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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 29, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_______________ to ______________
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Commission File Number 0-23602
THE CERPLEX GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 33-0411354
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1382 BELL AVENUE, TUSTIN, CALIFORNIA 92780
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 258-5600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by 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. X
---
The aggregate market value of voting stock held by non-affiliates of the
registrant on April 4, 1997 based on the closing price of the Common Stock on
the Over-The-Counter Bulletin Board was approximately $5,855,247.
Indicated below is the number of shares outstanding of each class of the
registrant's Common Stock as of April 4, 1997.
Title of Each Class of Common Stock Number of Outstanding
- ----------------------------------- ---------------------
Common Stock, $.001 par value 21,122,034
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THE CERPLEX GROUP, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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PART I
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . 9
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters . . . . . . . . . . . . . . . 10
Item 6. Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . 22
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 24
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PART I
ITEM 1. BUSINESS
The Cerplex Group, Inc. (the "Company" or "Cerplex"), is a leading
provider of service outsourcing to the high technology industry. The Company's
core capabilities are electronic parts repair, spare parts sales and management
and value added logistics management. The Company has developed specialized
competencies in these areas, focusing on computer and peripheral, office
automation and telecommunication markets. Primary services include product
repair, remanufacturing and reutilization, parts sales, guaranteed availability
and advanced exchange, returns processing, and materials management. The
Company's network of facilities in the U.S. and Europe enables it to support
the diverse service needs of its global customers.
In the computer marketplace, the Company primarily services display
terminals, printed circuit boards, laptops, inter-networking equipment,
workstations, mass storage devices and power supplies. In the office
automation marketplace, the Company services printers, scanners, fax machines,
and high value products such as copiers, automatic transfer machines (ATMs),
and other paper-handling equipment. In the telecommunication marketplace, the
company primarily services simple and complex switching systems, payphones,
video conferencing products, multiplexers, mobile communications, transmission
equipment, hubs and modems.
COMPANY SERVICES
The Company has extensive capabilities in servicing products
throughout the process of life cycle management for the Company's targeted
industries. All of the Company's services are focused on reducing its
customers' costs while maintaining high quality services for enhanced end-user
satisfaction. Based on an infrastructure of transportation hubs and dedicated
facilities, the Company can provide one-stop shopping with fast turn around
times at affordable rates.
The Company's primary services include:
DEPOT REPAIR SERVICES. Through an infrastructure of transportation
hubs and specialized depot repair facilities, Cerplex provides manufacturers and
service providers a complete process for product repair, remanufacturing,
conversion and upgrades. Large manufacturers and multivendor service
organizations historically have maintained in-house repair centers dedicated to
servicing specific proprietary products or product lines. Frequently, these
repair centers are cost centers with minimal dedicated resources. Cerplex has
those resources that provide an outsourced solution for some or all of an OEM's
repair requirements.
SPARE PARTS BUSINESS. Cerplex is a source for repaired, new and
reclaimed parts due to the Company's volume of business in depot repair
services. The Company makes available for the marketplace components,
sub-systems and full systems for sale, lease or for use as spares in repair
programs. The Company 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.
The Company has three main spare parts programs. Parts Sales provides
multivendor parts sourcing on industry commodity items. Through a network of
experienced parts sales representatives, electronic access to inventory, and
marketing programs, the Company can support selling its customer's inventory to
the marketplace. Guaranteed Availability provides service providers and Third
Party Manufacturers ("TPM's") with restock of field replacement units. Using
new and refurbished products, the Company can source and deliver parts within 24
to 48 hours on high-valued products which are either in-warranty or
out-of-warranty. Advanced exchange offers service providers and TPM's fixed
rate or lease programs
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on swaps for new and refurbished parts. Cerplex provides same or next day
shipping on these products, which are exchanged with field replaceable units
("FRUs") that are processed in the Company's depot repair programs for repair,
remanufacturing, conversion or upgrade.
VALUE ADDED LOGISTICS SERVICES. Logistics involves the management and
coordination of a variety of activities to ensure the customer has 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 OEMs' customer demands. This is especially true in the
global marketplace as the inability of an OEM to provide an international
customer with timely repair services in that market can adversely affect an
OEM's sales efforts. The Company integrates parts, repair, transportation and
product management to provide its customers with a comprehensive logistics
solution.
OTHER SERVICES. The Company offers a variety of ancillary services to
support and complement its key service offerings. These ancillary services
include help desk services, product return processing, and remanufacturing and
remarketing. The Company's help desk services include hardware support and
order processing. The Company's remanufacturing and remarketing services offer
an OEM turnkey solution for the repair, refurbishment and remarketing of
products returned to an OEM.
CUSTOMERS, SALES AND MARKETING
The Company markets primarily to large manufacturers and service
providers in the computer and peripheral, office automation and
telecommunications industries. The Company's direct sales teams are
geographically located in the United States, United Kingdom and France. Some of
the Company's global customers include British Telecommunications plc ("BT"),
Bay Networks, Canon, Cisco, Digital, Hewlett-Packard, IBM, Siemens Nixdorf,
Xerox and Unisys.
EMPLOYEES
As of December 31, 1996, Cerplex had a work force of approximately
2,100 employees at multi-site operations engaged in management, administrative
and support functions, engineering and repair. The approximately 900 employees
of Cerplex Ltd. and Cerplex SAS, the Company's wholly-owned subsidiaries in
Europe, 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.
RISK FACTORS
This report may contain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed below.
LOSSES AND ACCUMULATED DEFICIT. For the quarter and fiscal year ended
December 31, 1996, the Company reported a net loss of $13.6 million and $27.4
million, respectively, including an operating loss of $8.8 million and $15.3
million, respectively. As of December 31, 1996, the Company had an accumulated
deficit of $74.4 million. The Company anticipates additional losses in the
first quarter of 1997. There can be no assurance that the Company will operate
profitably in the future. Continued losses could materially and adversely
affect the Company's business and the value of, and the market for, the
Company's equity securities.
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING. The
Company's ability to maintain its current revenue base and to grow its business
is dependent on the availability of adequate capital. Without sufficient
capital, the Company's growth may be limited and its existing operations may be
adversely affected. During portions of 1995 and 1996, the Company was in
default under its senior credit agreement and subordinated note agreement. While
the Company has renegotiated amendments to such agreements, the terms of the
senior credit facility have resulted in a reduced borrowing base which will be
further reduced over the next twelve months and the Company currently has
limited borrowing ability under such facility. The Company is required to use a
portion of cash generated from operations, and
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from sales of assets to further reduce its borrowing base under the senior
credit agreements. As a result, the Company currently has limited capital. In
addition, the terms of such agreements restrict the Company's ability to incur
additional indebtedness and could adversely affect the Company's ability to
obtain additional financing. General market conditions and the Company's
future performance, including its ability to generate profits and positive cash
flow, will also impact the Company's financial resources. The failure of the
Company to obtain additional capital when needed could have a material adverse
effect on the Company's business and future prospects. No assurance can be
given that the Company will be able to maintain its current credit facilities
or that additional financing will be available or, if available, will be on
acceptable terms.
IMPACT OF SERIES B PREFERRED STOCK; LACK OF AUTHORIZED CAPITAL. In
June 1996, the Company issued 8,000 shares of Series B Stock at $1,000 per
share in a private placement. The Series B Stock is convertible into Common
Stock of the Company at the option of each holder at the lower of $5.07 per
share or 80% of the average closing bid price over a ten-day period ending
three days prior to the date of conversion. The Series B Stock has certain
rights, privileges and preferences, including preferential voting rights and a
$2,000 per share preference in the event of a sale of the Company. The Board of
Directors may not pay dividends to the holders of the Company's Common Stock
unless and until the Board has paid an equivalent divided to the holders of
Series B Stock based upon the number of shares of Common Stock into which each
share of Series B Stock is convertible. As of April 11, 1997, 5,930 shares of
the Series B Preferred Stock had been converted into approximately 16,150,000
shares of Common Stock.
Due in part to the decreases in the trading price of the Company's
Common Stock, the conversion rights of the Series B Preferred Stock have
resulted in, and may in the future result in, dilution to the holders of Common
Stock. In addition, due to the conversion of the Series B Preferred Stock, the
Company has insufficient authorized Common Stock to effect the conversion of
additional outstanding Series B Preferred Stock or to issue the Common Stock
issuable upon exercise of outstanding options and warrants. The lack of
authorized capital, as well as the existence of the Series B Preferred Stock,
could impact adversely the ability of the Company to consummate an equity
financing. The Company's Board of Directors recently approved an increase in the
Company's authorized Common Stock from 30,000,000 to 60,000,000 shares. The
Company intends to submit this increase to the Company's stockholders for
approval. Failure to receive such approval by July 1997 constitutes an event of
default under the Company's senior credit facility.
DISPUTE WITH LUCENT TECHNOLOGIES. The Company acquired inventory
consisting of used telephones from Lucent. At December 31, 1996, the Company
had $5.9 million of inventory, production cost commitments and assets, related
to the telephones acquired from Lucent, which were subsequently sold to a
Company that specializes in worldwide corporate bartering. In June 1996, the
Company executed a promissory note bearing interest at 9.75% in the amount of
$4.6 million payable on September 15, 1996 in favor of Lucent, reflecting a
portion of the amount invoiced to the Company by Lucent. Lucent has invoiced the
Company for an additional $0.6 million. Due to the quality of the inventory and
the lack of availability of spare parts to effect repairs, the Company believes
it has claims against Lucent. The Company currently does not intend to pay the
Lucent note or other Lucent invoices. If the Company is required to pay the
Lucent note and other Lucent invoices in full, it would have a material adverse
effect on the Company's financial resources. On October 7, 1996, the Company
filed a lawsuit against Lucent in the Orange County Superior Court seeking to
have the Lucent note declared invalid. On November 6, 1996, Lucent filed a
cross-complaint seeking payment of the Lucent Note, alleging damages for breach
of contract and seeking a constructive trust on any proceeds from the sale of
the telephones. The Company's failure to have the Lucent note declared invalid,
or the loss to Lucent of any of the material claims asserted by the Company,
could materially and adversely affect the Company.
RISK OF EXCESS AND UNUSABLE INVENTORY;DECREASED VALUE OF ASSETS. At
December 31 1996, inventory constituted approximately 17% of the Company's
assets. Any decrease in the demand for the Company's repair services could
result in a substantial portion of the Company's inventory becoming excess,
obsolete or otherwise unusable. During the last few years, the Company wrote
down a significant amount of inventory and a significant amount of other assets,
including receivables, securities and goodwill. Changes in the Company's
business, as well as the business of third parties, could adversely affect the
value of assets remaining, possibly resulting in write-offs. The existence,
amounts and timing of any such additional write-offs will be dependent upon
various factors including, without limitation, the volume and profitability of
future operations, market conditions as well as the operations of the
above-mentioned third parties. In addition, the Company became entitled to
receive an aggregate of approximately 370,000 shares of Common Stock of Pen
Interconnect, Inc. in connection with the sale of its InCirT division which were
valued at $5.40 per share. The trading price of such shares has subsequently
decreased substantially and the Company wrote off $1.1 million. There can be no
assurance that the Company will not be required to write down additional amounts
of its investment with respect to such shares in the future. In October 1996,
the Company sold all of its inventory of phones purchased from Lucent to Atwood
Richards, Inc. ("ARI"). The consideration paid to the Company from ARI was up
to $7.5 million in trade credits. As of December 31, 1996, the Company had $5.9
million of inventory, production, cost commitments and assets related to the
telephones acquired from Lucent. The Company has no prior experience in using
trade credits and there can be no assurance the Company will realize the value
of the trade credits. There can be no assurance that the Company will not be
required to write down significant amounts of its inventory or other assets in
the future, which could have a material adverse effect on the Company's business
and results of operations.
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DEPENDENCE ON KEY CUSTOMERS. During 1996, Rank Xerox, IBM and BT
accounted for approximately 17%, 12%, and 11%, respectively, of continuing
operations revenues. During 1995, IBM significantly decreased orders for
certain programs which materially and adversely affected the Company and its
results of operations. A significant portion of the Company's net sales
attributable to IBM in 1995 were from discontinued operations, and, as such, the
Company expects net sales attributable to IBM to continue to account for a
decreasing percentage of the Company's net sales. Also, an agreement with IBM
for spare parts (which accounted for approximately 7% of the Company's net sales
from continuing operations through September 29, 1996) expired in September
1996. Although the Company will not provide spare parts under this agreement
after September 1996, the Company believes it will continue to provide services
to IBM under other programs. Sales to BT significantly decreased during 1996 to
approximately $21.0 million representing a 24% decrease from 1995 and it is
expected that sales during 1997 will decrease from the 1996 levels. There can
be no assurance that major customers of the Company will not terminate any or
all of their arrangements with the Company; significantly change, reduce or
delay the amount of services ordered from the Company; or significantly change
the terms upon which the Company and these customers do business. Any such
termination, change, reduction or delay could have a material adverse effect on
the Company's business.
DEPENDENCE ON CUSTOMERS IN THE ELECTRONICS INDUSTRY. The Company is
dependent upon the continued growth, viability and financial stability of its
customers and potential customers in the electronics industry, particularly the
computer industry. The computer industry has been characterized by rapid
technological change, compressed product life cycles and pricing and margin
pressures. The factors affecting segments of the electronics industry in
general, and the Company's OEM customers in particular, could have an adverse
effect on the Company's business. During 1995 and 1996, several of the
Company's customers experienced severe financial difficulty resulting in
significant losses to the Company as a result of write downs of receivables and
other assets. There can be no assurance that existing customers or future
customers will not experience financial difficulty, which could have a material
adverse effect on the Company's business.
RELIANCE ON SHORT-TERM PURCHASE ORDERS. The Company's customer
contracts are typically subject to termination on short notice at the customer's
discretion and purchase orders under such contracts typically only cover
services over a 90-day period. The termination of any material contracts or any
substantial decrease in the orders received from major customers could have a
material adverse effect on the Company's business.
COMPETITION. The Company competes with the in-house repair centers of
OEM'S and TPM'S for repair services. There is no assurance that these entities
will choose to outsource their repair needs. In certain instances, these
entities compete directly with the Company for the services of unrelated OEM'S
and TPM'S. In addition to competing with OEM'S and TPM'S, the Company also
competes for depot repair business with a small number of independent
organizations similar in size to the Company and a large number of smaller
companies. Many of the companies with which the Company competes have
significantly greater financial resources than the Company. There can be no
assurance that the Company will be able to compete effectively in its target
markets.
MANAGEMENT OF GROWTH. The Company's growth has placed, and will
continue to place, a strain on the Company's managerial, operational and
financial resources. These resources may be further strained by the
geographically dispersed operations of the Company. The Company's ability to
manage growth effectively will require it to continue to improve its
operational, financial and management information systems; to develop the
management skills of its managers and supervisors; and to train, motivate and
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effectively manage its employees. The Company's failure to effectively manage
growth could have a material adverse effect on the Company's business. Due to
factors associated with the Company's business and financial condition, there
can be no assurance that the Company's growth in net sales will continue
into the future.
EXPANSION OF INTERNATIONAL SALES. During 1996, approximately 41% of
the Company's sales were international. There can be no assurance that the
Company will be able to successfully market, sell and deliver its products and
services in these markets. In addition to the uncertainty as to the Company's
ability to expand its international presence, there are certain risks inherent
in doing business on an international level, such as unexpected changes in
regulatory requirements, export restrictions, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer payment cycles,
problems in collecting accounts receivable, political instability, fluctuations
in currency exchange rates and potentially adverse tax consequences, 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.
DEPENDENCE ON ACQUISITION STRATEGY. Certain of the Company's repair
programs result in decreasing net sales as the installed base of the particular
products under such programs decreases over time. An important component of the
Company's strategy to maintain its revenue and to grow its business has been the
acquisition of repair programs and complementary businesses. Competition for
these types of transactions is likely to intensify. The Company's ability to
effect any significant transactions requiring capital will be limited by the
Company's lack of working capital and by the terms of the Company's senior
credit facility and subordinated notes. There can be no assurance that the
Company will be able to acquire additional repair programs or complementary
businesses or, if acquired, that such operations will prove to be profitable.
DISCONTINUED OPERATIONS; CHANGE IN STRATEGY. In September 1995,
Cerplex adopted a plan to discontinue its end-of-life programs, a line of
business which historically generated a significant percentage of the Company's
total sales, but which experienced declining sales. Net sales from end-of-life
programs declined from approximately $33 million in 1994 to $20 million in 1995.
In connection with discontinuing its end-of-life business, the Company changed
certain elements of its business strategy and is undergoing changes in
management and operations, is developing a direct sales force and terminating
the majority of its outside sales representatives, is reducing its emphasis on
inventory acquisitions and is focusing on targeted customers in specific
industries. There can be no assurance that such changes will positively impact
the Company's business and results of operations in the short or long term.
RISK ASSOCIATED WITH THE ABILITY OF EXISTING STOCKHOLDERS TO CONTROL
THE COMPANY. As of April 4, 1997, the officers, directors, principal
stockholders and their affiliates owned greater than a majority of the
outstanding common stock. Although there are currently no voting agreements or
similar arrangements among such stockholders, if they were to act in concert,
they would be able to elect a majority of the Company's directors, determine the
outcome of most corporate actions requiring stockholder approval and otherwise
control the business affairs of the Company. The Board of Directors of the
Company has the authority under the Company's Restated Certificate of
Incorporation to issue shares of the Company's authorized preferred stock in one
or more series and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon any unissued shares of preferred stock. The issuance
of Preferred Stock may adversely affect the voting and dividend rights, rights
upon liquidation and other rights of the holders of Common Stock. The issuance
of preferred stock and the control by existing stockholders, if they were to act
in concert, may have the effect of delaying, deferring or preventing a change in
control of the Company. In April 1997, William A. Klein acquired approximately
3,663,898 shares of Common Stock upon the conversion of Series B Preferred
Stock, Richard C. Davis acquired approximately 178,000 shares of Common Stock
upon the conversion of Series B Preferred Stock and the Sprout Growth, II L.P.
acquired approximately 7,665,541 shares of Common Stock upon the conversion of
Series B Preferred Stock.
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DEPENDENCE ON KEY PERSONNEL. The Company's future success depends,
to a large extent, upon the efforts and abilities of key employees. Competition
for qualified personnel in the industry is intense. The loss of services of
certain of these key employees could have a material adverse effect on the
Company's business. During the last year, the Company has lost the services of
several of its key executive officers and members of management. While the
Company has filled several positions, the Company is currently searching for a
new Chief Executive Officer and certain other key managers. William A. Klein,
the Company's Chairman is currently acting as President and Chief Executive
Officer, while the Company searches for a new Chief Executive Officer. The
failure to engage a new Chief Executive Officer by May 30, 1997 will result in
an event of default under the Company's senior Credit Facility.
