
of any of its Receivables or purport to do so other than in
favour of Burdale,
but any transaction which is expressly permitted by the
exceptions to Clause 14(p) will not, for the avoidance of
doubt, be prohibited by this Clause 14(q).
(r) MAINTENANCE OF STATUS AND FRANCHISES: It will, and will procure
that each Corporate Obligor will:
(i) do all such things as are necessary to maintain its
corporate existence; and
(ii) ensure that it has the right and is duly qualified to
conduct its business as it is conducted in all
jurisdictions in which it operates and will obtain and
maintain all franchises and rights necessary for the
conduct of its business.
(s) FINANCIAL YEAR END AND CHANGE OF AUDITORS: Except with the prior
written consent of Burdale, it will not alter its financial year
end from that applicable at the date of this Agreement and it
will procure at all times a firm of auditors which is acceptable
to Burdale.
(t) TAXES: It will promptly pay all Taxes as and when they fall due
(other than in circumstances where such Taxes are the subject of
a dispute being carried on properly and in good faith by the
Company where written details of such dispute have been supplied
to Burdale (if requested, Burdale having been notified of the
dispute) or, in the case of PAYE and National Insurance
contributions, within any permitted grace period or, in the case
of any other taxes, in accordance with any other arrangements
agreed with the Inland Revenue or other taxing authority.
(u) RETENTION OF TITLE: It will promptly inform Burdale in writing if
any creditor of the Company or any Corporate Obligor imposes
retention of title provisions as part of its conditions of supply
to the Company or such Corporate Obligor.
(v) CHANGE OF NAME: It will not change its name without giving
Burdale 30 days' prior written notice of the proposed new name
and will supply a copy of the relevant certificate of
incorporation on change of name to Burdale as soon as it becomes
available.
(w) NEW COLLATERAL LOCATIONS: It will not (and will procure that no
Corporate Obligor will) open any new location within the United
Kingdom without giving Burdale 30 days' prior written notice of
the new location and executing and delivering to Burdale such
access agreements, landlord waivers and other documents as
Burdale may reasonably require in order to protect its interest
in the Collateral.
(x) STAMP DUTY: It will promptly pay any liability incurred in
respect of any stamp, registration and similar Tax which is or
becomes payable in connection with the
<PAGE>
entry into, registration, performance, enforcement or
admissibility in evidence of any Finance Document and/or any
amendment, supplement or waiver of any Finance Document. In the
event of any breach of this warranty the Company shall
immediately pay to Burdale by way of liquidated damages the
amount of any liability that Burdale may incur as a result of or
by reference to the Company's delay in paying or omission to pay
any such Tax.
(y) MINIMUM NET WORTH: Consolidated Tangible Net Worth shall not be
less than (pound)900,000.
15. EVENTS OF DEFAULT
15.1 DEFAULT
Each of the events specified below constitutes an Event of Default:
(a) PAYMENT DEFAULT: Any Obligor or the Guarantor fails to pay on its
due date any amount payable by it under the Finance Documents at
the place and in the currency in which it is expressed to be
payable or, where such failure is due to a technical or
administrative failure within the banking system (which is not
attributable to the relevant Obligor or the Guarantor (as the
case may be)), within two Business Days of such due date.
(b) BREACH OF OTHER OBLIGATIONS:
(i) Any Obligor fails to observe or perform any of its
obligations or undertakings under, or there is a breach of
any of Clauses 14(k), 14(m), 14(n) or 14(p).
(ii) Any Obligor or the Guarantor fails to observe or perform
any of its obligations or undertakings under any of the
Finance Documents (other than those referred to in Clause
15.1(a) or 15.1(b)(i)) and, where such failure is capable
of remedy, such Obligor or the Guarantor (as the case may
be) fails to remedy the same within ten Business Days of
the Company becoming aware of such breach.
(c) MISREPRESENTATION: Any representation or warranty made or
repeated in connection with any Finance Document or delivered by
or for any Obligor or the Guarantor under or in connection with
any Finance Document is incorrect in any material respect.
(d) INVALIDITY: Any provision of any of the Finance Documents is not,
or is alleged by any Obligor or the Guarantor not to be binding
on or enforceable against any Obligor or the Guarantor or
effective to create any security intended to be created by it.
<PAGE>
(e) CROSS-DEFAULT:
(i) Any Financial Indebtedness of any Obligor
exceeding(pound)50,000 (or its equivalent in other
currencies) in aggregate is not paid when due.
(ii) An event of default howsoever described occurs under any
document relating to Financial Indebtedness of any Obligor
exceeding (pound)50,000 (or its equivalent in other
currencies).
(iii) Any Encumbrance securing Financial Indebtedness over any
asset of any Obligor becomes enforceable.
(iv) An amount exceeding (pound)50,000 in aggregate owed to
trade creditors of the Company remains outstanding
following the expiry of any relevant customary trade
credit period.
(f) CREDITORS' PROCESS: Any attachment, sequestration, distress or
execution affects any asset of any Obligor and is not discharged
within 14 days.
(g) APPOINTMENT OF RECEIVERS AND MANAGERS:
(i) Any liquidator, trustee in bankruptcy, judicial custodian,
compulsory manager, receiver, administrative receiver,
administrator or the like is appointed in respect of any
Obligor or the Guarantor or any part of its assets.
(ii) The directors of any Corporate Obligor or the Guarantor
request the appointment of a liquidator, trustee in
bankruptcy, judicial custodian, compulsory manager,
receiver, administrative receiver, administrator or the
like.
(iii) Any other steps are taken to enforce any Encumbrance over
any part of the assets of any Obligor or the Guarantor.
(h) INSOLVENCY:
(i) Any Obligor or the Guarantor is, or is deemed for the
purposes of any law to be, unable to pay its debts as they
fall due or to be insolvent, or admits inability to pay its
debts as they fall due.
(ii) Any Obligor or the Guarantor suspends making payments on
all or any class of its debts or announces an intention to
do so, or a moratorium is declared in respect of any of its
indebtedness.