NO ASSURANCE OF PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF
STOCK PRICE. Prior to the Company's initial public offering, there was no
public market for the Common Stock. On February 20, 1997, the Company was
removed from the NASDAQ National Market System and commenced trading on the
NASDAQ OTC Bulletin Board. There can be no assurance of an active trading
market for the Company's Common Stock. In addition, the trading price of the
Common Stock has been, and in the future could be, subject to significant
fluctuations in response to variations in quarterly operating results, the gain
or loss of significant contracts, changes in management or new products or
services by the Company or its 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.
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ITEM 2. PROPERTIES
The Company leases certain office and warehouse facilities under
operating leases and subleases which expire at various dates during the next
eight years. The Company believes that the existing facilities are adequate
for its current business. The Company's executive offices are located at the
Tustin, California facility listed below. At April 11, 1997, a description of
the facilities currently leased and subleased by the Company is as follows:
SQUARE
LOCATION FOOTAGE LEASE EXPIRATION
- -------- ------- ----------------
Bracknell, England 3,100 December 1999
Carrollton, Texas 13,240 February 1998
Ft. Lauderdale, Florida 35,314 May 2005
Ft. Lauderdale, Florida 42,169 May 2005
Ft. Lauderdale, Florida 96,000 May 1997
Jeffersontown, Kentucky 77,000 December 2001
Koln, Germany 8,300 September 1997
Lawrence, Massachusetts 117,000 July 2000
Livermore, California 51,840 May 1998
Livermore, California 38,880 May 1997
Livermore, California 18,000 October 1997
Milpitas, California 23,371 March 1998
Newburgh, New York 57,300 July 1997
Poughkeepsie, New York 40,432 October 1998
Poughkeepsie, New York 27,500 Month-to-Month
Rancho Cucamonga, California 68,900 June 2003
Redmond, Washington 37,040 May 1997
Tustin, California 120,300 December 2000
Hunslet Leeds, England 10,650 June 1997
In addition, European subsidiaries of the Company own land and
buildings in Enfield, England and Lille, France.
ITEM 3. LEGAL PROCEEDINGS
The Company acquired inventory consisting of used telephones from
Lucent. At December 31, 1996, the Company had $5.9 million of inventory,
production cost commitments and assets, related to the telephones acquired from
Lucent, which were subsequently sold to a Company that specializes in worldwide
corporate bartering. In June 1996, the Company executed a promissory note
bearing interest at 9.75% in the amount of $4.6 million payable on September 15,
1996 in favor of Lucent, reflecting a portion of the amount invoiced to the
Company by Lucent. Lucent has invoiced the Company for an additional $0.6
million. Due to the quality of the inventory and the lack of availability of
spare parts to effect repairs, the Company believes it has claims against
Lucent. The Company currently does not intend to pay the Lucent note or other
Lucent invoices. If the Company is required to pay the Lucent note and other
Lucent invoices in full, it would have a material adverse effect on the
Company's financial resources. On October 7, 1996, the Company filed a lawsuit
against Lucent in the Orange County Superior Court seeking to have the Lucent
note declared invalid. On November 6, 1996, Lucent filed a cross-complaint
seeking payment of the Lucent Note, alleging damages for breach of contract and
seeking a constructive trust on any proceeds from the sale of the telephones.
The Company's failure to have the Lucent note declared invalid, or the loss to
Lucent of any of the material claims asserted by the Company, could materially
and adversely affect the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION
As of February 20, 1997, Cerplex's Common Stock began trading on the
Over-The-Counter Bulletin Board under the symbol CPLX. Prior to February 20,
1997, the Company's Common Stock traded on the NASDAQ National Market System.
The following table sets forth the range of high and low sale prices for the
Company's Common Stock for the fiscal quarters indicated.
Year ended December 31, 1996 High Low
- ---------------------------- ------ -----
First quarter $ 7.75 $5.03
Second quarter 7.13 5.75
Third quarter 7.25 4.88
Fourth quarter 5.13 0.66
Year ended December 31, 1995 High Low
- ---------------------------- ------ -----
First quarter $12.00 $6.25
Second quarter 9.13 5.00
Third quarter 8.75 4.50
Fourth quarter 9.00 6.25
HOLDERS OF RECORD
At December 31, 1996, Cerplex had approximately 216 stockholders of record
of the Company's Common Stock.
DIVIDENDS
The Company has not paid dividends on its capital stock. The Company
presently intends to retain earnings for use in its business and, therefore,
does not anticipate paying any cash dividends in the foreseeable future. In
addition, the terms of the Company's senior credit facility and the Company's
subordinated notes restrict the ability of the Company to pay cash dividends.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data regarding the
Company's results of operations. 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.
<TABLE>
<CAPTION>
(In thousands, except share data) 1996 1995 1994 1993 1992
- --------------------------------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales $191,493 $144,328 $ 94,006 $22,945 $ 6,584
Gross profit 26,245 16,511 17,039 4,678 789
Income (loss) from continuing operations
before extraordinary items (27,388) (22,047) 1,195 (8,432) (7,745)
Income (loss) from discontinued operations - (17,347) 1,500 13,998 7,768
Net income (loss) $(27,388) $(39,394) $ 684 $ 5,556 $ 23
Net income (loss) per share:
Continuing operations $ (2.04) $ (1.68) $ 0.09 $ 0.16
Discontinued operations(2) - (1.33) 0.11 -
Extraordinary item(3) - - (0.15) -
-------- -------- ------- -------
Net income (loss) per share(1) $ (2.04) $ (3.01) $ 0.05 $ 0.16
======== ======== ======= =======
Weighted average common and common
equivalent shares outstanding 13,419 13,091 13,446 11,363
======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994 1993
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Total assets $105,494 $101,893 $120,707 $70,544
Long-term obligations (less current
maturities 56,817 68,382 60,720 34,205
</TABLE>
- --------------------------
(1) For 1993, net income per share is presented on a pro forma basis to reflect
the provision for income taxes that would have been recorded had the
Company's predecessor affiliated corporations been taxed as C Corporations
under the Internal Revenue Code of 1986, as amended.
(2) In September 1995, the Company discontinued its end-of-life programs, a
segment of the business, through a liquidation of the remaining
operations. Prior period financial statements have been restated to reflect
discontinuance of this segment of the business. See Note 3 to
Consolidated Financial Statements.
(3) In May 1994, the Company extinguished early its Series B Subordinated
Notes. As a result, $3.5 million ($2.0 million net of tax) of the
original issue discount was recognized as an extraordinary item.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This report may contain forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in the
"Business" section under "Risk Factors."
OVERVIEW
The Company is an independent provider of electronic parts repair, spare
parts sales and management, and logistics. The Company's net sales have
increased substantially over the last few years, primarily as a result of
acquisitions. The Company is no longer permitted under the terms of its credit
facility to engage in acquisitions. The Company's results of operations have
been adversely affected over the last two years due to a variety of factors
discussed below.
During the third quarter of 1995, the Board of Directors approved a
Liquidation Plan to discontinue its end-of-life programs, a segment of the
Company, through liquidation of these operations. In its end-of-life programs,
the Company assumed all responsibilities for the support and repair of products
which are no longer manufactured or are being phased out of manufacturing.
Generally, when the Company undertook an end-of-life program, it acquired
substantially all of the unique test equipment, repair equipment and inventories
needed to support the program. Services provided by the Company under
end-of-life programs include repair, provision of spare parts for a defined
period of time, plant return and parts reclamation, engineering and document
control, warehousing, and vendor certification and management. The Company no
longer undertakes these programs. The liquidation of end-of-life programs has
been accounted for as discontinued operations and prior period financial
statements have been restated to reflect the discontinuance of this segment of
the business.
The results of operations for 1996 reflect, to a large degree, the
resolution of several matters that have been adversely impacting the Company.
Specifically, the Company closed its unprofitable Texas operations and reached a
settlement with the SpectraVision bankruptcy; it established reserves for the
impairment of assets, and incurred additional losses on common stock received in
settlement of various transactions; it closed its training operations and
business, resulting in restructuring charges and asset write-downs; and, due to
changes in the Company's business, or the business of third parties, the Company
recorded charges for inventory write-downs, uncollectable receivables and other
assets.
RESULTS OF OPERATIONS
RESULTS OF CONTINUING OPERATIONS
The following table sets forth items from the Company's Consolidated
Statement of Operations as a percentage of net sales.
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 86.3% 88.6% 81.9%
----- ----- -----
Gross profit 13.7% 11.4% 18.1%
Selling, general and administrative expenses 20.6% 23.4% 12.6%
Restructuring charges 1.1% -- --
----- ------ -----
Operating income (loss) (8.0%) (12.0)% 5.5%
===== ====== =====
</TABLE>
NET SALES
Net sales for the year ended December 31, 1996 increased $47.2 million or
32.7% to $191.5 million from $144.3 million in 1995. The increase is primarily
due to the acquisitions of Cerplex SAS in June 1996 and the remaining 51%
interest in MODCOMP/Cerplex in April 1996, along with a full year of sales
generated by Peripheral Computer Support, Inc. ("PCS") which was acquired in
June 1995. The approximately $60 million year-to-year revenue increase from
these acquisitions was partially offset by approximately $10 million decrease in
net sales from the sale, early in 1996, of the Company's InCirT Division, and
from lower sales due to: (1) the shutdown of the Company's Texas contract
manufacturing facility and Washington computer training facility in September
1996, (2) reduced sales to BT and (3) decreased sales in the North American
spare parts business.
Net sales during 1995 increased $50.3 million or 53.5% to $144.3 million
from $94.0 million in 1994. The increase in net sales is primarily due to the
acquisition of a repair depot of BT and the acquisition of Apex Computer in
the second half of 1994, the acquisition of PCS in June 1995 and, to a lesser
extent, increased sales from new customers using existing facilities.
12
<PAGE> 13
GROSS PROFIT
Gross profit for 1996, as a percentage of net sales, increased to 13.7%,
compared with 11.4% for the prior year. The improvement in the gross profit
percentage is primarily attributable to the 1996 acquisitions of Cerplex SAS
and the remaining 51% interest in MODCOMP/Cerplex, together with a full year of
operations from the 1995 acquisition of PCS. This gross profit improvement,
however, was adversely affected by a variety of factors primarily relating to
the Company's North American operations including but not limited to the
impact of unprofitable contracts or operations within the Company's Texas
contract manufacturing and Washington computer training facilities which were
closed during the third quarter and completion of certain other
unprofitable contracts which the Company was winding down. The effect of these
factors included approximately $2.5 million in inventory write-downs, and $4.9
million in charges related to the contract manufacturing operations in Texas,
computer training operations in Washington and telephones purchased from
Lucent.
Gross profit as a percentage of net sales during 1995 decreased to 11.4%
from 18.1% in 1994. The decrease in gross profit percentage from 1994 was
primarily due to losses incurred on contracts the Company was renegotiating
or winding down, a reduction in new orders from SpectraVision which filed
for protection under Chapter 11 of the U.S. Bankruptcy Code in May 1995, and
other miscellaneous inventory adjustments.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
During 1996, selling, general and administrative ("SG&A") expenses
increased by $5.7 million to $39.5 million, while as a percentage of net sales
decreased to 20.8% compared with 23.4% in 1995. The increase in dollar spending
is primarily due to the addition of the Cerplex SAS and MODCOMP/Cerplex
acquisitions in 1996 and a full year of expenses from PCS, acquired in 1995.
Increased SG&A spending was partially offset by a $2.5 million decrease in bad
debt provision to $4.8 million in 1996 compared with $7.3 million in 1995.
SG&A expenses as a percentage of net sales in 1995 increased to 23.4% from
12.6% in 1994. SG&A expenses included a $9.8 million provision representing
losses on receivables from three customers, two of which were operating under
Chapter 11 of the U.S. Bankruptcy Code, and losses on an investment in a stock
purchase warrant. SG&A expenses were also up due to additional headcount,
higher insurance expenses, and increased sales commissions.
RESTRUCTURING EXPENSES
During the third quarter of 1996, the Company closed its contract
manufacturing operations in Texas and its computer training operations in
Redmond, Washington. In connection with the closure of these operations, the
Company recorded restructuring charges of $2.1 million. The restructuring
charges related to write-downs of property and equipment and other assets to
net realizable value, accruals for lease commitments, severance pay for
approximately 180 employees, and other costs needed to complete closure of the
facilities.
13
<PAGE> 14
OTHER INCOME AND EXPENSE
Effective April 1996, the Company sold its contract manufacturing division
in Tustin, California to Pen Interconnect for $3.5 million in cash and
restricted common stock valued at approximately $2 million at the time of the
acquisition. The gain on the sale of the InCirT Division was $0.5 million.
Later in fiscal 1996, the Company determined that the value of the restricted
common stock had been permanently impaired due to subsequent declines in market
value and has reduced the value of these investments to the fair market value
at December 31, 1996. The related loss of $1.1 million on the impairment of
these investments was included in other expense.
Equity in earnings from joint venture decreased by $2.0 million to $0.4
million in 1996 compared with $2.4 million in 1995 primarily due to the Company
acquiring the remaining 51% in MODCOMP/Cerplex in April 1996 and consolidating
the results of the operations and financial condition after that date. These
earnings were attributed to the Company's 49% ownership in MODCOMP/Cerplex,
L.P. which was formed in December 1994.
INTEREST EXPENSE
Interest expense for 1996 increased $3.2 million to $8.3 million from $5.1
million in 1995 as a result of increased average borrowings under the Company's
credit facilities, a higher weighted average interest rate and amortization of
loan discount and commitment fees. Average borrowings outstanding were $63.6
million during 1996 compared with $60.1 million during 1995. The effective
interest rate on credit facilities increased to 10.0% in 1996 from 8.5% in
1995. Loan amortization costs were approximately $2.3 million during 1996.
Interest expense for 1995 increased to $5.1 million from $4.1 million in
1994. The increase in interest expense is attributed to higher weighted
average borrowings outstanding incurred to finance acquisitions, increased
working capital requirements and the capital contribution to MODCOMP/Cerplex.
Average borrowings outstanding were $60.1 million during 1995 compared with
$37.6 million during 1994. Interest expense during 1994 included $0.5 million
of amortization of original issue discount related to the Company's Series B
Notes which were repaid in May 1994. The effective interest rate on long-term
credit facilities decreased to 8.5% in 1995 from 9.8% in 1994.
INCOME TAXES
Total income tax expense for 1996, 1995, and 1994 was allocated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
(dollars in thousands)
Income from continuing operations $1,718 $2,089 $ 542
Discontinued operations -- 42 1,086
Extraordinary items -- -- (1,457)
------ ------ -------
$1,718 $2,131 $ 171
====== ====== =======
</TABLE>
Income tax expense during 1996 and 1995 is primarily related to income
taxes on earnings of the Company's operations in Europe. The effective tax
rate differs from the statutory rate primarily as a result of the impact of not
recording an income benefit related to operating losses in the United States.
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes," provides for the recognition of deferred tax assets if
realization of such assets is more likely than not. The Company's valuation
allowance reduces the deferred tax asset to the amount realizable. The Company
has provided a full valuation allowance against net Federal and State deferred
tax assets due to uncertainties surrounding their realization. The Company
will evaluate the realizability of the deferred tax assets on a quarterly
basis.
14
<PAGE> 15
DISCONTINUED OPERATIONS AND EXTRAORDINARY ITEM
In September 1995, the Company decided to discontinue its end-of-life
programs segment through a liquidation of remaining operations. In connection
with the decision to discontinue its end-of-life programs, the Company provided
$15.4 million for the estimated loss from liquidation of these operations,
primarily related to the disposition of inventory, fixed assets and other
related assets. The liquidation of non-contract operations was completed during
1996 and the remaining contractual obligations with a final customer will be
completed in 1997.
A summary of operating results for discontinued operations is shown below:
1995 1994
------- -------
(dollars in thousands)
Net Sales $19,815 $32,882
======= =======
Income (loss) from operations
Income (loss) before taxes (1,924) 2,586
Provision for taxes 42 1,086
------- -------
Net loss from discontinued operations (1,966) 1,500
Estimated loss from liquidation of
Discontinued operations, no tax benefit
recognized (15,381) --
-------- -------
Net income (loss) from discontinued
operations $(17,347) $ 1,500
======== =======
In May 1994, the Company extinguished early its Series B 9.0% Senior
Subordinated Notes (the "Series B Notes") at the principal amount of $5.7
million. When the Series B Notes were issued in November 1993, they had
detachable warrants to purchase 920,000 shares of common stock at $0.01 per
share associated with them which were valued at $3.93 per warrant at the date
of issuance. In connection with the issuance of the Series B Notes, the
Company recorded an original issue discount for the difference between the fair
value of the warrants at the time of issuance and the exercise price. The
original issue discount was being amortized over a two year period. Pursuant
to the early extinguishment of the Series B Notes the Company charged off as an
extraordinary item $3.5 million ($2.0 million net of applicable taxes), or
$0.15 per share during the quarter ended June 1994.
LIQUIDITY AND CAPITAL RESOURCES
Senior Credit Facility
The Company's senior credit agreement was established in October 1994 (the
"Credit Agreement") with a group of banks led by Wells Fargo Bank. During part
of 1995 and part of 1996, the Company was in default of various covenants in the
Credit Agreement, which resulted in a series of waivers and amendments to the
agreement. In April 1996, the Company entered into an amended Credit Agreement
that reduced the maximum amount under the line of credit from $60.0 million to
$48.0 million and required reductions in the total commitments to $47.0 million
by September 30, 1996, to $45.0 million by December 31, 1996 and to $43.0
million by March 31, 1997. The interest rate on the Agreement was increased to
prime plus 2.25% and the maturity accelerated from October 1997 to March 31,
1997. In consideration for the amendment, the Company provided the lenders with
warrants to purchase 125,000 shares of common stock at $6 per share and paid
certain commitment fees and out-of-pocket expenses.
In April 1997, the agreement was again amended to provide for borrowings
comprising a revolver and a term loan. The revolver has a maximum amount
available of $6.0 million. The interest rate on the revolver is the prime
lending rate plus 2.25%. The term loan is for $38.9 million and carries an
interest rate of prime lending rate plus 3.125%. In addition, the Company must
use to pay down the term loan 66.67% of all cumulative cash flow in excess of
$9.0 million during 1997, and generally the Company must use to pay down the
term loan 66.67% of all proceeds from asset, stock investment and subsidiary
sales, as well as 25% of the proceeds of any equity offerings. The Company
reduced the term loan and the revolver by an aggregate of approximately $8.25
million on April 11, 1997 in connection with the sale of PCS described below.
The amended Credit Agreement expires May 1, 1998. In consideration for the
amendment to
15
<PAGE> 16
the Credit Agreement, the Company was required to provide the lenders with
warrants to purchase 750,000 shares of the Company's common stock at an
exercise price of $0.60, and to pay certain commitment fees and out-of-pocket
expenses. In addition, the warrants issued April 1996 were repriced to an
exercise price of $0.60. The April 1997 Credit Agreement includes revised
covenants for profitability, current ratio, minimum tangible net worth, leverage
and working capital. In addition there is a covenant requiring the Company to
hire a Chief Executive Officer by May 30, 1997.