(iii) Any Obligor or the Guarantor, by reason of financial
difficulties, begins negotiations with one or more of its
creditors with a view to the readjustment or rescheduling
of any of its indebtedness.
<PAGE>
(i) INSOLVENCY PROCEEDINGS:
(i) Any step (including petition, proposal or convening a
meeting) is taken with a view to a composition, assignment
or arrangement with any creditors of any Obligor or the
Guarantor.
(ii) A meeting of any Corporate Obligor or the Guarantor is
convened for the purpose of considering any resolution for
(or to petition for) its winding-up or for its
administration or any such resolution is passed.
(iii) Any person presents a petition for the winding-up or for
the administration or for the bankruptcy of any Obligor or
the Guarantor unless (other than in the case of a petition
for administration) the relevant Obligor or the Guarantor
(as the case may be) can demonstrate to the satisfaction of
Burdale (acting reasonably) that the relevant petition is
frivolous, vexatious or an abuse of process of the court or
that it relates to a claim to which the relevant Obligor or
the Guarantor (as the case may be) has a good defence which
it is diligently pursuing.
(iv) An order for the winding-up or administration or bankruptcy
of any Obligor or the Guarantor is made.
(v) Any other step (including petition, proposal or convening a
meeting) is taken with a view to the rehabilitation,
administration, custodianship, liquidation, winding-up,
dissolution or bankruptcy of any Obligor or the Guarantor
or any other insolvency or analogous proceedings involving
any such person unless, in the case of a petition (other
than in the case of a petition for administration) the
relevant Obligor or the Guarantor (as the case may be) can
demonstrate to the satisfaction of Burdale (acting
reasonably) that the relevant petition is frivolous,
vexatious or an abuse of process of the court or that it
relates to a claim to which the relevant Obligor or the
Guarantor (as the case may be) has a good defence which it
is diligently pursuing.
(j) LIKE PROCEEDINGS: There occurs, in relation to any Obligor or the
Guarantor, any event anywhere which, in the opinion of Burdale,
appears to correspond with any of those mentioned in paragraphs
(f), (g), (h) or (i) above.
(k) CESSATION OF BUSINESS: Any Corporate Obligor or the Guarantor
ceases, or threatens to cease, to carry on all or a substantial
part of its business.
(l) AUTHORISATIONS: Any authorisation, approval, consent, licence,
exemption, filing, registration or notarisation or other
requirement necessary to enable any Obligor or the Guarantor to
comply with any of its obligations under the Finance Documents or
for Burdale to enter into this Agreement and make available
and/or maintain the Facilities or any of them is revoked or
withheld or does not remain in full force and effect or is
materially and adversely modified.
<PAGE>
(m) SEIZURE: The conduct of the business of any Corporate Obligor is
wholly or substantially curtailed by any seizure or intervention
by or on behalf of any authority.
(n) UNLAWFULNESS: It is or becomes unlawful for any Obligor or the
Guarantor to perform any of its obligations under the Finance
Documents.
(o) CHANGE OF CONTROL: Any single person or group of persons acting
in concert (as defined in the City Code on Takeovers and Mergers)
not having control of the Company directly or indirectly as at
today's date, acquires or agrees to acquire control (as defined
in Section 416 of the Income and Corporation Taxes Act 1988) of
the Company.
(p) MATERIAL ADVERSE EFFECT: An event or series of events occurs
which in Burdale's reasonable opinion constitutes or could
reasonably be expected to constitute a Material Adverse Effect.
(q) CHARGED ACCOUNT ARRANGEMENTS:
(i) Any Account Bank repudiates or purports to terminate the
arrangements set out in the Debenture unless, in relation
to an Other Account, the Company has within 15 Business
Days of such repudiation or purported termination closed
the relevant Other Account and opened another account with
a bank which has been given and has acknowledged all
notices required by the Debenture; or
(ii) A cash-sweep or payment required to be made by any Account
Bank under any Finance Document from a Charged Account is
not made in the amount and manner required; or
(iii) The Company has not, prior to 31st January 2000, closed
all Other Accounts at HSBC Bank plc (or any member of the
HSBC group, including without limitation, Midland Bank
PLC) and opened replacement bank accounts with a bank
which is satisfactory to Burdale and such bank has been
given and has acknowledged all notices required by the
Debenture.
15.2 ACTION ON DEFAULT
Upon the occurrence of any Event of Default and whilst the same is
continuing, and without prejudice to any of Burdale's rights under this
Agreement, Burdale may, by notice to the Company:
(a) declare that an Event of Default has occurred; and/or
(b) declare that the Facilities or any of them shall be cancelled,
whereupon the Facilities or such of them (as the case may be)
shall be so cancelled and all fees (including without limitation
pursuant to Clause 6.7(b)) payable in relation to the Facilities
or such of them (as the case may be) shall become immediately due
and payable; and/or
<PAGE>
(c) declare that some or all of the Loans, together with accrued
interest and all other amounts accrued, be immediately due and
payable, whereupon they shall become immediately due and payable;
and/or
(d) declare that some or all of the Loans, together with accrued
interest and all other amounts accrued, be payable on demand,
whereupon they shall immediately become payable on demand (and in
the event of any such demand those Loans, such interest and such
other amounts shall be immediately due and payable); and/or
(e) declare that the Company shall forthwith pay or procure the
payment to Burdale of a sufficient sum to cover the amount of all
Outstanding Purchase Price and/or any contingent obligations of
Burdale under any outstanding L/Cs and/or any contingent
obligation of Burdale under any Forex Transaction, whereupon the
same shall become immediately due and payable and, once paid,
shall be held by Burdale in an interest bearing account for
application against such Outstanding Purchase Price or contingent
obligation (as the case may be), provided that any sum remaining
after settling such payments shall be applied first in settlement
of any other amounts then due and payable to Burdale under the
Finance Documents and, subject to that, any balance shall be
promptly repaid to the Company or other person entitled to the
balance.