Subordinated Notes
In November 1993, the Company sold $17.3 million in principal amount of
its Series A 9.0% (changed to 9.5% in October 1994) Senior Subordinated Notes
and $5.7 million in principal amount of its Series B 9.0% Senior Subordinated
Notes with 920,000 detachable warrants to purchase common stock. The
detachable warrants were issued at the option price of $.01 per share resulting
in an original issue discount of $3.6 million on the Series B 9.0% Senior
Subordinated Notes. The Series A Senior Subordinated Notes accrued interest at
the rate of 9.5% per annum, payable quarterly, with principal amount thereof
payable in three equal installments in November 1999, 2000 and 2001. The
Company is subject to certain financial and other covenants which include
restrictions on the incurrence of additional debt, payment of any dividends and
certain other cash disbursements as well as the maintenance of certain
financial ratios.
During part of 1996 and 1997, the Company was in default of various
covenants under the Note Purchase Agreement, which resulted in a series of
waivers and amendments. In April 1996, the Company entered into an amendment
to the Note Purchase Agreements which revised the covenants for maximum
leverage, net worth and fixed charges. In consideration for the amendment to
the Note Purchase Agreements, the Company was required to provide the Senior
Subordinated Note Holders 1,000,000 warrants to purchase common stock at $6.00
per share. The warrants issued pursuant to the amended Note Purchase
Agreements, and the amended Credit Agreement discussed above, were recorded at
fair market value with such amount amortized as a charge against income over
the period of the warrants. In November 1996, the Company entered into
amendments to the Note Purchase Agreements which revised certain financial
covenants. As compensation for the amendments, the company repriced the
warrants issued in April 1996 from $6.00 per share to $2.50 per share.
In April 1997, the Note Purchase Agreement was again amended revising
certain covenants. Interest is now payable semi-annually instead of quarterly.
The term of the Agreement is unchanged from the prior Agreement. In
consideration for the amendment, the Company repriced the warrants issued in
April 1996 to the April 4, 1997 market price of $0.60 per share of common
stock.
Miscellaneous
Effective April 1, 1996, the Company sold its contract manufacturing
operations in Tustin, California for $3.5 million cash and restricted Common
Stock valued at approximately $2.0 million at the time of the acquisition. The
Company was required to use $2.0 million of the proceeds from the sale of the
InCirT Division to repay a portion of the borrowings under the Credit
Agreement. In April 1996, the Company received a distribution from its
earnings of MODCOMP/Cerplex of $3.0 million which was used to acquired the
remaining 51% of this partnership.
In May 1996, the Company acquired Rank Xerox Limited's subsidiary, Cerplex
SAS, for $6.1 million, including estimated taxes, registration fees, legal,
accounting, and other out-of-pocket expenses of $1.2 million. Under the terms
of the Stock Purchase Agreement, the Company has agreed to certain financial
covenants over a four-year period that limit the amount of dividends and
payments in the nature of corporate charges paid by Cerplex SAS; the
maintenance of Cerplex SAS' current ratio greater than one; and restrictions on
guarantees with respect to Cerplex and its subsidiaries (excluding Cerplex
SAS). Accordingly, the cash of Cerplex SAS is generally not available to
Cerplex for financing operations outside of Cerplex SAS.
In June 1996, the Company issued 8,000 shares of Series B Stock at $1,000
per share in a private placement. The Series B Stock is convertible into
Common Stock of the Company at the option of each holder at the lower of $5.07
per share or 80% of the average closing bid price over a ten-day period ending
three days prior to the date of conversion. The Series B Stock has certain
rights, privileges and preferences, including a $2,000 per share preference in
the event of a sale of the Company. The Board of Directors may not pay
dividends to the holders of the Company's Common Stock unless and until the
Board has paid an equivalent divided to the holders of Series B Stock based
upon the number of shares of Common Stock into which each share of Series B
Stock is convertible. As of April 11, 1997, 5,930 shares of the Series B
Preferred Stock had been converted into approximately 16,150,000 shares of
Common Stock.
On April 11, 1997, the Company sold Peripheral Computer Support, Inc.
("PCS"), a subsidiary of the Company, for $14.5 million in cash and the
cancellation of $500,000 of indebtedness. Of such amount, $8.25 million was
used to pay down bank debt, $500,000 was placed into escrow, and approximately
$750,000 was used to pay expenses associated with the transaction.
The Company or it subsidiaries are required to pay BT 1.8 million pounds
in 1999 or earlier if certain sales volumes are reached.
16
<PAGE> 17
The Company acquired inventory consisting of used telephones from Lucent
Technologies, Inc. ("Lucent"). At September 29, 1996, the Company had $7.0
million of inventory, production cost commitments and assets related to the
telephones acquired from Lucent. In June 1996, the Company executed a
promissory note bearing interest at 9.75% in the amount of $4.6 million payable
on September 15, 1996 in favor of Lucent, reflecting a portion of the amount
invoiced to the Company by Lucent (the "Lucent Note"). Lucent has invoiced the
company for an additional $6.0 million. Due to the quality of the inventory and
the lack of availability of spare parts to effect repairs, the Company believes
it has the inventory and the lack of availability of spare parts to effect
repairs, the Company believes it has claims against Lucent. The Company
currently does not intend to pay the Lucent note or other Lucent invoices. If
the Company is required to pay the Lucent Note and other Lucent invoices in
full, it would have a material adverse effect on the Company's financial
resources. On October 7, 1996, the Company filed a lawsuit against Lucent in the
Orange County Superior Court seeking to have the Lucent Note declared invalid.
On November 6, 1996, Lucent filed a cross-complaint seeking payment of the
Lucent Note, alleging damages for breach of contract and seeking a constructive
trust on any proceeds from the sale of the telephones. The Company's failure to
have the Lucent Note declared invalid, or the loss to Lucent of any of the
material claims asserted against the Company, could materially and adversely
affect the Company.
In October 1996, the Company entered into a transaction with Atwood
Richards, Inc. ("ARI") pursuant to which the Company is obligated to continue
to repair and refurbish the remaining telephones in inventory through December
31, 1996, and deliver 100% of the repaired product to ARI. The Company will
receive trade credits for up to $7.5 million in goods and services depending on
the number of telephones repaired. The trade credits received from ARI may be
used to acquire various goods and services. There can be no assurance that the
Company will be able to use the trade credits in the near term, if at all.
The Company's primary source for liquidity is cash flow from operations and
its ability to reduce working capital requirements. The Company has limited
available capacity under its Credit Agreement. Management believes it will
remain in compliance with the financial covenants set forth in the revised
Credit Agreement throughout 1997, and that the borrowing capacity combined with
the net proceeds from the sale of PCS and forecasted cash flow from operations
will be sufficient to meet the working capital needs for 1997. There can be no
assurance that the existing borrowing capacity and cash flow from operations
will be adequate.
17
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and schedule appear in a
separate section of this Annual Report on Form 10-K beginning on pages F-1 and
S-1, respectively.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND ACCOUNTING AND
FINANCIAL DISCLOSURES
None
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below, as of March 31, 1997, for each director and executive
officer of Cerplex is information regarding his age, the period he has served as
a director or executive officer, position(s) with Cerplex, any family
relationship with any other director or executive officer of Cerplex and the
directorships currently held by him in corporations whose shares are publicly
registered.
<TABLE>
<CAPTION>
NAME, AGE AND
FIRST YEAR AS DIRECTOR
<S> <C>
Richard C. Davis, 47, 1990 . . . . Richard Davis has served as a member of the Board of Directors of
Cerplex since May 1990 and as the President of International Operations
of Cerplex since October 1995. Prior to October 1995 Mr. Davis served
as the President of Cerplex and in various executive positions since May
1990. Mr. Davis was the Chief Financial Officer of each of EMServe,
Inc., Diversified Manufacturing Services, Inc. and InCirT Technology
Incorporated from July 1991, June 1991 and February 1990, respectively,
until September 1993 at which time such entities were consolidated with
the Company. Mr. Davis was Vice President and Chief Financial Officer
of Century Data, Inc. from 1986 until 1990. Prior to 1986, Mr. Davis
held various financial, accounting and managerial positions within Xerox
Corporation.
Robert Finzi, 43, 1993 (1)(2). . . Mr. Finzi has been a Vice President of the Sprout Group, a division of
DLJ Capital Corporation, which is the managing general partner of Sprout
Growth II, L.P. and an affiliate of Donaldson, Lufkin & Jenrette
Securities Corporation since May 1991. Mr. Finzi is also a general
partner of the general partner of a series of investment funds managed
by the Sprout Group and a limited partner of the general partner of ML
Ventures II, L.P. From 1984 to 1991, Mr. Finzi was a Vice President of
Merill Lynch Venture Capital. Mr. Finzi also serves as a director of
Platinum Software Corporation and a number of private companies.
Robert W. Hughes, 44, 1997 . . . Mr. Hughes was appointed to the position of Senior Vice President and
Chief Financial Officer on March 10, 1997. Prior to joining Cerplex, Mr.
Hughes served as Vice President, Chief Financial Officer and Treasurer
of Financial World Partners from November 1995 to May 1996. Mr. Hughes
was Chief Financial Officer, International Operations at MAI Systems
Corporation from February 1993 to November 1994. From May 1989 to
August 1992, Mr. Hughes was Chief Financial Officer and Corporate
Secretary of Focus Technologies, Inc. Prior to 1989, Mr. Hughes served
as Senior Audit Manager of KPMG Peat Marwick, LLP for seven years.
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
Jerome Jacobson, 75, 1993 (1) . . . Mr. Jacobson serves as a Director of Datawatch Corporation and as an
individual general partner of ML Ventures II, L.P. since 1987. Mr.
Jacobson is President of Economic Studies, Inc. and an independent
financial advisor and economic consultant. Mr. Jacobson was Executive
Vice President of Bendix Corporation from 1974 to 1980 and was Vice
Chairman of Burroughs Corporation from 1981 to 1984.
Patrick S. Jones, 51, 1996 (1). . . Mr. Jones has served as Vice President/Corporate Controller for Intel
Corporation since 1992. As such, he is responsible for worldwide
accounting, international finance and administration at Intel's overseas
locations, accounting services, external reporting, and all financial
systems applications. Prior to 1992, Mr. Jones served as Vice President
and Chief Financial Officer of LSI Logic Corporation.
William A. Klein, 56, 1990 . . . . William Klein has been the Chairman of the Board of Directors of Cerplex
since its inception in May 1990. Mr. Klein also served as the Company's
Chief Executive Officer from August 1993 until October 1995 and again
since October 1996. Mr. Klein was Chairman of InCirT Technology
Incorporated from 1990 until September 1993 at which time such entities
were consolidated with the Company. Mr. Klein was previously President
and Chief Executive Officer of Century Data, Inc. from 1986 until 1990.
Mr. Klein was the founder and Chief Executive Officer of Cybernex from
October 1981 until its merger with Read-Rite in 1986. Prior to October
1981, Mr. Klein held various positions over a 19-year period with IBM in
engineering, manufacturing and management. Mr. Klein serves as a
director of Smartflex Systems Inc., and on the Boards of several private
companies.
Myron Kunin, 67, 1995 (1)(2) . . Mr. Kunin has served as Chairman of the Board of Regis Corporation since
1983. Mr. Kunin also served as the Chief Executive Officer until July
1995. From 1967 to 1987 he was President of Regis Corporation, and from
1954 to 1965 he served as its Vice President. Mr. Kunin has been a
director of Regis Corporation since 1954. Mr. Kunin has been a director
and major stockholder of Nortech Systems, Inc. since 1990. Mr. Kunin
serves on the Board of Directors of Smartflex Systems Corporation and
serves on the boards of several private companies.
Philip E. Pietrowski, 52, 1995 Mr. Pietrowski was promoted to President of Cerplex North America
Operations in January 1997. He joined the Company in October, 1995 as
Vice President of Logistics and was promoted to Senior Vice President of
North American Operations in January 1996. Mr. Pietrowski spent twenty-
four years at Digital Equipment Corporation in Massachusetts, holding
various senior level positions. The last position he held with Digital
Equipment was Corporate Multivendor Services Business Manager, where Mr.
Pietrowski was responsible for worldwide service logistics, repair of
information systems and administration.
</TABLE>
- -------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
20
<PAGE> 21
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
There were no known filing delinquencies or failure to file with
respect to reports on Forms 3, 4 and 5 which were required to be filed pursuant
to the reporting requirements of Section 16(a) of the Securities Exchange Act of
1934 by members of the Board of Directors, the executive officers of Cerplex,
and beneficial owners of more than ten percent of the outstanding shares of the
Company's Common Stock during 1996.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation awarded to, earned by
or paid for services rendered to the Company in all capacities during the 1996,
1995, and 1994 fiscal years by (i) the Company's Chief Executive Officers during
fiscal 1996 and (ii) the Company's four other most highly compensated executive
officers who were serving as executive officers at the end of fiscal 1996
(together, the "Named Executive Officers"). No executive officer who would have
otherwise been includable in such table on the basis of salary and bonus earned
for the 1996 fiscal year resigned or terminated employment during the fiscal
year.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
Compensation
Annual Compensation Securities
-------------------------------- Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Other($) Options(#) Compensation($)(1)
- --------------------------- ---- --------- -------- -------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
William Klein(2) 1996 $400,036 -- -- -- 2,979
Chairman of the Board 1995 415,422 -- -- -- 791
1994 392,343 -- -- -- 660
James T. Schraith(3)(6) 1996 354,216 -- -- -- 1,197
President and 1995 84,612 -- -- 500,000 195
Chief Executive Officer 1994 -- -- -- -- --
Richard C. Davis 1996 217,624 -- 6,250 -- 2,979
President of International 1995 202,356 -- -- -- 791
Operations 1994 196,197 -- -- -- 660
James R. Eckstaedt(4)(6) 1996 74,038 -- -- -- 684
Senior Vice President and 1995 -- -- -- -- --
Chief Financial Officer 1994 -- -- -- -- --
Philip E. Pietrowski 1996 170,155 -- 7,500 -- 2,979
Senior Vice President 1995 89,250 20,000 1,000 -- 66
North American Operations 1994 -- -- -- -- --
Ray Robidoux(5)(6) 1996 116,308 12,500 6,000 -- 1,539
Senior Vice President 1995 -- -- -- -- --
Sales and Marketing 1994 -- -- -- -- --
</TABLE>
(1) Reflects payments of term life insurance premiums for each Named
Executive Officer.
(2) Mr. Klein served as the Company's Chief Executive Officer until October
1995 and was re-appointed to such position in October 1996.
(3) Mr. Schraith left the Company in October 1996. Had Mr. Schraith been
employed by the Company for all of 1996 his salary would have been
$400,000 and the amount of life insurance premiums paid by the Company
would have been $2,979.
21
<PAGE> 22
(4) Mr. Eckstaedt joined the Company in July1996. Had Mr. Eckstaedt been
employed by the Company for all of 1996 his salary would have been
$175,000 and the amount of life insurance premiums paid by the Company
would have been $2,979.
(5) Mr. Robidoux joined the Company in April 1996. Had Mr. Robidoux been
employed by the Company for all of 1996 his salary would have been
$175,000 and the amount of life insurance premiums paid by the Company
would have been $2,979.
(6) No longer employed by the Company.
STOCK OPTIONS
The following table sets forth, for the year ended December 31, 1996,
information concerning the grant of options to purchase shares of Common Stock
under the Company's 1993 Restated and Amended Stock Option Plan to the Named
Executive Officers. No stock appreciation rights have been granted to any of
the Named Executive Officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Percent of Total Potential Realizable
Number of Options Value at Assumed
Securities Granted to Annualized Rates of
Underlying Employees Exercise Of Stock Price
Options in Fiscal Base Price Expiration ($) Appreciation
Name Granted Year ($/Sh)(2) Date For Option Term(3)
- ------------------ ---------- --------------- ----------- ---------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
James R. Eckstaedt 60,000 6.5% $6.58 07/16/06 248,216 629,028
50,000 5.4% $1.75 11/04/06 55,028 139,452
Philip E. Pietrowski 20,000 2.1% $6.63 01/23/06 83,329 211,171
50,000 5.5% $1.75 11/04/06 56,129 142,242
Ray Robidoux 40,000 4.3% $6.63 04/16/06 166,657 422,342
50,000 5.4% $1.75 11/04/06 55,028 139,452
</TABLE>
(1) Based on option grants for an aggregate of 927,000 shares granted to
employees in 1996, including the options granted to the Named Executive
Officers.
(2) The exercise price per share of the options granted represents the fair
market value of the underlying shares of Common Stock on the date the
options were granted, as determined by the Company's Compensation
Committee. The exercise price may be paid in cash or in shares of the
Company's Common Stock valued at fair market value on the exercise date or
through a cashless exercise procedure involving a same-day sale of the
purchased shares. The Company may also finance the option exercise by
loaning the optionee sufficient funds to pay the exercise price for the
purchased shares and the federal and state income or employment tax
liability incurred by the optionee in connection with such exercise. The
optionee may be permitted, subject to the approval of the Compensation
Committee, to apply a portion of the shares purchased under the option (or
to deliver existing shares of Common Stock) in satisfaction of such tax
liability.
(3) Potential realizable value is based on the assumption that the price per
share of Common Stock appreciates at the assumed annual rate of stock
appreciation for the option term. There is no assurance that the assumed
5% and 10% annual rates of appreciation (compounded annually) will
actually be realized over the term of the option. The assumed 5% and 10%
annual rates are set forth in accordance with the rules and regulations
adopted by the Securities and Exchange Commission and do not represent the
Company's estimate of stock price appreciation.
22
<PAGE> 23
OPTION EXERCISES AND HOLDINGS
The table below sets forth information concerning unexercised options
held as of the end of such year by the Named Executive Officers. No stock
options or stock appreciation rights were exercised during such fiscal year and
no stock appreciation rights were outstanding at the end of such fiscal year.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised in-the-
Options at FY-End Money Options at FY-End(1)
---------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William A. Klein -- -- -- --
James T. Schraith 128,550 312,194 $ 0 $ 0
Richard C. Davis -- -- -- --
James R. Eckstaedt -- 110,000 -- $ 0
Philip E. Pietrowski 5,833 85,167 $ 0 $ 0
Ray Robidoux -- 90,000 -- --
</TABLE>
- ----------------------
(1) Based upon the market price of $1.06 per share, which was the closing
selling price per share of Common Stock on the Nasdaq National Market on
December 27, 1996, the last business day of the 1996 fiscal year, less the
option exercise price payable per share.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
AGREEMENTS
None of the Company's executive officers have employment agreements
with Cerplex, and their employment may be terminated at any time at the
discretion of the Board of Directors. The Compensation Committee has the
discretionary authority as administrator of the Company's 1993 Plan to provide
for the accelerated vesting of the shares of Common Stock subject to outstanding
options upon the happening of certain events, including, without limitation, a
change in control of the Company whether by successful tender offer for more
than 50% of the outstanding voting stock or by proxy contest for the election of
Board members. The options held by each executive officer will vest and become
immediately exercisable in the event of the termination of any executive officer
within twelve months (12) following a change in control of the Company. In
addition, certain of the Company's executive officers will be entitled to
receive a payment equal to the base salary for one (1) year in the event of a
change in control of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Robert Finzi and Myron Kunin served as members of the Company's
Compensation Committee during the 1996 fiscal year.