15.3 APPOINTMENT OF INSOLVENCY OFFICER
If any liquidator, trustee in bankruptcy, judicial custodian,
compulsory manager, receiver, administrative receiver, administrator or
any other insolvency officer is appointed in respect of any Obligor or
any part of its assets (whether on the application or with the consent
of Burdale or otherwise) then Burdale may (with or without it first
having exercised any of its other rights under the Finance Documents),
by notice to the Company, declare that the fee specified in Clause
6.7(b) be immediately due and payable or, at Burdale's option, payable
upon demand as if the Facility Limit at such time had been reduced to
zero, whereupon such fee shall become immediately due and payable or
payable on demand (as the case may be).
16. COSTS, EXPENSES AND FEES
16.1 INITIAL AND GENERAL COSTS
The Company shall pay to Burdale on demand the amount of all costs and
expenses (including legal fees and VAT) incurred by it:
(a) in the negotiation, preparation, printing and execution of the
Finance Documents (including any Finance Documents executed after
today's date);
(b) in relation to any amendment, waiver, consent or suspension of
rights requested by or on behalf of any Obligor relating to a
Finance Document;
<PAGE>
(c) in remitting loan proceeds, collecting cheques and other items of
payment, and establishing and maintaining the Charged Accounts,
together with Burdale's associated and customary charges and
fees;
(d) as out-of-pocket expenses and costs from time to time (including
prior to today's date) during the course of periodic field
examinations of the Collateral and the Company's operations, plus
a daily charge at the Daily Rate for Burdale's examiners in the
field and office for up to four such periodic field examinations
in any 12 month period prior to a Default and for any other or
additional field examinations on and after the occurrence of a
Default.
16.2 VALUATIONS
(a) Immediately upon demand, the Company shall pay the costs of:
(i) the Initial Valuation; and
(ii) any Valuation under Clause 16.2(b).
(b) Burdale may request a Valuation:
(i) once in each period of 12 months commencing today's date;
and
(ii) at any time if a Default is outstanding.
(c) Burdale may also call for a Valuation at any time at its own
cost.
16.3 ENFORCEMENT COSTS
The Company shall pay to Burdale on demand the amount of all costs and
expenses (including legal fees and VAT) incurred by it in:
(a) the enforcement of, or the preservation of any rights under, any
Finance Document; or
(b) investigating any Default.
16.4 FEES
(a) FACILITY FEE: The Company will pay to Burdale today a facility
fee equal to 1% on the amount of the Facility Limit.
(b) ANNUAL FEE: The Company will pay to Burdale on each anniversary
of today's date an annual fee of(pound)13,200.
(c) COMMITMENT FEE: The Company will pay to Burdale a commitment fee
computed at the rate of 0.375% on the daily undrawn/unutilised
balance of the Facility Limit. Accrued Commitment Fee shall be
payable monthly in arrears from today's date and also on the date
on which all the Facilities are terminated. Commitment fee
<PAGE>
shall accrue from day to day and be calculated on the basis of a
365 day year and for the actual number of days elapsed.
(d) MONITORING FEE: The Company will pay to Burdale a monitoring fee
of(pound)3,500 quarterly in advance with the first payment to be
made on today's date.
(e) L/C FEE: The Company will pay to Burdale a fee equal to 0.25% per
month on the face amount of each L/C issued at the Company's
request in respect of the period between the date of issue of the
L/C and the End Date of such L/C. The fee shall be calculated on
the basis of a 365 day year and shall be paid monthly in arrears
and on the End Date of such L/C.
17. INDEMNITIES
17.1 CURRENCY INDEMNITY
If any amount payable by any Obligor under or in connection with any of
the Finance Documents is received by Burdale in a currency other than
that agreed to be payable under the Finance Documents, whether as a
result of any judgment or order or other enforcement, the liquidation
or bankruptcy of any Obligor or otherwise howsoever and the amount
produced by converting the currency so received into the agreed
currency is less than the relevant amount of the agreed currency, then
the Company will as an independent obligation indemnify Burdale for the
deficiency and any loss sustained as a result. Such conversion will be
made at the Exchange Rate, on such date and in such market as is
determined by Burdale as being most favourable for such conversion. The
Company will in addition pay the costs of such conversion.
17.2 FOREIGN EXCHANGE INDEMNITY
The Company will indemnify and hold Burdale harmless from and against
any and all losses, claims, damages, liabilities, costs and expenses
which Burdale may suffer or incur in connection with any Forex
Transaction and any documents, drafts or financial information relating
to such Forex Transaction, including, but not limited to, any losses,
claims, damages, liabilities, costs and expenses due to any action
taken by any counterparty with respect to any Forex Transaction, except
for any such losses, claims, damages, liabilities, costs and expenses
suffered or incurred by Burdale as a result of its gross negligence or
wilful misconduct as determined pursuant to a final non-appealable
order of a court of competent jurisdiction. The Company assumes all
risks with respect to the acts or omissions of any counterparty to any
Forex Transaction and for such purposes the counterparty will be deemed
the Company's agent. The Company assumes all risks for, and agrees to
pay, all foreign and local taxes, duties and levies relating to any
transaction pursuant to the Forex Transactions or any documents, drafts
or financial information relating to such Forex Transaction. The
Company releases and holds Burdale harmless from and against any acts,
waivers, errors, delays or omissions, whether caused by the Company, by
any counterparty or otherwise with respect to or relating to any Forex
Transaction. The provisions of this Clause 17.2 will survive the
discharge of the liabilities of the Obligors under the Finance
Documents.
<PAGE>
17.3 OTHER INDEMNITIES
The Company will indemnify Burdale on demand against any loss or
liability which Burdale incurs as a result of:
(a) the occurrence of any Default;
(b) any payment of principal or other amount being received from any
source otherwise than on its due date under this Agreement;
(c) any Utilisation not being effected after the Company has
delivered a Request in respect of such Utilisation other than as
a result of Burdale's negligence or default;
(d) any prepayment or provision of cash collateral by the Company not
being made in accordance with the terms of this Agreement;
(e) the issue of the letter of credit or guarantee by First Union
Corporation referred to in sub-clause (e) of the definition of
"AVAILABILITY RESERVE" in Clause 1.1 of this Agreement.
In each case the Company's liability includes (without limitation) any
loss of margin or anticipated profits or other loss or expense on
account of funds borrowed, contracted for or utilised to fund any
amount payable under any Finance Document and on account of any
security given by Burdale in relation to those funds and in relation to
any amount repaid or prepaid in relation to any Finance Document.
17.4 STAMP DUTY
Immediately upon demand, the Company shall pay and indemnify Burdale
against any liability it incurs for any stamp, registration or similar
tax or duty (and any applicable penalties) which is or becomes payable
because of the entry into, performance or enforcement of any Finance
Document.
17.5 GENERAL PROVISIONS REGARDING INDEMNITIES
The following provisions apply to each of the indemnities contained in
Clauses 17.1 to 17.4 inclusive (the "INDEMNITIES"):
(a) Each of the Indemnities will remain in full force and effect
until such time as all amounts to which such Indemnities are
expressed to relate have been paid in full. The Indemnities are
additional to and not instead of any security or other guarantee
or indemnity at any time existing in favour of any person.
(b) Any settlement or discharge of any claim under any of the
Indemnities will be conditional upon no payment made under the
Indemnities being avoided or set aside or ordered to be refunded
by virtue of any provision of any enactment relating to
bankruptcy, insolvency or liquidation.
<PAGE>
(c) The obligations arising under the Indemnities will not be
impaired by any circumstances which but for this provision would
impair such obligations including:
(i) any time, indulgence, concession, releases, discharges,
renewals, waivers or consents at any time or from time to
time given to any person;
(ii) any amendment, waiver or alteration made in respect of any
Finance Document;
(iii) the making or absence of any demand on any person for
payment or performance of any obligations, and the
application of any monies at any time received from any
person;
(iv) the enforcement, perfection or protection of or absence of
enforcement, perfection or protection of any security,
guarantee or undertaking;
(v) the release, taking, giving or abstaining from taking of
any security, guarantee or undertaking;
(vi) the winding-up, insolvency, amalgamation, merger or
consolidation of or the making of any arrangement or
composition with or for the benefit of creditors by any
person (or the commencement of any of the foregoing);
(vii) the illegality, invalidity or unenforceability of or any
defect in any provision of any Finance Document or any
liabilities or obligations created or expressed to be
created under any Finance Document; or
(viii) any person ceasing or refraining from giving credit or
making loans or advances to, accepting composition from or
otherwise dealing with any person or any security,
guarantee or undertaking.
(d) The Company will not by virtue of any payment made under the
Indemnities claim any right of subrogation, contribution or
indemnity against any person for so long as any sum remains
payable or capable of becoming payable under this Agreement or
any of the other Finance Documents.
18. EVIDENCE OF INDEBTEDNESS
In any proceedings relating to any Finance Document a statement as to
any amount due to Burdale under this Agreement which is certified as
being correct by an officer of Burdale will in the absence of manifest
error be conclusive evidence that such amount is in fact due and
payable.
19. NOTICES
19.1 DELIVERY AND RECEIPT
<PAGE>
All notices pertaining to this Agreement shall be given in writing or
facsimile and shall be deemed to be given as follows:
(a) if in writing, when delivered; and
(b) if by facsimile, when received,
save that any notice delivered or received on a non-working day or
after business hours shall be deemed to be given on the next working
day at the place of delivery or receipt.
19.2 ADDRESSES
(a) The Company's address and facsimile number for notices are:
76 Bilton Way
Enfield
Middlesex
EN3 7EP
Facsimile no: 0208 443 8750
For the attention of: Finance Director
or such as the Company may notify to Burdale by not less than 10
days' notice.
(b) Burdale's address and facsimile number for notices are:
53 Queen Anne Street
London W1M 0HP
Facsimile no: 0171 935 5445
For the attention of: Company Secretary
or such as Burdale may notify to the Company by not less than 10
days' notice.
20. WAIVER, REMEDIES CUMULATIVE
The rights of Burdale under the Finance Documents:
(a) may be exercised as often as necessary;
(b) are cumulative and not exclusive of its rights under the general
law; and
(c) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any right shall not be deemed
to be a waiver of that right.
<PAGE>
21. INVALIDITY
If any of the provisions of this Agreement become invalid, illegal or
unenforceable in any respect under any law, the validity, legality and
enforceability of the remaining provisions will not in any way be
affected or impaired.
22. ASSIGNMENT AND PARTICIPATION
22.1 ASSIGNMENT
The Finance Documents shall be binding upon and inure to the benefit of
and be enforceable by Burdale, the Company and their respective
successors and assigns, except that the Company may not assign its
rights under any Finance Document. Burdale may, after notice to the
Company, assign its rights and delegate any or all of its obligations
under the Finance Documents.
22.2 TRANSFER BY BURDALE
Burdale may at any time assign, transfer or offer participations in all
or a proportion of all its rights and obligations under the Finance
Documents to any Qualifying Lender provided that on an assignment,
novation or transfer to a bank (as defined by section 840A ICTA) for
the purpose of section 349 ICTA, the provisions of Clauses 10.2(f), (g)
and (h) shall not apply.
23. GOVERNING LAW AND JURISDICTION
23.1 GOVERNING LAW
This Agreement will be governed by and construed in accordance with
English law.
23.2 JURISDICTION
For the benefit of Burdale, the Company irrevocably agrees that the
courts of England will have non-exclusive jurisdiction to settle any
disputes which may arise out of or in connection with this Agreement
and that accordingly any suit, action or proceeding arising out of or
in connection with this Agreement may be brought in such courts.
23.3 PROCESS AGENT
For the benefit of Burdale, the Company irrevocably accepts its
appointment as the Guarantor's agent for service of process pursuant to
the terms of the Guarantee.
24. GOODS AND DOCUMENTS
24.1 PLEDGE
All Goods and Documents are hereby and shall upon despatch from the
supplier of any Goods be deemed to be pledged by the Company to Burdale
and the Goods and the proceeds of all insurances in relation to them
and all sales of them and all of the
<PAGE>
Company's rights as unpaid seller of them shall be a continuing
security for the payment and discharge in full of all of the
obligations of the Company under the Finance Documents.