-23-
<PAGE> 24
COMPENSATION OF DIRECTORS
Each director has received $6,000 per quarter as a retainer fee, $1,000
per Board meeting attended and $1,000 per committee meeting attended since
January 1, 1994 In addition, each non-employee Board member is eligible to
receive automatic option grants under the Company's 1993 Plan as follows: (i)
each individual who is first elected or appointed a non-employee Board member at
or after the 1996 Annual Stockholders Meeting will automatically be granted, on
the date of such initial election or appointment, an option to purchase 20,000
shares of Common Stock and (ii) on the date of each Annual stockholders Meeting,
each individual who is reelected to serve as a non-employee Board member will
automatically be granted an option to purchase 10,000 shares of Common Stock,
provided such individual has served as a non-employee Board member for at least
six months prior to the date of the Annual Meeting. The following directors
were granted an option to purchase 10,000 shares of Common Stock at the 1996
Annual Meeting: Robert Finzi, Jerome Jacobson, and Myron Kunin. Patrick Jones
was granted an option to purchase 20,000 shares of Common Stock at the 1996
Annual Meeting as he was first elected to the Board at such meeting.
-24-
<PAGE> 25
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to Cerplex
regarding the ownership of Cerplex's Common Stock as of April 4, 1997 by (i)
each Named Executive Officer of Cerplex (as such term is defined under the
caption "Executive Compensation," (ii) each director and nominee for director of
Cerplex, (iii) all current directors and executive officers of Cerplex as a
group, and (iv) each stockholder known to Cerplex to be a beneficial owner of
more than five percent (5%) of Cerplex's Common Stock.
Amount and
Nature of
Beneficial Percent of
Name of Beneficial Owner Ownership(#) Class
------------------------ ------------ ---------
William A. Klein(1) . . . . . . 8,654,281 43.2%
Myron Kunin(2) . . . . . . . . 982,642 4.9
Richard C. Davis . . . . . . . 679,204 3.4
Jerome Jacobson(3) . . . . . . 45,105 *
Robert Finzi(4) . . . . . . . . 33,500 *
Patrick S. Jones(5) . . . . . . 20,000 *
James R. Eckstaedt . . . . . . 0 *
Philip E. Pietrowski . . . . . 0 *
Ray Robidoux . . . . . . . . . 0 *
James T. Schraith . . . . . . . 0 *
All current directors and
executive officers as a group
(8 persons)(6) . . . . . . . . 10,437,232 51.8
DLJ Capital Corporation (7) . . 13,240,154 39.9
277 Park Avenue
New York, NY 10172
Sprout Growth II, L.P. (8) . . 11,981,579 38.3
277 Park Avenue
New York, NY 10172
- -------------------
* Less than 1%
(#) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission (the "Commission") and generally
includes voting or investment power with respect to securities. Shares of
Common Stock subject to options, warrants and shares of Series B Preferred
Stock which are currently exercisable or convertible or which will become
exercisable or convertible within sixty (60) days after April 4, 1997 are
deemed outstanding for computing the beneficial ownership of the person
holding such option, warrant or share of Series B Preferred Stock, but are
not outstanding for computing the beneficial ownership of any other person
or entity. The shares of Series B Preferred Stock are convertible into
shares of Common Stock at a conversion rate which
-25-
<PAGE> 26
fluctuates based on the trading price of the Company's Common Stock. For
the purposes of the foregoing table and the footnotes below, each share of
Series B Preferred Stock is assumed to be convertible into 4,885 shares of
Common Stock, which is the applicable conversion rate for a conversion
effected on April 4, 1997. Except as indicated by footnote, and subject to
community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(1) Includes 2,442,599 shares of Common Stock held by the Klein Investments
Family Limited Partnership (the "Partnership"), 1,271,299 shares of Common
Stock held by the Klein 1994 Charitable Remainder Unitrust (the "Trust"),
and 180,000 held by the Klein Foundation. Mr. Klein disclaims beneficial
ownership of these shares except to the extent of his indirect interest in
the shares held by the Partnership and the Trust.
(2) Includes 30,000 shares of Common Stock issuable upon the exercise of
immediately exercisable options.
(3) Includes 20,000 shares of Common Stock issuable upon the exercise of
immediately exercisable options.
(4) Includes 40,000 shares issuable upon the exercise of immediately
exercisable options held by Mr. Finzi for the beneficial ownership of DLJ
Capital Corporation. Mr. Finzi disclaims beneficial ownership of these
shares. The Sprout Growth II, L.P. purchased 2,269 shares of Series B
Preferred and DLJ Capital Corporation purchased 231 shares of Series B
Preferred. Robert Finzi, a director of the Company, serves as a Vice
President of Sprout Group, a division of DLJ Capital Corporation, and is a
general partner of one of the general partners of Sprout Growth II, L.P.
As such, Mr. Finzi may be deemed the beneficial owner of the shares of
Common Stock held by Sprout Growth II, L.P. Mr. Finzi disclaims such
beneficial ownership except to the extent of his indirect partnership
interest in Sprout Growth II, L.P.
(5) These 20,000 shares of Common Stock are issuable upon the exercise of
immediately exercisable options.
(6) This number reflects the stock ownership of the Company's executive
officers and directors as of April 4, 1997 (which are named in "Directors
and Executive Officers of the Registrant" herein), which incorporates the
shares and options referenced in footnotes (1) through (5) above.
(7) Includes 11,931,579 shares beneficially owned by Sprout Growth II, L.P.
(see footnote 8 below). DLJ Capital Corporation, as the managing general
partner of Sprout Growth II, L.P., may be deemed to share voting and
dispositive power with respect to these shares. DLJ Capital Corporation
disclaims beneficial ownership of these shares except to the extent of its
direct and indirect partnership interests in Sprout Growth II, L.P. Also
includes 231 shares of Series B Preferred Stock which were convertible into
1,128,481 shares of Common Stock on April 4, 1997. Also includes 53,826
shares of Common Stock issuable upon the exercise of options held by Mr.
Finzi for the beneficial ownership of DLJ Capital Corporation. See
footnote (4) above.
(8) Includes 2,269 shares of Series B Preferred Stock which were convertible
into 11,084,514 shares of Common Stock on April 4, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company subleases certain real property for its operations in
Irvine, California and in Newburgh, New York from WC Cartwright Corporation, a
California corporation ("WC Cartwright"). Messrs. Klein and Davis and Ms.
Carolyn J. Klein (the spouse of Mr. Klein) are officers, directors and principal
shareholders of WC Cartwright. In 1996, the Company paid to WC Cartwright an
aggregate of $540,000 in rent for use of the real property located in Irvine,
California and $258,000 in rent for use of the real property located in
Newburgh, New York. Under its subleases with WC Cartwright, the Company is
obligated to remit monthly lease payments to WC Cartwright in the amount of
$44,982 through January 1997 with respect to the Irvine, California property,
and $22,204 to $21,010 per month (on a graduated rent basis) through July 1997
with respect to the Newburgh, New York real property.
In June 1996, the Company issued 8,000 shares of Series B Preferred Stock at
$1,000 per share in a private placement. The Sprout Growth II, L.P. purchased
2,269 shares of Series B Preferred and DLJ Capital Corporation purchased 231
shares of Series B Preferred. Robert Finzi, a director of the Company, serves as
a Vice President of Sprout Group, a division of DLJ Capital Corporation, and is
a general partner of one of the general partners of Sprout Growth II, L.P.
-26-
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT:
(1) FINANCIAL STATEMENTS
The Company's financial statements appear on the pages referenced
below:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 . F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity (Deficiency)
for the years ended December 31, 1996, 1995 and 1994 . . . . F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1996, 1995 and 1994 . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . F-6
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULE:
The Company's financial statement schedule appears on the page
referenced below:
SCHEDULE PAGE
-------- ----
II - Valuation and Qualifying Accounts S-1
(3) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE METHOD OF FILING
- ------ ----- ----------------
<S> <C> <C>
2.1 Agreement of Merger dated as of August 30, 1993, by and Incorporated herein by reference to
among Cerplex Incorporated, Diversified Manufacturing Exhibit 2.1 to the Company's
Services, Inc. ("DMS"), EMServe, Inc. ("EMServe"), Registration Statement on Form S-1
InCirT Technology Incorporated ("InCirT") and Testar, (File No. 33-75004) which was declared
Inc. ("Testar"). effective by the Commission on April 8,
1994.
2.2 Agreement and Plan of Merger dated November 12, 1993, Incorporated herein by reference to
between The Cerplex Group Subsidiary, Inc. and Exhibit 2.2 to the Company's
Registrant (conformed copy to original). Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April 8,
1994.
</TABLE>
27
<PAGE> 28
<TABLE>
<S> <C> <C>
2.3 Certificate of Ownership and Merger of Registrant with Incorporated herein by reference to
and into The Cerplex Group Subsidiary, Inc. dated as of Exhibit 2.2 to the Company's
November 12, 1993. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
2.4 Asset Purchase Agreement effective December 17, 1993 by Incorporated herein by reference to
and between Certech Technology, Inc., a wholly-owned Exhibit 2.4 to the Company's
subsidiary of the Registrant ("Certech"), and Registration Statement on Form S-1
Spectradyne, Inc. ("Spectradyne"). (File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
2.5 Purchase and Sale Agreement dated as of July 29, 1994, Incorporated herein by reference to
by and among The Cerplex Group, Inc., Cerplex Limited, Exhibit 2 to the Form 8-K filed July
BT Repair Services Limited and BT. 29, 1994.
2.6 Contract for repair, calibration and warehousing of Incorporated herein by reference to
certain items of BT Equipment dated as of July 29, Exhibit 10 to the Form 8-K filed July
1994, among The Cerplex Group and Cerplex Limited and 29, 1994.
BT.
2.7 Formation and Contribution Agreement effective December Incorporated herein by reference to
1, 1994 by and among Modcomp/Cerplex L.P., Modular Exhibit 2.7 to the Company's Annual
Computer Systems, Inc., Cerplex Subsidiary, Inc. and Report on Form 10-K for the fiscal
The Cerplex Group, Inc. year ended January 1, 1995.
2.8 Contingent Promissory Note dated December 1, 1994 Incorporated herein by reference to
issued by Modcomp/Cerplex L.P. to Modular Computer Exhibit 2.8 to the Company's Annual
Systems, Inc. Report on Form 10-K for the fiscal
year ended January 1, 1995.
2.9 Limited Partnership Agreement of Modcomp/Cerplex L.P. Incorporated herein by reference to
effective December 1, 1994. Exhibit 2.8 to the Company's Annual
Report on Form 10-K for the fiscal
year ended January 1, 1995.
2.10 Put/Call Option Agreement effective December 1, 1994 by Incorporated herein by reference to
and among Cerplex Subsidiary, Inc., The Cerplex Group, Exhibit 2.8 to the Company's Annual
Inc., Modular Computer Systems, Inc. and Modcomp Joint Report on Form 10-K for the fiscal
Venture Inc. year ended January 1, 1995.
2.11 Stock Purchase Agreement dated as of June 29, 1995 by Incorporated herein by reference to
and among The Cerplex Group, Inc., Tu Nguyen and Phuc Exhibit 2.11 to the Company's
Le. Quarterly Report on Form 10-Q for the
quarter ended October 1, 1995.
</TABLE>
-28-
<PAGE> 29
<TABLE>
<S> <C> <C>
2.12 Letter Agreement dated April 5, 1996 by and among Incorporated herein by reference to
Modular Computer Systems, Inc., Modcomp Joint Venture, Exhibit 2.12 to the Company's Annual
Inc., AEG Aktiengesellschaft, the Company, Cerplex Report on Form 10-K for the fiscal
Subsidiary, Inc. and Modcomp/Cerplex L.P. year ended December 31, 1995.
2.13 Stock Purchase Agreement dated March 28, 1997 relating
to all of the outstanding stock of Peripheral Computer
Support, Inc. among the Company, PCS Acquisition
Co., Inc., and Lincolnshire Equity Partners, L.P.
3.1 Restated Certificate of Incorporation of the Incorporated herein by reference to
Registrant. Exhibit 3.1 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
3.2 Bylaws of the Registrant Incorporated herein by reference to
Exhibit 3.2 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
4.1 Stock Purchase Agreement dated as of November 19, 1993 Incorporated herein by reference to
by and among the Registrant, the stockholders of the Exhibit 4.1 to the Company's
Registrant identified in Part A of Schedule I thereto Registration Statement on Form S-1
and the purchasers of shares of the Registrant's Series (File No. 33-75004) which was declared
A Preferred Stock identified in Schedule I thereto effective by the Commission on April
(including the Schedules thereto; Exhibits omitted). 8, 1994.
4.2 Registration Rights Agreement dated as of November 19, Incorporated herein by reference to
1993, by and among the Registrant, the investors listed Exhibit 4.2 to the Company's
on Schedule A thereto and the security holders of the Registration Statement on Form S-1
Registrant listed on Schedule B thereto, together with (File No. 33-75004) which was declared
Amendment No.1. effective by the Commission on April
8, 1994.
4.3 Co-Sale Agreement dated as of November 19, 1993, by and Incorporated herein by reference to
among the Registrant, the managers listed on Schedule A Exhibit 4.3 to the Company's
thereto and the investors listed on Schedule B thereto. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
4.4 Warrant Agreement dated as of November 19, 1993, by and Incorporated herein by reference to
among the Registrant and the purchasers listed in Annex Exhibit 4.4 to the Company's
1 thereto. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
</TABLE>
29
<PAGE> 30
<TABLE>
<S> <C> <C>
4.5 Placement Agent Warrant Purchase Agreement dated as of Incorporated herein by reference to
November 19, 1993, between the Registrant and Exhibit 4.5 to the Company's
Donaldson, Lufkin & Jenrette Securities Corporation. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
4.6 Observation Rights Agreement dated as of November 19, Incorporated herein by reference to
1993, between the Registrant and certain stock Exhibit 4.6 to the Company's
purchasers. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
4.7 Observation Rights Agreement dated as of November 19, Incorporated herein by reference to
1993, between the Registrant and certain note Exhibit 4.7 to the Company's
purchasers. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
4.8 Note Purchase Agreement dated as of November 19, 1993, Incorporated herein by reference to
by and among the Registrant and The Northwestern Mutual Exhibit 4.8 to the Company's
Life Insurance Company, John Hancock Mutual Life Registration Statement on Form S-1
Insurance, Registrant and Bank of Scotland London (File No. 33-75004) which was declared
Nominees Limited. effective by the Commission on April
8, 1994.
4.9 Amendment No. 2 to Registration Rights Agreement dated Incorporated herein by reference to
as of April 6, 1994, by and among the Registrant and Exhibit 4.9 to the Company's
certain of its Securities holders. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
4.10 Amendment to Note Purchase Agreement, dated as of Incorporated herein by reference to
October 27, 1994, by and among the Company, Exhibit 4.10 to the Company's Annual
Northwestern Mutual Life Insurance Company, John Report on Form 10-K for the fiscal
Hancock Mutual Life Insurance Company and North year ended March 31, 1995.
Atlantic Smaller Companies Trust P.L.C. (collectively,
the "Noteholders").
4.11 Waiver and Amendment Agreement dated April 15, 1996 by Incorporated herein by reference to
and among Company, The Northwestern Mutual Life Exhibit 4.11 to the Company's Annual
Insurance Company, John Hancock Mutual Life Insurance Report on Form 10-K for the fiscal
Company and North Atlantic Smaller Companies Investment year ended December 31, 1995.
Trust PLC.
4.12 Warrant Agreement dated as of April 15, 1996 by and Incorporated herein by reference to
among Company, The Northwestern Mutual Life Insurance Exhibit 4.12 to the Company's Annual
Company, John Hancock Mutual Life Insurance Company and Report on Form 10-K for the fiscal year
North Atlantic Smaller Companies Investment Trust PLC. December 31, 1995.
</TABLE>
30
<PAGE> 31
<TABLE>
<S> <C> <C>
4.13 First Amendment to Warrant Agreement dated April 15, Incorporated herein by reference to
1996 by and among Company and each of the holders of Exhibit 4.13 to the Company's
warrants listed on Schedule A thereto, with respect to Annual Report on Form 10-K for the
that certain Warrant Agreement dated November 19, 1993. fiscal year ended December 31, 1995.
4.14 First Amendment to Observation Rights Agreement dated Incorporated herein by reference to
as of April 15, 1996 between Company and certain note Exhibit 4.14 to the Company's
purchasers. Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
4.15 Third Amendment to Registration Rights Agreement dated Incorporated herein by reference to
as of April 15, 1996 by and among Company, the Exhibit 4.15 to the Company's
investors of Company listed on Schedule A thereto and Annual Report on Form 10-K for the
the security holders of Company listed on Schedule B fiscal year ended December 31, 1995.
thereto.
4.16 Warrant Agreement dated April 15, 1996 by and among Incorporated herein by reference to
Company, Wells Fargo Bank, National Association, Exhibit 4.16 to the Company's
Sumitomo Bank of California, BHF Bank Annual Report on Form 10-K for the
Aktiengesellschaft and Comerical Bank-California. fiscal year ended December 31, 1995.
4.17 Waiver and Amendment Agreement dated October 31, 1996 Filed herein.
by and among the Company and the Noteholders.
4.18 Waiver and Amendment Agreement dated December 9, 1996 Filed herein.
by and among the company and the Noteholders.
4.19 Side Letter dated March 28, 1997 by and among the Filed herein.
Company and the Noteholders.
4.20 Amended and Restated Note Purchase Agreement dated Filed herein.
April 9, 1997 by and among the Company and the
Noteholders.
4.21 Second Amendment to Warrant Agreement dated April 9, Filed herein.
1997, by and among the Company and each of the holders
of warrants listed on Schedule A thereto, which Second
Amendment amends the Warrant Agreement dated November
19, 1993 as amended by the First Amendment to Warrant
Agreement dated April 15, 1996.
4.22 Second Amendment to Warrant Agreement dated April 9, Filed herein.
1997 by and among the Company and each of the holders
of warrants listed on Schedule A thereto, which Second
Amendment amends the Warrant Agreement dated April 15,
1996, as amended by a Waiver and Amendment Agreement
dated October 31, 1996.
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C> <C>
4.23 Amended and Restated Warrant Agreement dated April 9, Filed herein.
1997 by and among the Company; Wells Fargo Bank,
National Association; BHF-Bank Aktiengesellschaft; and
Citibank, N.A.