24.2 PERFECTION OF PLEDGE
Burdale shall be entitled at its option to obtain possession of the
Goods in order to perfect the pledge made by Clause 24.1 and in this
regard the Company assigns to Burdale its right, title and interest in
and to the Documents and all claims and rights arising from them and
the Company irrevocably and unconditionally authorises Burdale to do
all such things as may be necessary to clear the Goods, take possession
of them and realise the Goods in reduction of the Company's
indebtedness to Burdale and in this regard the Company irrevocably
appoints Burdale acting through any one of Burdale's directors as the
Company's agent to sign all such documents and do all such things on
the Company's behalf as may be necessary to give effect to the
provisions of this Clause 24.2.
24.3 TRUST RECEIPTS
The Goods and the Documents shall only be released to the Company by
Burdale against receipt by Burdale of a duly executed trust receipt
from the Company in Burdale's standard form (from time to time) and if,
for any reason, no such trust receipt is executed by the Company in
respect of any Goods or Documents, such Goods or Documents shall be
deemed to be subject to a trust receipt in such form.
24.4 SEPARATION
The Company undertakes to keep the Documents and the Goods separate and
distinct from any other bills of lading, documents of title or goods.
25. DISCLOSURE OF INFORMATION
Burdale may disclose to any person with whom it is proposing to enter
into (or has entered into) any kind of assignment or transfer in
relation to this Agreement any information concerning the Company as
Burdale may in its discretion think fit, and may advertise or publicise
in such publications and to such persons as Burdale may in its
discretion think fit such particulars of this transaction as Burdale
may in its absolute discretion deem appropriate.
26. COUNTERPARTS
This Agreement may be executed in any number of counterparts and all of
such counterparts taken together will be deemed to constitute one and
the same instrument.
This Agreement has been entered into on the date stated at the beginning of the
Agreement.
<PAGE>
SCHEDULE 1
CONDITIONS PRECEDENT
PART I
AUTHORISATIONS
1. A certified copy of the memorandum and articles of association and
certificate of incorporation and all certificates of incorporation on
change of name (or any equivalent constitutional documents) of each
Corporate Obligor and the Guarantor.
2. A certified copy of a resolution of the board of directors of each
Corporate Obligor and the Guarantor approving each of the Finance
Documents to which it is a party and the transactions contemplated by
each of such Finance Documents and authorising a specified person or
persons to execute each of the Finance Documents (as a deed where
necessary) and to give all notices, requests, instructions,
certificates and other documents to Burdale in connection with such
Finance Documents.
3. A director's certificate executed by a director of each Corporate
Obligor and the Guarantor:
(a) certifying that all corporate action of such Corporate Obligor
or the Guarantor (as the case may be) required to enable it to
enter into, execute and perform each of the Finance Documents
to which it is a party and to authorise the transactions
contemplated therein has been taken;
(b) setting out the specimen signatures of those persons referred
to in 2 above; and
(c) certifying that utilisation of the Facility Limit would not
cause any borrowing limit binding on it to be exceeded.
4. A certified copy of all other resolutions, authorisations, approvals,
consents and licences (corporate, official or otherwise (including
exchange control consents)) necessary or desirable for the entry into
and performance of the Finance Documents to which each Obligor and
the Guarantor is party and/or for the enforceability and validity of
such Finance Documents.
5. A telephone and facsimile indemnity.
DOCUMENTS AND SECURITY
6. The Finance Documents duly executed by each party to them (excluding
Burdale).
7. A certified copy of each notice required to be despatched pursuant to
the Debenture.
8. Acknowledgements from all recipients of the notices referred to in 7
above as required by the Debenture or agreement by the relevant
recipient of the form of acknowledgement to be given by it.
<PAGE>
9. Evidence of the level and extent of the insurance of the Company and
that Burdale is stated as loss payee and joint insured and that the
insurance policies comply with the requirements of the Finance
Documents.
10. Details of the amounts standing to the credit of each Charged Account
as at, or immediately prior to, today's date.
WAIVERS AND CONSENTS
11. All waivers, releases, terminations and other documents as Burdale
may request to evidence and effect the termination of any existing
financing arrangements of each Corporate Obligor with any other
lender and the termination and release by any such other lenders of
any and all of its/their interests pursuant to their financing
arrangements with each Corporate Obligor.
12. All consents, waivers, acknowledgements and other agreements from
third persons which Burdale may deem necessary or desirable in order
to permit, protect and perfect the security interests granted by the
Corporate Obligors to Burdale including, without limitation, waivers
by lessors, owners or mortgagees, processors, warehousers or
consignees of any security interests, or other claims which such
persons may have in relation to the Collateral.
AVAILABILITY LIMIT INFORMATION
13. A schedule of Receivables and all such other information as Burdale
requires pursuant to Clause 4 in order to determine the amount of
Eligible Receivables as at today's date.
14. Such information as Burdale may require in order to determine each
Availability Limit for the purposes of Clause 4.
15. Burdale having determined the Availability Limits pursuant to Clause
4 to apply as from today's date.
16. The Initial Valuation.
17. Evidence satisfactory to Burdale that there has been no material
adverse change in the business, operations, profits or prospects of
the Company since the field examinations carried out by or on behalf
of Burdale.
MISCELLANEOUS
18. Evidence that the total amount available for Utilisation immediately
following the proposed initial Utilisations shall be at a level
acceptable to Burdale.
19. Any fees due and costs to be met pursuant to Clause 16 having been
paid.
20. Satisfactory results to all final company searches in relation to
each Corporate Obligor.
<PAGE>
21. Legal opinion from Delaware counsel to the Company in relation to the
Guarantor's execution of the Guarantee.
22. Copies of such other deeds, documents, consents or authorities as it
requires having regard to the transactions contemplated by this
Agreement and the reasonable requirements of Burdale to protect its
interests as a lender.
PART II
PROPERTY
1. All title documents for the Property or a letter to Burdale from BT
undertaking to deliver all such title documents on receipt of funds
due to it.
2. An effective discharge of all mortgages, charges and liens affecting
the Property including completed forms and fees for all resultant
registration formalities.
3. Appropriate Land Registry application forms duly completed
accompanied by all necessary Land Registry fees.
4. Satisfactory results to all priority searches and Land Charges
searches in relation to the Property and the security to be provided
over it by the Debenture.
5. A certificate of title to the Property prepared by Matthew, Arnold &
Baldwin and addressed to Burdale.
6. An Environmental report in relation to the Property addressed to
Burdale.
7. Copies of such other deeds, documents, consents or authorities as it
requires having regard to the transactions contemplated by this
Agreement and the reasonable requirements of Burdale to protect its
interests as a lender.
<PAGE>
SCHEDULE 2
PART I - FORM OF PURCHASE REQUEST
Date: o
To: Burdale Financial Limited
53 Queen Anne Street
LONDON W1M 0HP
Attention: Company Secretary
Dear Sirs,
FACILITY AGREEMENT DATED O 1999 (THE "FACILITY AGREEMENT")
We refer to the Facility Agreement, terms defined in which have the same meaning
when used in this Purchase Request.
1. We wish to sell to Burdale on or before o or such later date as the
Company agrees with Burdale (the "PURCHASE DATE") the Receivables
numbered assignment o amounting to (pound)o details of which are set
out in the attached Schedule, initialled on each page for the
purposes of identification.
2. We hold the invoice strictly to your order and agree to supply it, or
a copy (certified by an officer of the Company or otherwise as
Burdale may from time to time approve) together with certified copies
of relevant shipping documents in respect of such Receivables, and a
copy of our irrevocable instructions to the Account Debtor to pay the
full invoice amount of the relevant Receivable (without deduction,
withholding or set off) at maturity to the Blocked Account, forthwith
upon your request.
3. We further confirm that the relevant Receivables offered are readily
identifiable from the books of the Company.
[TO BE INSERTED IN FIRST PURCHASE REQUEST ONLY]
4. [In addition to the offer made in paragraph 1 above, we hereby offer
to sell to you all future Receivables (during the continuance of the
Facility Agreement) subject to the terms of the Facility Agreement
(including in relation to the calculation of the Purchase Price).
This offer together with the offer made in paragraph 1 above shall be
regarded as a single composite offer which may be accepted or
rejected in its entirety but not in part only. Your acceptance of
this offer shall be demonstrated by the payment to us of any amount
of Purchase Price in relation to the Receivables described in
paragraph 1 above.]
We confirm that no Event of Default has occurred and is continuing or would
result from Burdale purchasing the Receivables offered and we are not aware of
any Default which has not already been notified to you. We also confirm that no
Availability Limit will be breached as a result of
<PAGE>
Burdale purchasing the Receivables offered and all the representations and
warranties in Clauses 8 and 13 of the Facility Agreement which are to be made or
repeated as at the date of this Purchase Request are true and correct.
The terms of the Agreement shall apply to this Purchase Request.
Yours faithfully
for and on behalf of
CERPLEX LIMITED
SCHEDULE
INVOICE NO ACCOUNT DEBTOR INVOICE DATE
<PAGE>
PART II - FORM OF CASH REQUEST
Date: o
To: Burdale Financial Limited
53 Queen Anne Street
LONDON W1M 0HP
Attention: Company Secretary
Dear Sirs,
FACILITY AGREEMENT DATED O 1999 (THE "FACILITY AGREEMENT")
We refer to the Facility Agreement, terms defined in which have the same meaning
when used in this Cash Request.
Pursuant to the terms of Clause 5.2, we wish you to pay to us the sum of
(pound)o as follows:
(a) Utilisation Date: o
(b) Payment Instructions: Please credit the following account:
Account Name: o
Bank: o Bank plc
Branch: o Branch
Account No: o
Sort Code:oo-oo-oo
We confirm that no Event of Default has occurred and remains outstanding or
would result from the requested Utilisation being made and we are not aware of
any Default which has not already been notified to you. We also confirm that no
Availability Limit would be breached by the making of the requested Utilisation
and that all the representations and warranties in Clauses 8 and 13 which are to
be made or repeated as at the date of this Cash Request are true and correct.
Yours faithfully
for and on behalf of
CERPLEX LIMITED
<PAGE>
PART III - FORM OF L/C REQUEST
Date: o
To: Burdale Financial Limited
53 Queen Anne Street
LONDON W1M 0HP
Attention: Company Secretary
Dear Sirs,
FACILITY AGREEMENT DATED O 1999 (THE "FACILITY AGREEMENT")
We refer to the Facility Agreement, terms defined in which have the same meaning
when used in this L/C Request.
We wish to have [state type of L/C] opened for our account under the Facility
Agreement as follows:
(a) Issue Date: o
(b) Expiry Date: o
(c) Requested Amount: o
(d) Beneficiary: o
(e) Beneficiary's bank account: o
(f) Concerning: [Reference the agreement
under which the liability
arises, describe its nature
and quantify it]
We confirm that no Event of Default has occurred and is continuing or would
result from the requested Utilisation and we are not aware of any Default which
has not already been notified to you. We also confirm that no Availability Limit
will be breached as a result of the requested Utilisation and all the
representations and warranties in Clauses 8 and 13 of the Facility Agreement
which are to be made or repeated as at the date of this L/C Request are true and
correct.
Yours faithfully
for and on behalf of
CERPLEX LIMITED
<PAGE>
PART IV - FORM OF FOREX REQUEST
Date: o
To: Burdale Financial Limited
53 Queen Anne Street
LONDON W1M 0HP
Attention: Company Secretary
Dear Sirs,
FACILITY AGREEMENT DATED O 1999 (THE "FACILITY AGREEMENT")
We refer to the Facility Agreement, terms defined in which have the same meaning
when used in this Forex Request.