10.1 The Registrant's 1990 Stock Option Plan (the "1990 Incorporated herein by reference to
Plan"). Exhibit 10.1 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.2 Form of Stock Option Agreement pertaining to the 1990 Incorporated herein by reference to
Plan. Exhibit 10.2 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994
10.3 Form of Stock Purchase Agreement pertaining to the 1990 Incorporated herein by reference to
Plan. Exhibit 10.3 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.4 The Registrant's 1993 Stock Option Plan (the "1993 Incorporated herein by reference to
Plan"). Exhibit 10.4 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.5 Form of Stock Option Agreement (grants to employees) Incorporated herein by reference to
pertaining to the 1993 Plan. Exhibit 10.5 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.6 Form of Stock Option Agreement (grants to directors and Incorporated herein by reference to
certain officers) pertaining to the 1993 Plan. Exhibit 10.6 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.7 Form of Stock Purchase Agreement for Installment Incorporated herein by reference to
Options pertaining to the 1993 Plan. Exhibit 10.7 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
</TABLE>
32
<PAGE> 33
<TABLE>
<S> <C> <C>
10.8 Form of Stock Purchase Agreement for Immediately Incorporated herein by reference to
Exercisable Options pertaining to the 1993 Plan. Exhibit 10.8 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.9 The Registrant's Restated 1993 Stock Option Plan (the Incorporated herein by reference to
"Restated Plan"). Exhibit 10.9 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.10 Form of Stock Option Agreement, together with Addenda, Incorporated herein by reference to
pertaining to the Restated Plan. Exhibit 10.10 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.11 Master Task Agreement dated December 1, 1991, by and Incorporated herein by reference to
between International Business Machines Incorporated Exhibit 10.11 to the Company's
("IBM") and the Registrant, together with Amendment to Registration Statement on Form S-1
Master Agreement and Task Order. (File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.12 Master Agreement dated May 6, 1992 by and between IBM Incorporated herein by reference to
and the Company. Exhibit 10.12 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.13 Technology Services Agreement effective March 1, 1993, Incorporated herein by reference to
by and between Novadyne Computer Systems, Inc. Exhibit 10.13 to the Company's
("Novadyne") and Cerplex Incorporated (a California Registration Statement on Form S-1
corporation and a predecessor of the Registrant), (File No. 33-75004) which was declared
together with Amendments Nos. 1 and 2. effective by the Commission on April
8, 1994.
10.14 Technology Services Agreement effective December 17, Incorporated herein by reference to
1993, by and between Spectradyne, Inc. ("Spectradyne") Exhibit 10.14 to the Company's
and the Registrant. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
</TABLE>
33
<PAGE> 34
<TABLE>
<S> <C> <C>
10.15 Repair Services Agreement dated January 1, 1994 by and Incorporated herein by reference to
between Bull HN Information Systems, Inc. and the Exhibit 10.24 to the Company's
Registrant. Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.16 Form of Indemnity Agreement Incorporated herein by reference to
Exhibit 10.15 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.17 Lease Agreement dated April 1, 1992 by and between Incorporated herein by reference to
Henry G. Page Jr., and Diversified Manufacturing Exhibit 10.16 to the Company's
Services, Inc. ("DMS"). Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.18 Sublease dated January 1, 1994 by and between Bull and Incorporated herein by reference to
Cerplex Group, Inc. (a Massachusetts corporation). Exhibit 10.17 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.19 Standard Industrial/Commercial Single-Tenant Lease - Incorporated herein by reference to
Net dated November 29, 1990 by and among Kilroy Exhibit 10.18 to the Company's
Building 73 Partnership, Cerplex Incorporated and Registration Statement on Form S-1
InCirT, together with Amendment No. 1. (File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.20 Lease dated December 17, 1993 by and between Incorporated herein by reference to
Spectradyne and Certech. Exhibit 10.19 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.21 Sublease dated March 1, 1993 by and between Novadyne Incorporated herein by reference to
and the Registrant together with Lease Amendment dated Exhibit 10.20 to the Company's
July 22, 1991 by and between McDonnell Douglas Realty Registration Statement on Form S-1
Company and Novadyne. (File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C> <C>
10.22 Standard Industrial/Commercial Lease - Net dated Incorporated herein by reference to
September 4, 1991 by and between Proficient Food Exhibit 10.21 to the Company's
Company and W.C. Cartwright Corporation ("Cartwright"), Registration Statement on Form S-1
together with Addendum and Sublease dated September 6, (File No. 33-75004) which was declared
1991 by and between Cartwright and the Registrant. effective by the Commission on April
8, 1994.
10.23 Sublease dated July 30, 1992 by and between Cartwright Incorporated herein by reference to
and DMS. Exhibit 10.22 to the Company's
Registration Statement on Form S-1
(File No. 33-75004) which was declared
effective by the Commission on April
8, 1994.
10.24 Credit Agreement dated as of October 12, 1994 (the Incorporated herein by reference to
"Credit Agreement") among The Cerplex Group, Inc., as Exhibit 10.24 to the Company's Annual
Borrower; the lenders listed therein, as Lenders; and Report on Form 10-K for the fiscal
Wells Fargo Bank, National Association, as year ended January 1, 1995.
Administrative Agent; and those certain exhibits,
schedules and collateral documents to such Credit
Agreement.
10.25 Limited Waiver dated as of November 14, 1995 ("Waiver") Incorporated herein by reference to
by and among The Cerplex Group, Inc. (the "Company"), Exhibit 10.25 to the Company's
the financial institutions listed on the signature Quarterly Report on Form 10-Q for the
pages thereof ("Lenders"), and Wells Fargo Bank, quarter ended October 1, 1995.
National Association, as administrative agent for the
Lenders ("Administrative Agent"), and for certain
limited purposes, Certech Technology, Inc., Cerplex
Mass., Inc., Cerplex Limited, Apex Computer Company,
Cerplex Subsidiary, Inc. and Peripheral Computer
Support, Inc. (the "Subsidiaries"), which Waiver is
made with reference to the Credit Agreement.
10.26 The Cerplex Group, Inc. Restated 1993 Stock Option Plan Incorporated herein by reference to
(Restated and Amended as of January 13, 1995). Exhibit 10.26 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended October 1, 1995.
10.27 The Cerplex Group, Inc. Automatic Stock Option Incorporated herein by reference to
Agreement. Exhibit 10.27 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended October 1, 1995.
10.28 First Amendment to Credit Agreement dated April 15, Incorporated herein by reference to
1996 by and among Company, the lenders whose signatures Exhibit 10.28 to the Company's Annual
appear on the signature pages thereof, as Lenders; Report on Form 10-K for the fiscal
Wells Fargo Bank, National Association, as year ended December 31, 1995.
Administrative Agent; and the Subsidiaries for certain
limited purposes.
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C> <C>
10.29 Promissory Note dated June 21, 1996 payable by the Incorporated herein by reference to
Company to Lucent Technologies. Exhibit 10.29 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996.
10.30 Limited Waiver dated as of October 31, 1996 by and Incorporated herein by reference to
among the Company, Lenders and Administrative Agent, Exhibit 10.29 to the Company's
and for certain limited purposes, the Subsidiaries, Quarterly Report on Form 10-Q for the
Modcomp/Cerplex L.P., Modcomp Joint Venture, Inc., quarter ended September 29, 1996.
Modular Computer Services, Inc., Modular Computer
Systems GmbH and Modcomp France S.A., which waiver is
made with reference to the credit Agreement.
10.31 Extension and Forbearance Agreement dated March 31, Filed herein.
1997 by and among the Company, the financial
institutions listed on the signature pages thereof and
Wells Fargo Bank, National Association.
10.32 Second Amendment to Credit Agreement dated November 30, Filed herein.
1996 (the "Second Amendment") by and among the Company,
the financial institutions listed on the signature pages
thereof ("Lenders") and Wells Fargo Bank, National
Association, as administrative agent for the Lenders,
and for certain limited purposes, Certech Technology,
Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer
Company, Cerplex Subsidiary, Inc., Peripheral Computer
Support, Inc., Modcomp/Cerplex, L.P., Modcomp Joint
Venture, Inc., Modular Computer Services, Inc., Modular
Computer Systems GmbH and Modcomp France S.A., which
Second Amendment amends the Credit Agreement dated
October 12, 1994, as amended.
10.33 Third Amendment to Credit Agreement dated April 9, 1997 Filed herein.
(the "Third Amendment") by and among the Company, the
financial institutions listed on the signature pages
thereof ("Lenders") and Wells Fargo Bank, National
Association, as administrative agent for the Lenders,
and for certain limited purposes, Certech Technology,
Inc., Cerplex Mass., Inc., Cerplex Limited, Apex
Computer Company, Cerplex Subsidiary, Inc., Peripheral
Computer Support, Inc., Modcomp/Cerplex, L.P., Modcomp
Joint Venture, Inc., Modular Computer Services, Inc.,
Modular Computer Systems GmbH and Modcomp France S.A.,
which Third Amendment amends the Credit Agreement dated
October 12, 1994, as amended.
21.1 List of Subsidiaries Filed herein.
23.1 Consent of KPMG Peat Marwick LLP, Independent Public Filed herein.
Accountants.
</TABLE>
-36-
<PAGE> 37
(b) REPORTS ON FORM 8-K
For the quarter ended December 31, 1996 the following Form 8-Ks were
filed:
1. On October 15, 1996, a Form 8-K was filed disclosing the resignation of
the Company's Chief Executive Officer.
2. On December 13, 1996, a Form 8-K was filed disclosing that the Company had
completed borrowing amendments with its bank lenders and its sub-debt
holders.
No reports were filed on Form 8-K during the last quarter ended March
29, 1997.
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Dated: April 10, 1997 THE CERPLEX GROUP, INC.
By: /s/ WILLIAM A. KLEIN
----------------------------
William A. Klein
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ WILLIAM A. KLEIN Chairman of the Board April 10, 1997
- ---------------------- of Directors and
William A. Klein Chief Executive Officer
(Principal Executive Officer)
/s/ ROBERT W. HUGHES Senior Vice President of Finance April 10, 1997
- ---------------------- and Chief Financial Officer
Robert W. Hughes (Principal Accounting Officer)
/s/ RICHARD C. DAVIS Director and April 10, 1997
- ---------------------- President of International Operations
Richard C. Davis
/s/ ROBERT FINZI Director April 10, 1997
- ----------------------
Robert Finzi
/s/ JEROME JACOBSON Director April 10, 1997
- ----------------------
Jerome Jacobson
/s/ PATRICK JONES Director April 10, 1997
- ----------------------
Patrick Jones
/s/ MYRON KUNIN Director April 10, 1997
- ----------------------
Myron Kunin
</TABLE>
38
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Cerplex Group, Inc.:
We have audited the accompanying consolidated balance sheets of The Cerplex
Group, Inc. and subsidiaries, as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for each of the years in the three-year period ended December 31,
1996. In connection with our audits of the consolidated financial statements,
we also have audited the consolidated financial statement schedule for each of
the years in the three-year period ended December 31, 1996. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company'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 December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 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.
As discussed in the consolidated financial statements, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of," during 1996.
KPMG Peat Marwick LLP
Orange County, California
February 21, 1997, except as to Notes 12(a),
12(b) and the first and second paragraphs
of Note 18 which are as of April 9, 1997
and Note 20 which is as of April 11, 1997
F-1
<PAGE> 40
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,782 $ 3,807
Accounts receivable, net of allowances of
$9,053 in 1996 and $7,583 in 1995 19,539 30,102
Inventories 17,326 27,789
Net assets of discontinued operations 1,681 2,597
Prepaid expenses and other current assets 8,146 2,267
----- -----
Total current assets 70,474 66,562
Property, plant and equipment, net 28,039 17,988
Investment in joint venture -- 7,723
Goodwill, less accumulated amortization of
$2,941 in 1996 and $1,065 in 1995 4,953 6,647
Other long-term assets 2,028 2,973
----- -----
Total assets $105,494 $101,893
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 19,498 $ 17,024
Note payable 5,026 --
Accrued and other current liabilities 25,347 13,622
Current portion of long-term debt -- 536
Senior revolver 6,000 --
Income taxes payable 1,729 2,161
----- -----
Total current liabilities 57,600 33,343
------ ------
Long-term debt, less current portion 56,817 68,382
Long-term obligations 6,214 --
Commitments and contingencies
Subsequent events
Stockholders' equity (deficiency):
Preferred Stock, par value $.001 per share;
3,066,340 shares authorized, none issued and outstanding;
8,000 shares designated Series B Convertible Preferred
Stock of which 7,197 are issued and outstanding;
aggregate liquidation preference of $14,394 7,197 --
Common Stock, par value $.001 per share;
30,000,000 shares authorized; 14,110,949 and
13,127,680 issued and outstanding in 1996 and
1995, respectively 14 13
Additional paid-in capital 51,648 47,528
Notes receivable from stockholders (139) (226)
Unearned compensation (73) (143)
Accumulated deficit (74,414) (47,026)
Cumulative translation adjustment 630 22
--- --
Total stockholders' equity (deficiency) (15,137) 168
------- ---
Total liabilities and stockholders' equity (deficiency) $105,494 $101,893
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 41
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
For The Years Ended December 31
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $191,493 $144,328 $94,006
Cost of sales 165,248 127,817 76,967
-------- -------- -------
Gross profit 26,245 16,511 17,039
Selling, general & administrative expenses 39,488 33,805 11,850
Restructuring charges 2,084 -- --
-------- -------- -------
Operating income (loss) (15,327) (17,294) 5,189
Equity in earnings from joint venture 357 2,425 666
Gain on sale of InCirT division 450 -- --
Other expense, net 2,881 14 --
Interest expense, net 8,269 5,075 4,118
-------- -------- -------
Income (loss) from continuing operations before taxes (25,670) (19,958) 1,737
Provision for income taxes 1,718 2,089 542
-------- -------- -------
Income (loss) from continuing operations before discontinued
operations and extraordinary items (27,388) (22,047) 1,195
-------- -------- -------
Discontinued operations, net of income taxes:
Income (loss) from operations -- (1,966) 1,500
Estimated loss from liquidation of discontinued operations -- (15,381) --
-------- -------- -------
Income (loss) from discontinued operations -- (17,347) 1,500
-------- -------- -------
Income (loss) before extraordinary item (27,388) (39,394) 2,695
Extraordinary item, net of income taxes of $1,457 -- -- (2,011)
-------- -------- -------
Net income (loss) $(27,388) $(39,394) $ 684
======== ======== =======
Net income (loss) per share:
Continuing operations $ (2.04) $ (1.68) $ .09
Discontinued operations -- (1.33) .11
Extraordinary item -- -- (.15)
-------- -------- -------
Net income (loss) per share $ (2.04) $ (3.01) $ .05
======== ======== =======
Weighted average common and common equivalent
shares outstanding 13,419 13,091 13,446
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 42
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(dollars in thousands, except share and per share data)
<TABLE>
<CAPTION>
Total
Convertible
Preferred Stock Common Stock Additional Stockholders
---------------------- ------------------- Paid-In Accumulated Equity
Shares Amount Shares Amount Capital Other Deficiency (Deficiency)
----------- ------ ---------- ------ ----------- ------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 1,876,667 $ 2 8,289,683 $ 8 $21,018 $(242) $ (8,316) $ 12,470
Issuance of common stock, net
of offering costs - - 2,688,252 3 26,141 - - 26,144
Conversion of preferred to
common stock (1,876,667) (2) 1,876,667 2 - - - -
Stock options and warrants
exercised - - 202,395 - 272 - - 272
Notes receivable from
stockholders - - - - - (287) - (287)
Net income - - - - - - 684 684
Unearned compensation - - - - 52 (52) - -
Amortization of unearned
compensation - - - - - 68 - 68
Translation adjustment - - - - - 134 - 134
---------- ------ ---------- --- ------- ----- -------- --------
BALANCE AT DECEMBER 31, 1994 - - 13,056,997 13 47,483 (379) (7,632) 39,485
---------- ------ ---------- --- ------- ----- -------- --------
Stock options exercised - - 70,683 - 45 - - 45
Notes receivable from
stockholders - - - - - 73 - 73
Net loss - - - - - - (39,394) (39,394)
Amortization of unearned
compensation - - - - - 71 - 71
Translation adjustment 0 - - - - (112) - (112)
---------- ------ ---------- --- ------- ----- -------- --------
BALANCE AT DECEMBER 31, 1995 - - 13,127,680 13 47,528 (347) (47,026) 168
---------- ------ ---------- --- ------- ----- -------- --------
Stock options and warrants
exercised - - 348,276 - 3,459 - - 3,459
Notes receivable from
stockholders - - - - - 87 - 87
Issuance of convertible
preferred stock 8,000 8,000 - - - - - 8,000
Conversion of preferred
stock (803) (803) 634,993 1 661 - - (141)
Net loss - - - - - - (27,388) (27,388)
Amortization of unearned
compensation - - - - - 70 - 70
Translation adjustment - - - - - 608 - 608
---------- ------ ---------- --- ------- ----- -------- --------
BALANCE AT DECEMBER 31, 1996 7,197 $7,197 14,110,949 $14 $51,648 $ 418 $(74,414) $(15,137)
---------- ------ ---------- --- ------- ----- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 43
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(27,388) $(39,394) $ 684
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 9,815 8,315 6,241
Amortization and writedown of contract
rights -- 562 2,100
Amortization of unearned compensation 70 71 68
Foreign currency transaction gain (43) (44) (132)
Non-cash charges related to end-of-life
programs -- 14,639 --
Non-cash charges for accounts receivable -- 6,820 --
Non-cash charge for loss on long-term
investment 1,921 3,000 --
Equity in earnings from joint venture (357) (2,425) (666)
Gain on sale of InCirT division (450) -- --
(Increase) decrease in:
Accounts receivable 13,139 (5,817) (18,708)
Inventories 10,548 (6,845) (5,566)
Prepaid expenses and other 3,274 5,143 (4,958)
Investment in other long-term assets (62) (1,345) (4,204)
Net assets of discontinued operations 916 3,620 --
Increase (decrease) in:
Accounts and notes payable 3,874 9,664 1,490
Accrued liabilities (8,572) 1,017 1,452
Income taxes payable (557) 222 (10)
-------- -------- --------
Net cash provided by (used in) operating
activities 6,128 (2,797) (22,209)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment, net (2,381) (7,549) (3,996)
Acquisition of business, net of cash acquired 5,147 (4,500) (12,259)
Investment in joint venture -- -- (4,625)
Distribution of earnings in joint venture 3,090 -- --
Proceeds from sale of InCirT division 3,500 -- --
Proceeds from restricted money market investments -- -- 2,500
-------- -------- --------
Net cash provided by (used in) investing
activities 9,356 (12,049) (18,380)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in notes payable to bank (2,431) 10,700 (3,126)
Proceeds from long-term debt, net -- 45 38,294
Proceeds from issuance of common stock, net 107 -- 26,416
Proceeds from issuance of preferred stock 7,859 -- --
Decrease (increase) in notes receivables from
stockholders 87 73 (287)
Payments of long-term debt (700) (1,588) (21,099)
-------- -------- --------
Net cash provided by financing activities 4,922 9,230 40,198
-------- -------- --------
Effect of exchange rate changes on cash (431) (19) 44
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents 19,975 (5,635) (347)
Cash and cash equivalents at beginning of year 3,807 9,442 9,789
-------- -------- --------
Cash and cash equivalents at end of year $ 23,782 $ 3,807 $ 9,442
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 6,875 $ 5,299 $ 4,595
======== ======== ========
Income taxes $ 1,753 $ 1,122 $ 3,514
======== ======== ========
Acquisition of businesses:
Amount paid $ (8,977) $ (4,500) $(12,259)
Cash acquired 14,124 -- --
-------- -------- --------
$ 5,147 $ (4,500) $(12,259)
======== ======== ========
Supplemental schedule of non-cash activities:
Exchange of finished goods inventories for
trade credits $ 6,239 $ -- $ --
======== ======== ========
Purchase of assets for short term debt $ 600 $ -- $ --
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 44
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND PRINCIPLES OF CONSOLIDATION
The Cerplex Group, Inc. (the "Company") was incorporated in California in May
1990 and reincorporated in Delaware in November 1993. The Company is a leading
independent provider of electronic parts repair, spare parts sales and
management and logistics services. The Company has developed extensive
capabilities in the repair, refurbishment, and testing of a wide range of
electronic equipment for the computer and peripheral, telecommunications and
office automation markets. The Company's extensive network of domestic and
European facilities enables it to service the diverse needs of leading
electronic equipment manufacturers.