We wish you to make available a Utilisation pursuant to the Revolving Credit
Facility by executing a contract for the [sale/purchase] of Foreign Currency:
(a) Spot/forward (Date):
(b) Foreign Currency:
(c) Amount:
We confirm that no Event of Default has occurred and is continuing or would
result from the requested Utilisation and we are not aware of any Default which
has not already been notified to you. We also confirm that no Availability Limit
will be breached as a result of the requested Utilisation and that all the
representations and warranties in Clauses 8 and 13 of the Facility Agreement
which are to be made or repeated as at the date of this Forex Request are true
and correct.
Yours faithfully
for and on behalf of
CERPLEX LIMITED
<PAGE>
PART V - FORM OF TERM LOAN REQUEST
Date: o
To: Burdale Financial Limited
53 Queen Anne Street
LONDON W1M 0HP
Attention: Company Secretary
Dear Sirs,
FACILITY AGREEMENT DATED O 1999 (THE "FACILITY AGREEMENT")
We refer to the Facility Agreement, terms defined in which have the same meaning
when used in this Request.
We wish to draw the Property Loan as follows:
(a) Amount: (pound)o
(b) Utilisation Date: o
(c) Payment Instructions: Please credit the following
account:
Account Name: o
Bank: o Bank plc
Branch: o Branch
Account No: o
Sort Code: oo-oo-oo
We confirm that no Event of Default has occurred and remains outstanding or
would result from the requested Utilisation being made and we are not aware of
any Default which has not already been notified to you. We also confirm that no
Availability Limit will be breached by the making of the requested Utilisation
and that all the representations and warranties in Clauses 8 and 13 of the
Facility Agreement which are to be made or repeated as at the date of this
Request are true and correct.
Yours faithfully
for and on behalf of
CERPLEX LIMITED
<PAGE>
SCHEDULE 3
PART I - STOCK REPORT
[On letterhead of Company]
To: Burdale Financial Limited,
53 Queen Anne Street,
LONDON W1M 0HP.
STOCK REPORT CERTIFICATION: No. o
This report, including any attached perpetual stock, stock status report or
similar reports, if any, and/or the information set forth below, as the case may
be, is delivered to Burdale Financial Limited ("BURDALE") pursuant to the
facility agreement dated o 1999 between ourselves (the "COMPANY") and Burdale
(as amended from time to time, the "FACILITY AGREEMENT"), in particular Clause
8.2(a) of the Facility Agreement.
The Company represents and warrants to Burdale that the information included as
part of this report is complete and correct, the values of the stock included as
part of this report have been determined in a manner consistent with the prior
reports previously furnished to Burdale pursuant to the Finance Documents (as
defined in the Facility Agreement), all of the stock included in the amounts
referred to as part of this report is owned exclusively by the Company free and
clear of any claims, security interests or other encumbrances except the Company
on consignment or approval. The Company acknowledges that the loans made to the
Company by Burdale are based upon Burdale's reliance on the information included
as part of this report and all representations and warranties with respect to
stock in the Finance Documents are applicable to the stock referred to as part
of this report and shall be deemed made by the Company again to Burdale as of
the date of this report. The reliance by Burdale on this report should not be
deemed to limit the right of Burdale to establish or revise criteria of
eligibility as to the stock or to otherwise limit, impair or affect the rights
of Burdale under the Finance Documents.
By:
Title:
Date:
- --------------------------------------------------------------------------------
1. Beginning stock balance
as of o ___________________
2. Add: Stock purchase/processed
for the month(s) of o ___________________
3. Subtotal ___________________
<PAGE>
4. Gross sales for the month(s)
for the month(s) of o ___________________
5. Percentage of gross sales
represented by materials o%
6. Product of item 4 times
item 5 above (___________________)
7. Ending Stock balance as
of o (___________________)
<PAGE>
PART II - PREFERENTIAL CREDITOR LISTING
To: Burdale Financial Limited
53 Queen Anne Street
LONDON W1M 0HP
Attention: Company Secretary
Dear Sirs,
As at the month ended o preferential creditors were as follows:
(pound) Period Due Date
Wages & Salary
PAYE/NIC
VAT
Corporation Tax
Other (Please specify)
___________________
Total ___________________
- --------------------------------------------------------------------------------
Payments during the month ended o were as follows:
(pound) Period Due Date
Wages & Salary
PAYE/NIC
VAT
Corporation Tax
Other (Please specify)
___________________
Total ___________________
- --------------------------------------------------------------------------------
I certify that the information contained in this report is correct:
Signature:....................................
Name:.......................................... Date:
<PAGE>
SIGNATORIES
THE COMPANY:
CERPLEX LIMITED
By: /S/ TE CHARLES MINCHIN
----------------------
TE CHARLES MINCHIN
as attorney
BURDALE:
BURDALE FINANCIAL LIMITED
By:
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
The Cerplex Group, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-60027, 333-87643) on Form S-8, of The Cerplex Group, Inc. (formerly known as
Aurora Electronics, Inc.) of our report dated December 20, 1999, relating to the
consolidated balance sheets of The Cerplex Group, Inc. and subsidiaries as of
September 25, 1999 and September 30, 1998, the related consolidated statements
of operations, stockholders' deficit and cash flows for the years then ended and
related schedule, which report appears in the September 25, 1999 annual report
on Form 10-K of The Cerplex Group, Inc.
Our report dated December 20, 1999, contains an explanatory paragraph that
states that the Company has suffered recurring losses from operations, has net
stockholders' and working capital deficiencies, is in default on substantially
all of its debt obligations and does not have the necessary funds to pay
substantially all of its debt obligations which are in default or which mature
in fiscal year 2000, which raise substantial doubt about the Company's ability
to continue as a going concern. The consolidated financial statements and
financial statement schedule do not include any adjustments that might result
from the outcome of this uncertainty.
KPMG LLP
Orange County, California
January 10, 2000
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference of our report dated January 12, 1998 included in Aurora
Electronics, Inc. Form 10-K for the year ended September 30, 1997, into the
previously filed registration statement (No. 333-60027 and No. 333-87643 and No.
333-87643) on Form S-8 of the Cerplex Group (formerly known as Aurora
Electronics, Inc.).
ARTHUR ANDERSEN LLP
Orange County, California
January 7, 2000
EXHIBIT 99.1
Liquidation of Cerplex S.A.S.
Unaudited pro forma financial information
On July 20, 1999, the management of Cerplex S.A.S. ("SAS") requested assistance
from the Commercial Court of Lille, France to structure a social plan for a
portion of the work force. Upon review, the Commercial Court declared SAS
insolvent as of July 15, 1999 and opened bankruptcy proceedings with respect to
SAS. A judicial administrator was appointed by the Court to assist the
management of SAS in all its activities pending the Court's decision on the
development of the proceedings. The terms of assignment of the judicial
administrator included reviewing SAS's condition and prospects and issuing a
recommendation relating to a plan of reorganization developed by SAS management.
While the administrator was overseeing SAS's operations, the Company believed
that a plan of reorganization would be adopted. In the event that the
administrator could not support a plan of reorganization, it would become
necessary to refer the case to a liquidator pursuant to Commercial Court
guidelines.
On October 12, 1999, the Commercial Court, acting upon the recommendation of the
judicial administrator, ordered the liquidation of SAS. After the liquidation of
SAS was ordered, the Company realized its investment in SAS was lost and should
therefore be written off as of July 20, 1999, the date Cerplex, Inc. lost
control of its subsidiary. As a consequence of this order, SAS discontinued its
operations, and the liquidator has laid off substantially all employees. As the
Company effectively lost control of its subsidiary on July 20, 1999, the Company
wrote-off its investment in SAS as of that date.
The liquidator is responsible for selling the assets and paying off the debts of
SAS. As a result of the cost of laying-off all employees, the value of the SAS
assets may not exceed its liabilities. There can be no assurance that Cerplex,
Inc., as shareholder, will receive any liquidation proceeds. Accordingly,
Cerplex, Inc. has written off its investment in SAS which totaled $6.2 million
at July 20, 1999. The $6.2 million write-off is comprised of writing off assets
carried at $20.9 million, liabilities carried at $13.8 million and intercompany
balances for SAS of $0.9 million. Through July 20, 1999, SAS had sales of $27.6
million and a net loss of $0.9 million. These amounts are included in the
Company's consolidated financial statements reported herein. Thereafter, results
from SAS operations have been excluded.
Pro forma financial information.
The following unaudited pro forma combined condensed financial information is
based upon the historical financial statements of the Company and has been
prepared to illustrate the effects of the loss of control of SAS. The unaudited
pro forma combined condensed statement of operations for the year ended
September 25, 1999 gives effect to the write-off of the investment and resulting
deconsolidation of SAS's operating results as if the write-off and the resulting
deconsolidation of SAS's operating results had occurred at the beginning of the
fiscal year.
The unaudited pro forma combined condensed statement of operations information
is provided for comparative purposes only and is not indicative of the results
of operations of the remaining portion of the Company that would have occurred
had the liquidation of SAS occurred at the beginning of the fiscal year
presented, nor is it indicative of the future operating results. The unaudited
pro forma adjustments are based upon currently available information. The
unaudited pro forma combined condensed statement of operations should be read in
conjunction with the Company's consolidated financial statements and the related
notes, included in the Company's financial statements and the related notes,
included in the Company's fiscal 1999 Form 10-K.
<PAGE>
THE CERPLEX GROUP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For the Year Ended September 25, 1999
(In Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Historical Pro forma
For the For the
Year Year
Ended Ended
September 25, Pro forma September 25,
1999 Adjustments 1999
------------------------------------------------
The Cerplex The Cerplex
Group, Inc. Group, Inc.
and Cerplex, excluding
Subsidiaries S.A.S. Cerplex S.A.S.
------------------------------------------------
<S> <C> <C> <C>
Net revenues $ 93,346 $(27,571) $ 65,775
Cost of sales 89,661 (28,754) 60,907
---------- ---------- ----------
Gross profit 3,685 1,183 4,868
Selling, general and administrative expense 22,304 (3,875) 18,429
Amortization of intangibles, including write-off of $18,375, historical 24,295 (5,478) 18,817
Reduction in accruals (2,006) (2,006)
Loss on deconsolidation of French subsidiary 6,176 (6,176)(A) --
---------- ---------- ----------
Operating loss (47,084) 16,712 (30,372)
Interest expense (6,415) (6,415)
Other income (expense), net 1,617 (4,178) (2,561)
---------- ---------- ----------
Loss from continuing operations before provision for income taxes (51,882) 12,534 (39,348)
Provision for income taxes 10 10
---------- ---------- ----------
Loss from continuing operations $ (51,892) $ 12,534 $(39,358)
========== ======= =======
Income (loss) per share of common stock:
Basic and diluted loss on continuing operations $ (7.08) $ (5.37)
========== ========
Weighted average number of common shares outstanding 7,333 7,333
======= ========
</TABLE>
THE CERPLEX GROUP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(A) To exclude the $6,176 loss on the loss of control of the subsidiary.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-25-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-25-1999
<EXCHANGE-RATE> 1
<CASH> 382
<SECURITIES> 0
<RECEIVABLES> 10,146
<ALLOWANCES> 912
<INVENTORY> 5,375
<CURRENT-ASSETS> 16,182
<PP&E> 18,364
<DEPRECIATION> 8,958
<TOTAL-ASSETS> 35,631
<CURRENT-LIABILITIES> 52,678
<BONDS> 0
30,492
59,669
<COMMON> 2,270
<OTHER-SE> (109,478)
<TOTAL-LIABILITY-AND-EQUITY> 35,631
<SALES> 93,346
<TOTAL-REVENUES> 93,346
<CGS> 89,661
<TOTAL-COSTS> 50,769
<OTHER-EXPENSES> (1,617)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,415
<INCOME-PRETAX> (51,882)
<INCOME-TAX> 10
<INCOME-CONTINUING> (51,892)
<DISCONTINUED> 1,286
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (50,606)
<EPS-BASIC> (7.25)
<EPS-DILUTED> (7.25)
</TABLE>