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany transactions
and accounts have been eliminated in consolidation.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original
maturities of three months or less to be cash equivalents.
In May 1996, the Company acquired Cerplex SAS. As part of the acquisition,
sufficient cash was provided to fund certain liabilities of Cerplex SAS. Under
the terms of the Stock Purchase Agreement, the Company has agreed to certain
financial covenants over a four year period that limit the amount of dividends
and payments in the nature of corporate charges paid by Cerplex SAS.
Accordingly, the cash of Cerplex SAS is generally not available for financing
operations outside of Cerplex SAS. The cash balance of Cerplex SAS at December
31, 1996 was $18.1 million.
(C) INVENTORIES
Inventories are stated at the lower of cost (determined by the
weighted-average method which approximates first-in, first-out) or market.
(D) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation for the
plants in the United Kingdom and France is provided utilizing the straight-line
method over the estimated useful life of twenty-five years. Depreciation for
equipment is provided utilizing the straight-line method over the estimated
useful lives (primarily three to five years) of the respective assets.
Leasehold improvements are amortized using the straight-line method over the
shorter of the lease term or useful life.
(E) GOODWILL AND OTHER LONG-LIVED ASSETS
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited. The Company adopted the provisions of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," during 1996. This Statement requires that long-lived
assets and certain identifiable intangibles to be held and used by the Company
be 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
F-6
<PAGE> 45
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. This Statement also requires that any such assets
that are to be disposed of be reported at the lower of carrying amount or fair
value less cost to sell, except for assets covered by 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." The Company has identified certain impairment losses with
regard to certain goodwill and property, plant and equipment and has
accordingly written down the related assets based on their fair market value.
Related impairment losses of $1.2 million are included in the Company's 1996
loss from continuing operations.
(F) OTHER ASSETS
Long-term investments are recorded at cost. The Company periodically
assesses whether there has been other than temporary decline in the market
value below cost of an investment. Any such decline is charged to earnings
resulting in the establishment of a new cost basis for the investment. Debt
issuance costs incurred to obtain financing are capitalized and amortized using
the straight-line method over the estimated life of the related debt.
The Company has adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The Company's reported other investments are classified as
available-for-sale under SFAS 115. Accordingly, any unrealized holding gains
and losses, net of taxes, are excluded from income and recognized as a separate
component of equity (deficiency) until realized. At December 31, 1996, there
were no significant unrealized holding gains or losses. Realized gains,
realized losses and decline in value, judged to be other than temporary, are
included in other income.
(G) FOREIGN CURRENCY TRANSLATION
The functional currency for each of the Company's foreign subsidiaries is
their respective local currency. Assets and liabilities of foreign subsidiaries
are translated at year-end rates of exchange and net sales and expenses are
translated at the average rates of exchange for the year. Translation gains and
losses are excluded from the measurement of net income and are recorded as a
separate component of stockholders' equity (deficiency). Gains and losses
resulting from foreign currency transactions are included in net income (loss).
(H) INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." SFAS No. 109 requires the use of the asset and
liability method for financial accounting and reporting for income taxes, and
further prescribes that current and deferred tax balances be determined based
on the difference between the financial statement and tax basis of assets and
liabilities using tax rates in effect for the year in which the differences are
expected to reverse.
(I) FISCAL YEAR-END AND RECLASSIFICATIONS
The Company's fiscal year is the 52 or 53 week period ending on the Sunday
closest to December 31, which was December 29, 1996 for 1996, December 31, 1995
for 1995, and January 1, 1995 for 1994. For purposes of presentation, the
Company has indicated its accounting year as ending on December 31. Certain
reclassifications have been made to the 1995 and 1994 consolidated financial
statements to conform to the 1996 presentation.
F-7
<PAGE> 46
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(J) REVENUE RECOGNITION
Sales are recognized upon shipment of product to customers. Sales relating
to deferred service contracts are recognized over the related contract terms on
a straight-line basis.
(K) NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed using the weighted average number
of common shares and dilutive common equivalent shares outstanding. Common
stock equivalents consist of convertible preferred stock, stock options and
warrants, which were computed using the treasury stock method. Net loss per
share excludes the effect of common stock equivalents, because their effect
would be anti-dilutive.
(L) FINANCIAL STATEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period.
(M) 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 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 December 31, 1996 and
1995, the fair value of all financial instruments approximates carrying value.
(N) STOCK OPTION PLAN
The disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation," were effective for transactions entered into in fiscal years
that begin after December 15, 1995. This statement encourages entities to
account for employee stock option or similar equity instruments using a fair
value approach for all such plans. However, it also allows an entity to
continue to measure compensation cost for those plans using the method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Those entities which elect to remain with the accounting in APB No. 25 are
required to include pro forma disclosures of net income (loss) and earnings
(loss) per share as if the fair value-based method of accounting had been
applied. The Company has elected to continue to account for such plans under
the provisions of APB No. 25. Therefore, there was no effect on the Company's
financial position and results of operations as a result of this pronouncement.
F-8
<PAGE> 47
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 2 -- ACQUISITIONS AND TRANSACTIONS
During 1996, 1995 and 1994, the Company acquired businesses described
below, which were accounted for by the purchase method of accounting. The
results of operations of the acquired businesses are included in the Company's
statement of operations for the periods in which they were owned by the
Company.
FISCAL 1996
In May 1996, the Company acquired Rank Xerox Limited's subsidiary ("RXL"),
Cerplex SAS, for $6.1 million, including estimated taxes, registration fees,
legal, accounting and other out-of-pocket expenses of $1.2 million. Cerplex
SAS is the legal successor to Rank Xerox et Compagnie (Rank Xerox SNC), which
was transformed immediately prior to the acquisition from societe en nom
collectif (a type of partnership) into a societe par actions simplifee (a form
of limited liability company), at which time its name was changed to Cerplex
SAS. Cerplex SAS performs repair and refurbishment services primarily for
large copiers in the northern region of France, near Lille. Based on the
allocation of the purchase price to the fair value of the assets and
liabilities (including long-term obligations for taxes and employment related
matters) related to the acquisition, the Company reduced other long-term assets
by the amount of negative goodwill ($1.5 million) in accordance with APB No.
16, Business Combinations. As part of the acquisition, RXL provided sufficient
cash to fund certain liabilities of Cerplex SAS. Under the terms of the Stock
Purchase Agreement, the Company has agreed to certain financial covenants over
a four-year period that limit the amount of dividends and payments in the
nature of corporate charges paid by Cerplex SAS; the maintenance of Cerplex
SAS's current ratio greater than one; and restrictions on guarantees with
respect to Cerplex and its subsidiaries (excluding Cerplex SAS). Accordingly,
the cash of Cerplex SAS is generally not available to Cerplex for financing
operations outside of Cerplex SAS. In addition, Cerplex SAS entered into a
four-year Supply and Services Agreement with RXL to provide repair and
refurbishment services with guaranteed levels of production hours (at standard
rates) that decline over the period of the contract. Revenues and income
before taxes of Cerplex SAS since the date of the acquisition were $33.4
million and $4.6 million, respectively.
In April 1996, the Company acquired the remaining 51% interest in
MODCOMP/Cerplex, L.P. ("MODCOMP/Cerplex") for $2.8 million. As a result of
acquiring the remaining interest in MODCOMP/Cerplex, the Company consolidated
the results of operations and financial position of this entity effective April
1996. Prior to April 1996, the Company recorded its 49% interest in
MODCOMP/Cerplex using the equity method of accounting. The fair value of the
assets and liabilities acquired exceeded the purchase price by approximately
$2.0 million, resulting in negative goodwill. In accordance with APB No. 16,
Business Combinations, the Company reduced other long-term assets to zero and
recorded the remaining amount as negative goodwill ($0.5 million) which is
being amortized into income over a five year period. Revenues and income
before income taxes of MODCOMP/Cerplex since the date of the acquisition were
$27.2 million and $2.0 million, respectively.
F-9
<PAGE> 48
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
MODCOMP/Cerplex condensed financial data is as follows:
<TABLE>
<CAPTION>
Three Months Ended Year Ended Month Ended
March 31, 1996 December 31, 1995 December 31, 1994
------------------ ----------------- -----------------
(dollars in
thousands)
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 9,583 $ 38,223 $ 4,366
Gross profit 2,430 14,816 1,976
Net income 728 4,950 1,358
</TABLE>
<TABLE>
<CAPTION>
At December 31
----------------------------------------------
1995 1994
------------- -----------------
<S> <C> <C> <C>
Total assets $ 23,732 $ 19,838
Current liabilities 8,043 8,545
Total partnership interest 15,689 10,593
Company's share of
partnership interest 7,688 5,191
</TABLE>
Assuming the two fiscal 1996 acquisitions occurred at the beginning of
1996, the pro forma results of operations of the Company for the year ended
December 31, 1996 would have been as follows:
<TABLE>
<CAPTION>
Pro Forma
---------------
(in thousands, except for per share data)
<S> <C>
Net sales $ 226,182
Net loss (26,194)
Net loss per share (1.95)
</TABLE>
FISCAL 1995
In June 1995, the Company acquired 100% of the stock of Peripheral Computer
Support, Inc. (PCS) for $4.5 million plus a contingent earnout up to an
additional $1 million depending on future performance. Half of the earnout was
paid in 1996 and the remaining half paid from proceeds of the sale in April
1997. PCS provides disk drive repairs and services in the United States and
Europe. In connection with the acquisition, the Company recorded goodwill of
$3.1 million. In April 1997, the Company sold this subsidiary for approximately
$15.0 million in cash.
FISCAL 1994
In December 1994, a wholly-owned subsidiary of the Company paid
approximately $4.6 million to MODCOMP/Cerplex for a 49% ownership in the
partnership. The Company's partner Modular Computer Systems, Inc. ("MODCOMP")
owned by AEG/Daimler-Benz of North America ("AEG") contributed the assets and
certain of the liabilities of MODCOMP to the partnership for a 51% ownership.
The value of assets contributed by AEG exceeded the amount paid by the Company
by approximately $2.8 million which is being amortized into income over the
expected life of the partnership. As previously discussed, the acquisition of
the remaining 51% interest in MODCOMP/Cerplex was completed in April 1996.
F-10
<PAGE> 49
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
In August 1994, a subsidiary of the Company acquired for cash of $4.1
million the net operating assets of Apex Computer Company, Inc. ("Apex"). Apex
provides marketing of spare parts, technical training and repair services of
UNIX based hardware. The net operating assets consisted primarily of
receivables, inventories and equipment of $4.8 million and liabilities of $1.7
million. In connection with the acquisition, the Company recorded goodwill of
$1.0 million. During the fourth quarter of fiscal 1996, in accordance with SFAS
No. 121, goodwill relating to Apex was written down by $0.6 million.
In July 1994, a wholly-owned subsidiary of the Company acquired
substantially all of the assets used in the repair services business of BT for
$7.8 million in cash and a long-term note payable for approximately $3.9
million. The operating assets consisted of inventories of $1.7 million and
land, buildings and equipment of $8.6 million and resulted in goodwill of $1.4
million. Additionally, the Company entered into a five year repair services
contract with BT to service a large portion of BT's telecommunications
equipment.
NOTE 3 -- DISCONTINUED OPERATIONS
In September 1995, the Company decided to discontinue its end-of-life
programs segment of the business through a liquidation of remaining operations.
In connection with the decision to discontinue its end-of-life programs, the
Company provided $15.4 million for the estimated loss from liquidation of these
operations, primarily related to estimated losses from disposition of inventory
and fixed assets and write-off of other related assets.
The net assets of the discontinued operations at the end of December 1996
and 1995 were comprised of the following:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
(dollars in thousands)
<S> <C> <C>
Accounts receivable $ 821 $ 3,303
Inventories 297 2,950
Property and equipment, net -- 275
Other assets 599 257
Accounts payable (36) (1,652)
Accrued liabilities -- (1,536)
Accrued operating losses during the phase-out period -- (1,000)
------------ ------------
$ 1,681 $ 2,597
============ ============
</TABLE>
Discontinued operations include management's best estimate of the amounts
expected to be realized through the liquidation of these operations. The
liquidation of non-contract operations is substantially complete. The
remaining contractual obligations with one customer will be completed by
December 1997.
F-11
<PAGE> 50
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
The estimated loss on liquidation of its end-of-life programs has been
accounted for as discontinued operations and prior period financial statements
have been restated to reflect discontinuance of this segment of the business as
shown below:
<TABLE>
<CAPTION>
1995 1994
------------- -----------
(dollars in thousands)
<S> <C> <C>
Net sales $ 19,815 $ 32,882
============= ===========
Net income (loss) before taxes (1,924) 2,586
Provision for taxes 42 1,086
------------- -----------
Net income (loss) from discontinued operations (1,966) 1,500
Estimated loss from liquidation of discontinued
operations, no tax benefit recognized (15,381) --
------------ -----------
Net income (loss) from discontinued operations $ (17,347) $ 1,500
============ ===========
</TABLE>
NOTE 4 -- EXTRAORDINARY ITEM
In May 1994, the Company extinguished early its Series B 9.0% Senior
Subordinated Notes ("Series B Notes") at the principal amount of $5.7 million.
When the Series B Notes were issued in November 1993, they had detachable
warrants to purchase 920,000 shares common stock at $0.01 per share associated
with them which were valued at $3.93 per warrant at the date of issuance. In
connection with the issuance of the Series B Notes, the Company recorded an
original issue discount for the difference between the fair value of the
warrants at the time of issuance and the exercise price. Pursuant to the early
extinguishment of the Series B Notes, the Company charged off as an
extraordinary item $3.5 million ($2.0 million net of applicable taxes), or
$0.15 per share during the quarter ended June 1994.
NOTE 5 -- SALE OF INCIRT DIVISION
In April 1996, the Company sold its contract manufacturing division in
Tustin, California ("InCirT Division") to Pen Interconnect for $3.5 million in
cash and approximately $2.0 million in restricted common stock which was valued
at fair market value at the time of sale. The gain on the sale of the InCirT
Division was $450,000. As of December 31, 1996, the fair market value of the
remaining shares of Pen Interconnect stock held by the Company was $0.8
million. Impairment losses of $1.1 million due to the permanent decline of the
fair market value of the investments have been recognized in other expense.
NOTE 6 -- RESTRUCTURING CHARGES
During the third quarter of 1996, the Company closed its contract
manufacturing operations in Texas and its computer training operations in
Redmond, Washington. In connection with the closure of these operations, the
Company recorded restructuring charges of $2.1 million. The restructuring
charges were related to: (1) write-downs of property and equipment and other
assets to future net cash flows expected to be generated by the assets; and (2)
accruals for lease commitments, severance pay for approximately 180 employees
and costs to complete closure of the facilities. During the fourth quarter of
fiscal 1996, the restructuring provision was fully utilized.
F-12
<PAGE> 51
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 7 -- INVENTORIES
Net inventories consist of the following:
<TABLE>
<CAPTION>
1996 1995
-------------- ----------------
(dollars in thousands)
<S> <C> <C> <C>
Spare and repair parts $ 11,455 $ 18,001
Work-in-process 2,107 6,402
Finished goods 3,764 3,386
-------------- ----------------
$ 17,326 $ 27,789
============== ================
</TABLE>
NOTE 8 -- PREPAIDS AND OTHER ASSETS
In October 1996, the Company entered into a transaction with a company that
specializes in worldwide corporate bartering. The Company has traded all of
its finished goods telephone inventories for trade credits and agreed to
continue to repair and refurbish the remaining telephones and deliver all of
the finished telephones to the barter company. The Company can receive up to
$7.5 million in trade credits depending upon the number of finished telephones
furnished to the barter company. The trade credits can be exchanged for goods
and services and generally expire at the end of four years. In accordance with
authoritative accounting literature regarding barter credits, the trade credits
are stated at the fair market value of the inventory transferred, and are
included in prepaid expenses and other current assets in the accompanying
consolidated balance sheets at December 31, 1996.
NOTE 9 -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of:
<TABLE>
<CAPTION>
December 31
-----------------------------------
1996 1995
--------------- ----------------
(dollars in thousands)
<S> <C> <C>
Land $ 3,358 $ 2,329
Buildings 12,810 2,017
Office furniture and fixtures 1,672 1,118
Leasehold improvements 3,784 2,673
Machinery and equipment 10,244 11,713
Test equipment and tooling 1,740 907
Computer equipment 6,260 3,288
Other 1,109 2,033
-------------- ---------------
40,977 26,078
Less: accumulated depreciation and
amortization (12,938) (8,090)
-------------- ---------------
$ 28,039 $ 17,988
============== ===============
</TABLE>
F-13
<PAGE> 52
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 10 -- LUCENT LITIGATION AND OTHER
The Company acquired inventory consisting of used telephones from Lucent.
At December 31, 1996, the Company had $5.9 million of inventory, production cost
commitments and assets, related to the telephones acquired from Lucent, which
were subsequently sold to a Company that specializes in worldwide corporate
bartering. In June 1996, the Company executed a promissory note bearing
interest at 9.75% in the amount of $4.6 million payable on September 15, 1996 in
favor of Lucent, reflecting a portion of the amount invoiced to the Company by
Lucent. Lucent has invoiced the Company for an additional $0.6 million. Due to
the quality of the inventory and the lack of availability of spare parts to
effect repairs, the Company believes it has claims against Lucent. The Company
currently does not intend to pay the Lucent note or other Lucent invoices. If
the Company is required to pay the Lucent note and other Lucent invoices in
full, it would have a material adverse effect on the Company's financial
resources. On October 7, 1996, the Company filed a lawsuit against Lucent in
the Orange County Superior Court seeking to have the Lucent note declared
invalid. On November 6, 1996, Lucent filed a cross-complaint seeking payment of
the Lucent Note, alleging damages for breach of contract and seeking a
constructive trust on any proceeds from the sale of the telephones. The
Company's failure to have the Lucent note declared invalid, or the loss to
Lucent of any of the material claims asserted by the Company, could materially
and adversely affect the Company.
The Company is involved in legal proceedings from time to time in the
ordinary course of its business. With the exception of risks associated with
the pending Lucent litigation, management does not believe any other existing
claims would have a material adverse effect upon the Company.
NOTE 11 -- ACCRUED AND OTHER CURRENT LIABILITIES
Accrued and other current liabilities are comprised of:
<TABLE>
<CAPTION>
December 31
---------------------
1996 1995
------- --------
(dollars in thousands)
<S> <C> <C>
Accrued payroll and benefits $11,063 $ 2,448
Contractual obligations 2,359 2,146
Accrued interest 1,411 824
Deferred revenue 66 2,869
Other 10,448 5,335
------- -------
$25,347 $13,622
======= =======
</TABLE>
NOTE 12 -- LONG-TERM DEBT
Long-term debt is comprised of:
<TABLE>
<CAPTION>
December 31
---------------------
1996 1995
------- --------
(dollars in thousands)
<S> <C> <C>
Senior Term Loan (a) $38,741 $47,700
Series A 9.5% Senior Subordinated Notes (b) 14,601 17,250
Secured note payable to customer (c) 2,970 2,970
Other 505 998
------- -------
56,817 68,918
Less current portion -- (536)
------- -------
Long-term debt $56,817 $68,382
======= =======
</TABLE>
F-14
<PAGE> 53
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
(a) The Company's senior Credit Agreement was established in October 1994 with a
group of banks led by Wells Fargo Bank. During part of 1995 and part of 1996,
the Company was in default of various covenants in the Credit Agreement, which
resulted in a series of waivers and amendments to the agreement. In April 1997,
the agreement was again amended to provide for borrowings comprising a revolver
and a term loan. The revolver has a maximum amount available of $6.0 million.
The interest rate on the revolver is the prime lending rate plus 2.25%. The
term loan is for $38.9 million and carries an interest rate of prime lending
rate plus 3.125%. In addition, the Company must pay 66.67% of all cumulative
cash flow in excess of $9.0 million during 1997, and generally the Company must
pay 66.67% of all proceeds from asset, stock investment and subsidiary sales, as
well as 25% of the proceeds of any equity offerings. The amended Credit
Agreement expires May 1, 1998. In consideration for the amendment to the Credit
Agreement, the Company was required to provide the lenders with warrants to
purchase 750,000 shares of the Company's common stock at an exercise price of
$0.60, and to pay certain commitment fees and out-of-pocket expenses. In April
1996, the Company entered into an amendment to the Note Purchase Agreements
which revised the covenants for maximum leverage, net worth and fixed charges.
In consideration for the amendment to the Note Purchase Agreements, the Company
was required to provide the Senior Subordinated Note Holders 1,000,000 warrants
to purchase common stock at $6.00 per share. The warrants issued pursuant to
the amended Note Purchase Agreements, and the amended Credit Agreement discussed
above, were recorded at fair market value with such amount amortized as a charge
against income over the period of the warrants. In November 1996, the Company
entered into amendments to the Note Purchase Agreements which revised certain
financial covenants. As compensation for the amendments, the company repriced
the warrants issued in April 1996 from $6.00 per share to $2.50 per share (and
subsequently repriced to $.60 per share). The April 1997 Credit Agreement
includes revised covenants for profitability, current ratio, minimum tangible
net work, leverage and working capital.
(b) In November 1993, the Company sold $17.3 million in principal amount of its
Series A 9.0% (changed to 9.5% in October 1994) Senior Subordinated Notes
("Series B Notes") and $5.7 million in principal amount of its Series B 9.0%
Senior Subordinated Notes with detachable warrants to purchase 920,000 shares
of common stock at an option price of $0.01 per share. The Series A Senior
Subordinated Notes accrued interest at the rate of 9.5% per annum, payable
quarterly, with principal amount thereof payable in three installments of
33.33% of the principal outstanding in November 1999, 50.0% of the principal
outstanding in November 2000 and the remaining principal outstanding in
November 2001. In connection with the sale of the Series B Notes, the Company
recorded an original issue discount for the difference between the fair value
of the warrants at the time of issuance and the exercise price. The fair value
of $3.5 million was recorded and is reflected as a reduction in the face value
of the Series B Notes. In May 1994, the Company extinguished early its Series
B at the principal amount of $5.7 million. The Company is subject to certain
financial and other covenants which include restrictions on the incurrence of
additional debt, payment of any dividends and certain other cash disbursements
as well as the maintenance of certain financial ratios as defined in the Note
Purchase Agreements pursuant to which the Senior Subordinated Notes were sold
to the Company. In April 1996, the Company entered into amendments to the Note
Purchase Agreements to amend certain financial ratio covenants. In
consideration for the amendments the Company issued 1,000,000 warrants for the
purchase of the Company's common stock at $6.00 per share. The previous
interest rate and term were retained. In November 1996 the Company entered
into amendments to the Note Purchase Agreements whereby certain financial ratio
covenants were waived through March 31, 1997. In consideration for the
amendments the Company repriced the warrants, issued in April 1996, to $2.50
from $6.00 per share. In April 1997, the Note Purchase Agreement was again
amended revising certain covenants. Interest is now payable semi-annually
instead of quarterly. The term of the Agreement is unchanged from the prior
F-15
<PAGE> 54
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
Agreement. In consideration for the amendment, the Company repriced the
warrants issued in April 1996 at $6.00 and subsequently repriced in November
1996 to $2.50, to $0.60 per share. The amount of principal payable under the
Note Purchase Agreement increases monthly reflecting the warrant valuation. The
accretion of the principal is charged to interest expense.
(c) In July 1994, the Company acquired the operating assets of BT Repair
Services for cash and a L2.5 million non-interest bearing note (approximately
$3.9 million at December 31, 1994) secured by the land and buildings. The note
is payable at the earlier of the point when orders from the customers reach a
cumulative L78 million (approximately $122 million) or five years from the
acquisition date. The Company is committed to pay BT L1.8 million
(approximately $3.0 million as of December 31, 1996) in 1999 or earlier if
certain sales volumes are reached. As of December 31, 1996, required sales
volumes had not yet been met. It is currently estimated that the debt will not
be repaid until 1999.
Principal payments of borrowings are due as follows:
<TABLE>
<CAPTION>
Year Ending
(dollars in thousands) December 31
-----------
<S> <C>
1997 --
1998 $38,741
1999 8,720
2000 8,625
2001 2,875
-------
Total $58,961
=======
</TABLE>
F-16
<PAGE> 55
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 13 -- INCOME TAXES
Components of income (loss) before taxes consist of the following:
<TABLE>
<CAPTION>
Years Ended December 31
----------------------------------
(dollars in thousands) 1996 1995 1994
-------- -------- ----
<S> <C> <C> <C>
North America $(30,557) $(40,185) $(92)
International 4,887 2,922 947
-------- -------- ----
$(25,670) $(37,263) $855
======== ======== ====
</TABLE>
The income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C> <C> <C>
Current:
Federal $ -- $ -- $ 2,247
Foreign 1,451 1,911 510
State 40 65 747
-------- -------- -------
$ 1,491 $ 1,976 $ 3,504
Deferred:
Federal $ 51 $ 32 $(2,307)
Foreign 161 (4) (158)
State 15 127 (868)
-------- -------- -------
227 155 (3,333)
-------- -------- -------
$ 1,718 $ 2,131 $ 171
======== ======== =======
</TABLE>
The income tax expense was allocated as follows:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C> <C>
Income from continuing operations $ 1,718 $ 2,089 $ 542
Discontinued operations -- 42 1,086
Extraordinary items -- -- (1,457)
-------- -------- -------
$ 1,718 $ 2,131 $ 171
======== ======== =======
</TABLE>
F-17
<PAGE> 56
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
The tax rate reconciliation is comprised of the following:
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------------------------
(dollars in thousands) 1996 1995 1994
- ----------------------- -------------- ------------- --------------
<S> <C> <C> <C>
Computed expected tax expense (benefit) $ (8,727) $ (12,684) $ 291
State income taxes, net of federal (509) (3,909) (6)
Non-taxable income -- -- (209)
Goodwill amortization -- (129) 64
Investments -- 268 --
Other Subpart F income 782 -- --
California net of operating loss not
eligible for carryforward 347 824 --
Change in valuation allowance 9,421 17,703 --
Other 404 58 31
--------------- -------------- ---------------
$ 1,718 $ 2,131 $ 171
=============== =============== ===============
</TABLE>
F-18
<PAGE> 57
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31
----------------------------------
1996 1995
(dollars in thousands) -------------- ---------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 16,396 8,289
Bad debts 3,150 1,802
Foreign tax credits 3,430 1,741
Inventories 991 1,712
Investments 1,200 1,402
Property, plant and equipment 844 940
Accrued liabilities 301 765
Discontinued operations 620 677
Amortization of intangibles 174 645
Minimum tax credit 157 157
Other 77
-------------- ----------------
Total gross deferred tax assets 27,263 18,207
Less valuation allowance (27,225) (17,804)
-------------- ----------------
Net deferred tax asset 38 403
Deferred tax liabilities
Accrued liabilities -- (97)
Other (38) (79)
-------------- ----------------
Total deferred tax liabilities (38) (176)
-------------- ----------------
Net deferred tax assets $ -- $ 227
============== ================
</TABLE>
SFAS No. 109, "Accounting For Income Taxes," provides for the recognition
of deferred tax assets if realization of such assets is more likely than not.
The Company's valuation allowance reduced the deferred tax asset to the amount
realizable. The Company has provided a full valuation allowance against net
federal and state deferred tax assets due to uncertainties surrounding their
realization.
At December 31, 1996, the Company had net operating loss carryforwards
("NOL's") of approximately $41.9 million for federal income tax purposes. If
not utilized earlier, the federal NOL's will start expiring in the year 2009. At
December 31, 1996, the Company had a NOL of approximately $7.0 million for
California income tax purposes. The California NOL carryforward is limited to
50% of the apportioned California loss. If not utilized earlier, the California
NOL's will start expiring in the year 2000. The Company also has Foreign Tax
Credit carryforwards for federal income tax purposes of approximately $3.4
million which are available to offset federal income tax through the year 2000.
In addition, the Company has Minimum Tax Credit carryforwards of approximately
$0.2 million, which are available to reduce future regular federal income tax
over an indefinite period. If certain substantial changes in the Company's
ownership should occur, there would be an annual limitation on the amount of
carryforwards which can be utilized.
F-19
<PAGE> 58
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 14 -- GEOGRAPHIC SEGMENTS
The following table reflects information with respect to the Company's
North America and International operations:
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------------------
1996 1995 1994
(dollars in thousands) --------------- -------------- ---------------
<S> <C> <C> <C>
Net sales:
North America $ 112,594 $ 107,795 $ 76,942
International 78,899 36,533 17,064
--------------- -------------- ---------------
$ 191,493 $ 144,328 $ 94,006
=============== ============== ===============
Net income (loss):
North America $ (30,851) $ (41,247) $ 91
International 3,463 1,853 593
--------------- -------------- ---------------
$ (27,388) $ (39,394) $ 684
=============== ============== ===============
Identifiable assets:
North America $ 48,617 $ 83,630 $ 103,260
International 59,927 21,058 23,179
Eliminations (3,050) (2,795) (5,732)
--------------- -------------- ---------------
$ 105,494 $ 101,893 $ 120,707
=============== ============== ===============
</TABLE>
NOTE 15 -- INVESTMENT AND RETIREMENT PLANS
During 1995, the Company established a 401(k) Retirement Savings Plan for
its U.S. employees. Each participant may contribute up to 15% of his
compensation into the Plan subject to maximum limitations based on compensation
and Internal Revenue Service regulations. The Company does not make any
matching contributions into the Plan. In the event of a Plan termination, all
participants are entitled to receive a distribution equal to their account
balance at that date.
During 1995, the Company also established a defined benefit pension plan
for employees of Cerplex Ltd., a wholly-owned subsidiary of the Company
operating in the United Kingdom ("U.K. Pension Plan"). Company contributions
rates have been actuarially assessed and are being amortized over the estimated
employees' working lives with the Company. Benefits are determined based on
employees final pensionable pay. Pension expense and contributions to the UK
Pension Plan during 1996 were $1.1 million and $1.0 million, respectively, and
for 1995 were $1.7 million and $1.2 million, respectively.
F-20
<PAGE> 59
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 16 -- 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 during the next eight years.
Rental expense, net of sublease income, for the years ended 1996, 1995 and
1994 was approximately $4.9 million, $4.3 million and $3.9 million,
respectively. Future minimum lease payments as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Year Ending
December 31
-------------
(dollars in thousands)
<S> <C> <C>
1997 $ 4,278
1998 3,411
1999 3,071
2000 2,250
2001 959
Thereafter 1,803
-------------
$ 15,772
=============
</TABLE>
The Company subleases two of its facilities from a company which is owned
by certain officers of the Company. One sublease is on a month-to-month basis
and the other is scheduled to expire in July 1997. The Company incurred rental
expense of $798,000, $785,000 and $774,000 in 1996, 1995 and 1994,
respectively, on such subleases.
NOTE 17 -- STOCK-BASED COMPENSATION PLANS
The Company has two stock options plans, the Restated 1993 Stock Option
Plan ("The 1993 Plan") and the 1990 Stock Option Plan ("The 1990 Plan"). The
Company accounts for these plans under APB No. 25, under which no employee
compensation cost has been recognized in the statement of operations.
THE 1993 PLAN
The 1993 Plan was adopted in December 1993. A total of 2,000,000 shares of
Common Stock have been authorized for issuance under the 1993 Plan.
Individuals eligible to receive option grants are employees (including
officers) and consultants of the Company. The 1993 Plan is administered by a
committee of two or more non-employee members of the Board of Directors
("Committee"). Eligible individuals may be granted Incentive Stock Options at
100% of fair market value of such shares on the grant date or nonstatutory
options at no less than 85% of fair market value.
F-21
<PAGE> 60
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
Two types of stock appreciation rights are authorized for issuance. As of
December 31, 1996, no stock appreciation rights were issued. Tandem rights
provide the holders with the election to surrender their outstanding options
for an appreciation distribution from the Company equal to the excess of (a)
the fair market value of the vested shares of Common Stock subject to the
surrendered option over (b) the aggregate exercise price payable for such
shares. Limited rights may be granted to one or more officers of the Company
subject to the short-swing profit restrictions of the federal securities laws
which will become exercisable upon the acquisition of more than 50% of the
Company's outstanding voting stock pursuant to a hostile tender offer. Each
option with such a limited right outstanding for at least six months at the
time of such tender offer will be canceled, to the extent such option is at the
time exercisable for vested shares, in return for a cash distribution from the
Company based upon the tender offer price. The maximum number of shares of
Common Stock for which any one participant may be granted stock options and
separately exercisable stock appreciation rights will not exceed 300,000
shares.
THE 1990 PLAN
In November 1990, the Company adopted the 1990 Plan which authorized the
granting of options to employees, non-employee members of the Company's Board
of Directors, consultants and independent contractors to purchase shares of the
Company's Common Stock. Under the terms of the 1990 Plan, 2,095,225 options
have been authorized. Options may have a maximum term of 10 years from the
grant date, and may be exercisable over a period determined by the Plan
Administrator.
Under the 1990 Plan, two types of options may be granted: (a) Incentive
Stock Options, which may be granted only to employees at option prices per
share equal to the fair market value of a share of Common Stock as
determined by the Board of Directors on the date of grant; and (b)
Non-statutory Stock Options, which may be granted at option prices per share at
not less than eighty-five percent (85%) of the fair market value of a share of
Common Stock as determined by the Board of Directors on the date of the option
grant.
COMPENSATION AND OPTION DISCLOSURES
Had employee compensation expense for these plans been determined consistent
with SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net
loss per share would have been increased to the following pro forma amounts:
<TABLE>
<S> <C> <C> <C>
1996 1995
- ------------------------------------------------------------------------------------------------------
Net Loss: As Reported $ (27,388) $ (39,394)
Pro Forma (28,363) (39,679)
Loss per share As Reported (2.04) (3.01)
Pro Forma (2.11) (3.03)
</TABLE>
For purposes of the above pro forma calculation, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes single
option pricing model using the following weighted-average assumptions for
grants in 1996 and 1995, respectively: (a) risk-free interest rates of 6.6 and
5.5 percent, (b) expected lives of 5.5 and 5.0 years, (c) expected dividend
yields of 0% for both years, and (d) a volatility rate of .93 and .84.
F-22
<PAGE> 61
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.
A summary of the status of the Company's two stock option plans at the
end of December 1996, 1995, and 1994, and changes during the years then ended
is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- --------------------- ------------------------
Shares Wtd. Avg. Shares Wtd. Avg. Shares Wtd. Avg.
(000) Ex. Price (000) Ex. Price (000) Ex. Price
---------------------- --------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning 1,232,659 $ 4.79 669,951 $ 2.63 725,345 $ 1.32
Granted 927,000 3.73 715,000 6.66 122,000 12.21
Exercised (348,276) 0.27 (67,683) 0.67 (140,394) 1.93
Forfeited (201,208) 5.10 (84,609) 6.74 (37,000) 11.20
--------- ---------- -------- ---------- --------- ------------
Outstanding, ending 1,610,175 $ 5.12 1,232,659 $ 4.79 669,951 $ 2.63
--------- ---------- -------- ---------- --------- ------------
Exercisable at end of year 340,147 $ 6.37 451,370 $ 1.66 401,602 $ 0.10
Weighted average fair value
of options granted $ 3.73 $ 6.66 $ 12.21
Weighted average contractual life 9.0 Years 8.2 Years 7.4 Years
</TABLE>
NOTE 18 -- STOCKHOLDERS' EQUITY (DEFICIENCY)
CONVERTIBLE PREFERRED STOCK
In June 1996, the Company issued 8,000 shares of Series B Preferred Stock
("Series B Stock") at $1,000 per share in a private placement. The Series B
Stock is convertible into Common Stock at the option of each holder at the
lower of $5.07 per share or 80% of the average closing bid price over a ten-day
period ending three days prior to the date of conversion. The Series B Stock
will automatically convert into Common Stock on the earlier of five years from
the date of issuance or such date as the Company's Common Stock has traded
above $19.13 per share for a specified period of time. The Series B Stock has
certain rights, privileges and preferences, including a $2,000 per share
preference in the event of a sale of the Company. The Board of Directors may
not pay dividends to the holders of the Company's Common Stock unless and until
the Board has paid an equivalent dividend to the holders of Series B Stock
based upon the number of shares of Common Stock into which each share of Series
B Stock is convertible. At December 31, 1996, 803 shares of Series B Preferred
Stock had been converted into 634,993 shares of Common Stock. During the
period from January 1, 1997 to April 11, 1997, 5,127 shares of Series B
Preferred Stock were converted into 15,515,007 shares of Common Stock.
STOCK WARRANTS
In April 1996, the Company issued 1,000,000 detachable warrants in
connection with amendments to the Note Purchase Agreements related to its
Senior Subordinated Notes and issued 125,000 detachable warrants in connection
with an amendment to the Credit Agreement. The warrants were exercisable when
issued. The warrants provided the holders the right to purchase 1,125,000
shares of common stock at $6.00 per share. As a result of the issuance of the
warrants, the Company discounted the book value of the debt outstanding and
increased paid-in capital by the fair market value of the warrants by $3.0
million based on an intrinsic warrant value of $2.70 per share. In November
1996, the Company, as consideration for amendments to the Note Purchase
F-23
<PAGE> 62
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
Agreements and Credit Agreement, repriced the exercise price of the warrants
from $6.00 to $2.50 per share. The repricing of the warrants provided an
additional $0.3 million of intrinsic value to the warrant holders, and
accordingly, the Company discounted the book value of the debt outstanding and
increased paid-in capital by $0.3 million. The discounts are being amortized as
additional interest expense over the period of the related debt on the interest
method. In April 1997, when the Credit Agreement and the Note Purchase
Agreement were again amended, the warrants were repriced at the current market
value of $0.60 per warrant.
At December 31, 1996, 855,000 warrants were outstanding to purchase an
equivalent number of shares of common stock at $0.01 per share. These warrants
were issued to the holders of the Series B Notes and expire in May 2002. When
the Series B Notes were issued in November 1993, they had 920,000 detachable
warrants which were valued at $3.93 per warrant at the date of issuance. In
connection with the issuance of the Series B Notes, the Company recorded an
original issue discount of $3.6 million for the difference between the fair
value of the warrants at the time of issuance and the exercise price, which
wasflected as a reduction in the face value of the Series B Notes. No warrants
were exercised in 1996.
At December 31, 1996, 56,993 warrants were outstanding and exercisable to
purchase an equivalent number of shares of common stock at $8.80 per share.
These warrants expire in November 2002. No warrants were exercised in 1996.
NONRECURRING COMPENSATION RELATED TO EXCHANGE OF COMMON STOCK
In November 1993, certain officers, directors and employees of the Company
exchanged 1,200,000 shares of Common Stock for 1,200,000 shares of Series A
Preferred Stock. Based upon the difference between the fair market value of
the Common Stock and the Series A Preferred Stock as of such date, the Company
recorded a non-recurring noncash compensation charge of $4.3 million which is
being amortized through December 1997.
NOTE 19 -- RELATED PARTY TRANSACTIONS
In December 1993, the Company purchased for $3.0 million a preferred stock
warrant from an affiliate of Novadyne which was written off in 1995. During
1996, 1995 and 1994, sales of repaired parts and services to Novadyne were $1.4
million, $3.8 million and $5.9 million, respectively. Receivables as of
December 1996, 1995, and 1994 were $3.9 million, $1.3 million, and $2.2
million, respectively. As of December 31, 1996 because of the uncertainty of
collection of receivables due from Novadyne, the Company provided an allowance
for the balance of $3.9 million. In addition, in January 1994, the Company
began earning a management fee of $83,000 per month for thirty six months from
Novadyne. In May 1994, the Company purchased for $2.7 million electronic parts
from a third party and leased such parts to Novadyne. The Company received
rental income of $62,000 per month through September 1996.
F-24
<PAGE> 63
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
The Company subleases certain real property for its operations in Irvine,
California and in Newburgh, New York from WC Cartwright Corporation, a
California corporation ("WC Cartwright"). Messrs. Klein and Davis and Ms.
Carolyn J. Klein (the spouse of Mr. Klein) are officers, directors and
principal shareholders of WC Cartwright. In 1996, the Company paid to WC
Cartwright an aggregate of $540,000 in rent for use of the real property
located in Irvine, California and $258,000 in rent for use of the real property
located in Newburgh, New York. Under its subleases with WC Cartwright, the
Company is obligated to remit monthly lease payments to WC Cartwright in the
amount of $44,982 through January 1997 with respect to the Irvine, California
property, and $22,204 to $21,010 per month (on a graduated rent basis) through
July 1997 with respect to the Newburgh, New York real property.
NOTE 20 -- SUBSEQUENT EVENT
On April 11, 1997, the Company sold 100% of the stock of PCS to the
management team that was led by an investment banking group. The sale was for
cash and net proceeds to the Company were approximately $13.0 million. PCS
provides disk drive repairs and related services. Net sales and income before
taxes of PCS for the year ended December 31, 1996 were $29.5 million and $2.2
million, respectively. PCS's total assets at December 31, 1996 were
approximately $8.3 million, net of intercompany accounts. Net sales and income
before taxes of PCS for the period from acquisition at June 1, 1995 to December
31, 1995 were $10,732 and $1,549, respectively.
NOTE 21 -- CONCENTRATION OF CREDIT RISK
The Company's revenues are primarily with OEM's or TPM's 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.
F-25
<PAGE> 64
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
A substantial portion of the Company's business, including activities of
discontinued operations, was conducted with five major customers during 1996,
1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------
Dollars in thousands 1996 1995 1994
------- ------- -------
<S> <C>
IBM
---
Net Sales $23,672 $32,037 $42,575
Accounts receivable 1,863 6,044 4,310
BT
--
Net Sales 21,447 33,449 16,878
Accounts receivable 1,692 6,406 5,226
SpectraVision
-------------
Net Sales 6,007 9,863 19,389
Accounts receivable -- 1,235 4,650
Wang (formerly Bull)
-------------------
Net Sales 1,621 7,030 9,882
Accounts receivable 219 634 2,045
Rank Xerox
----------
Net Sales 33,400 -- --
Accounts receivable -- -- --
</TABLE>
F-26
<PAGE> 65
THE CERPLEX GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
NOTE 22 -- QUARTERLY INFORMATION
Unaudited quarterly information for the quarters ended March 31, June 30,
September 30 and December 31 are as follows:
<TABLE>
<CAPTION>
(in thousands, except per share data)
1996 First Second Third Fourth
- ---- ------- ------- -------- --------
<S> <C>
Net sales $40,846 $51,339 $ 50,636 $ 48,672
Gross profit 6,931 10,969 3,751 4,594
Operating income (loss) 144 1,981 (10,102) (7,350)
Net income (loss) (1,573) 702 (12,940) (13,577)
Earnings (loss) per share $(0.12) $0.05 $(0.96) $(0.99)
1995
- ----
Net sales $34,001 $32,488 $ 35,381 $ 42,458
Gross profit 6,042 6,009 2,931 1,529
Operating income (loss) 965 774 (10,260) (8,773)
Net income (loss) 830 282 (24,997) (15,509)
Earnings (loss) per share $0.06 $0.02 $(1.91) $(1.18)
</TABLE>
During the fourth quarter of 1996, the Company took charges to income
totaling $9.6 million which represented adjustments to net realizable value of
long-term assets, reserves for excess and obsolete inventory and accounts
receivable, impairment of goodwill and miscellaneous writeoffs of plant and
equipment and other assets.
F-27
<PAGE> 66
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Charged
Balance at to costs Charged Balance
ALLOWANCE FOR Beginning and against at end of
DOUBTFUL ACCOUNTS of period expenses accounts Other period
----------------- ---------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1994 $ 61 $ 304 $ (100) $ $ 265
Year ended December 31, 1995 265 7,293 (89) 114 7,583
Year ended December 31, 1996 7,583 4,785 (4,263) 948 9,053
</TABLE>
S-1
<PAGE> 67
THE CERPLEX GROUP, INC.
EXHIBIT INDEX
Fiscal Year Ended December 29, 1996
<TABLE>
<CAPTION>
Sequential
Page
Exhibit Description of Exhibits Number
- ------- ----------------------- ----------
<S> <C> <C>
2.13 Stock Purchase Agreement dated March 28, 1997 relating to
all of the outstanding stock of Peripheral Computer Support,
Inc. among the Company, PCS Acquisition Co., Inc., and
Lincolnshire Equity Partners, L.P.
4.17 Waiver and Amendment Agreement dated October 31, 1996 by and
among the Company and the Noteholders
4.18 Waiver and Amendment Agreement dated December 9, 1996 by and
among the Company and the Noteholders
4.19 Side Letter dated March 28, 1997 by and among the Company
and the Noteholders
4.20 Amended and Restated Note Purchase Agreement dated April 9,
1996 by and among the Company and the Noteholders
4.21 Second Amendment to Warrant Agreement dated April 9,
1997, by and among the Company and each of the holders of
warrants listed on Schedule A thereto, which Second Amendment
amends the Warrant Agreement dated November 19, 1993 as
amended by the First Amendment to Warrant Agreement dated
April 15, 1996
</TABLE>
<PAGE> 68
<TABLE>
<S> <C> <C>
4.22 Second Amendment to Warrant Agreement dated April 9, 1997
by and among the Company and each of the holders of
warrants listed on Schedule A thereto, which Second Amendment
amends the Warrant Agreement dated April 15, 1996, as
amended by a Waiver and Amendment Agreement dated October 31,
1996
4.23 Amended and Restated Warrant Agreement dated April 9, 1997 by
and among the Company; Wells Fargo Bank, National Association;
BHF-Bank Aktiengesellschaft and Citibank, N.A.
10.31 Extension and Forbearance Agreement dated March 31, 1997 by
and among the Company, the financial institutions listed on
the signature pages thereof and Wells Fargo Bank, National
Association
10.32 Second Amendment to Credit Agreement dated November 30,
1996 (the "Second Amendment") by and among the Company,
the financial institutions listed on the signature pages
thereof ("Lenders") and Wells Fargo Bank, National
Association, as administrative agent for the Lenders,
and for certain limited purposes, Certech Technology,
Inc., Cerplex Mass., Inc., Cerplex Limited, Apex Computer
Company, Cerplex Subsidiary, Inc., Peripheral Computer
Support, Inc., Modcomp/Cerplex, L.P., Modcomp Joint
Venture, Inc., Modular Computer Services, Inc., Modular
Computer Systems GmbH and Modcomp France S.A., which
Second Amendment amends the Credit Agreement dated
October 12, 1994, as amended
10.33 Third Amendment to Credit Agreement dated April 9, 1997
(the "Third Amendment") by and among the Company, the
financial institutions listed on the signature pages
thereof ("Lenders") and Wells Fargo Bank, National
Association, as administrative agent for the Lenders,
and for certain limited purposes, Certech Technology,
Inc., Cerplex Mass., Inc., Cerplex Limited, Apex
Computer Company, Cerplex Subsidiary, Inc., Peripheral
Computer Support, Inc., Modcomp/Cerplex, L.P., Modcomp
Joint Venture, Inc., Modular Computer Services, Inc.,
Modular Computer Systems GmbH and Modcomp France S.A.,
which Third Amendment amends the Credit Agreement dated
October 12, 1994, as amended
21.1 List of Subsidiaries
23.1 Consent of KPMG Peat Marwick LLP, Independent Public
Accountants
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 2.13
STOCK PURCHASE AGREEMENT
RELATING TO ALL OF THE
OUTSTANDING STOCK OF
PERIPHERAL COMPUTER SUPPORT, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Sale of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4. Purchase Price for Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 2
5. Representations and Warranties of Seller . . . . . . . . . . . . . . . . . . . 3
(a) Ownership and Delivery of the Shares and Execution and Effect of Agreement 3
(b) Organization; Good Standing; Authority . . . . . . . . . . . . . . . . . . 4
(c) Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(d) Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(e) Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
(f) No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
(g) Customers and Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . 5
(h) Title to Properties; Absence of Encumbrances . . . . . . . . . . . . . . . 5
(i) Real and Personal Property . . . . . . . . . . . . . . . . . . . . . . . . 6
(j) Patents, Trademarks and Copyrights . . . . . . . . . . . . . . . . . . . . 6
(k) Contracts, Leases and Commitments . . . . . . . . . . . . . . . . . . . . 6
(l) Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(m) Accounts Receivable; Accounts Payable . . . . . . . . . . . . . . . . . . 7
(n) Permits; Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . 7
(o) Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(p) Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . 8
(q) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
(r) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(s) Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 11
(t) Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
(u) Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . 12
(v) Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(w) Illegal Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
(x) Officers and Directors; Bank Accounts, etc. . . . . . . . . . . . . . . . 13
(y) Expenses Related to this Agreement . . . . . . . . . . . . . . . . . . . . 13
(z) Accuracy of Documents and Information . . . . . . . . . . . . . . . . . . 13
6. Representations and Warranties of Purchaser . . . . . . . . . . . . . . . . . 13
(a) Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . 13
(b) Execution and Effect of Agreement . . . . . . . . . . . . . . . . . . . . 14
(c) Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
i
<PAGE> 3
<TABLE>
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7. Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(a) Access by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(b) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
(c) Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
(d) Employment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8. Covenants of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 16
(b) Best Efforts to Close . . . . . . . . . . . . . . . . . . . . . . . . . . 16
9. Conditions Precedent to Obligations of Purchaser . . . . . . . . . . . . . . . 16
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 16
(b) Performance of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(c) Delivery of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
(d) Employment Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(e) Opinion of Counsel to Seller . . . . . . . . . . . . . . . . . . . . . . . 17
(f) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(g) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(h) Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(i) Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(j) Release of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(k) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . 17
(l) Intercompany Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . 17
(m) No Payments to Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . 18
(n) Tax Allocation Agreement. . . . . . . . . . . . . . . . . . . . . . . . . 18
(o) HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
10. Conditions Precedent to Obligations of Seller . . . . . . . . . . . . . . . . 18
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 18
(b) Performance by Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(d) Opinion of Counsel to Purchaser . . . . . . . . . . . . . . . . . . . . . 18
(e) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(f) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(g) Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(h) Tax Allocation Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 19
(i) Lender Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(j) HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(k) Payment of Permitted Intercompany Transactions . . . . . . . . . . . . . . 19
11. Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(a) Deliveries of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(b) Deliveries of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . . 20
(c) Deliveries to the Escrow Agent . . . . . . . . . . . . . . . . . . . . . . 20
12. Restrictive Covenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
13. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
14. Indemnification by Seller . . . . . . . . . . . . . . . . . . . . . . . . . 20
15. Indemnification by Purchaser . . . . . . . . . . . . . . . . . . . . . . . 21
16. Further Provisions Regarding Indemnification . . . . . . . . . . . . . . . 21
(a) Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(c) Defense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(d) Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(e) Calculation of Damages . . . . . . . . . . . . . . . . . . . . . . . . 22
(f) Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
17. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
18. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
19. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
20. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
21. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
22. Other Discussions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
23. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
24. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
25. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
26. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
27. Third Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
28. Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
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<PAGE> 5
INDEX OF SCHEDULES AND EXHIBITS
Schedules
5(a) - Ownership and Delivery of the Shares
5(c) - Capitalization
5(e) - Liabilities
5(g) - Customers and Suppliers
5(h) - Encumbered Properties and Assets
5(i) - Real and Personal Property
5(j) - Patents, Trademarks and Copyrights
5(k) - Material Contracts, Leases and Commitments
5(l) - Inventory
5(m) - Accounts Receivable/Accounts Payable
5(n) - Governmental Licenses, Permits and Authorizations
5(o) - Employees
5(p) - Employee Benefit Plans
5(q) - Insurance
5(r) - Litigation
5(s) - Environmental Matters
5(t) - Restrictions
5(u) - Transactions with Affiliates
5(x) - Officers and Directors; Bank Accounts
7(d) - Employment
Exhibits
A - Draft Audited Financials
B - Escrow Agreement
C - Tax Allocation Agreement
D - BPH Opinion
iv
<PAGE> 6
STOCK PURCHASE AGREEMENT dated March 28, 1997, among PCS ACQUISITION
CO., INC., a Delaware corporation ("Purchaser"), THE CERPLEX GROUP, INC., a
Delaware corporation ("Seller") and Lincolnshire Equity Partners, L.P., a
Delaware limited partnership ("Lincolnshire").
Peripheral Computer Support, Inc., a California corporation (the
"Company"), is engaged in the business of repairing, refurbishing and
remarketing hard disk and CD-ROM drives, as well as other storage devices for
the personal computer industry.
Seller wishes to sell all of the shares (the "Shares") of common
stock of the Company ("Common Stock"), and Purchaser wishes to purchase the
Shares, for the purchase price and upon the terms and subject to the conditions
described below.
Lincolnshire agrees to guarantee all of Purchaser's obligations
hereunder up to and through the Closing, and at the time the Closing is
consummated Lincolnshire's obligations hereunder shall terminate.
Notwithstanding anything contained in this Agreement to the contrary,
Lincolnshire's maximum liability under this Agreement shall be TWO HUNDRED
FIFTY THOUSAND DOLLARS ($250,000.00).
The parties hereby agree as follows:
1. Sale of Shares. At the Closing, Seller shall sell, assign,
transfer and deliver to Purchaser, and Purchaser shall purchase from Seller,
the Shares.
2. Closing.
(a) The Closing of the transactions contemplated by this Agreement
(the "Closing") shall be held at the offices of Brobeck, Phleger & Harrison
LLP, 4675 MacArthur Court, Suite 1000, Newport Beach, California, at 11:00
A.M., Pacific Standard Time, on the first (second if Lincolnshire does not have
notice of the fulfillment of the HSR Condition prior to noon Central Standard
Time on the date such condition is fulfilled) business day following
fulfillment of the HSR Condition (as defined in Section 9) (the "Closing
Date"); provided, however, if the HSR Condition is fulfilled prior to April 10,
1997, the Closing shall be delayed until April 11, 1997 if Lincolnshire shall
have not received the cash required to close under the funding referenced in
Section 8(b) prior to such date. The obligation to close on the Closing Date
shall be subject to the fulfillment of the conditions set forth in Sections 9
and 10.
(b) This Agreement may be terminated at any time prior to the
Closing: (i) by a written agreement among all the parties hereto; (ii) by
Purchaser, if any condition specified in Section 9 shall not have been
fulfilled by Seller or waived in writing by Purchaser on or before the Closing
Date; or (iii) by Seller, if any condition specified in Section 10 shall not
have been fulfilled by Purchaser or waived in writing by Seller on or before
the Closing Date; or (iv) by Purchaser pursuant to Section 7(c), clause (y).
Notwithstanding the foregoing, however, either Purchaser or Seller shall have
the right to terminate this Agreement (i) after 8:00 p.m., EST, on April 2,
1997 if Purchaser has not
<PAGE> 7
notified Seller in writing that it has satisfied the condition set forth in
Section 9(i) hereof or waived it in writing prior to such time; and (ii) after
8:00 p.m. EST on April 4, 1997 if Purchaser has not notified Seller in writing
that it has satisfied the condition set forth in Section 9(d) hereof or waived
it in writing prior to such time, in either case without liability to
Purchaser, Lincolnshire and Seller (and any of their affiliates) under this
Agreement. Purchaser's and Seller's right to effect such termination pursuant
to the preceding sentence may be exercised by delivering written notice on or
prior to the fifth day following the applicable date specified above.
3. Financial Statements.
(a) Seller has delivered to Purchaser (i) a draft dated March 27,
1997 of an audited balance sheet of the Company as at December 31, 1996 ("Draft
Audited Balance Sheet"), and (ii) a draft dated March 27, 1997 of audited
statements of income, stockholders' equity and cash flows of the Company for
the fiscal year ended December 31, 1996 (collectively, the "Draft Audited
Financials"), all of which are attached hereto as Exhibit A.
(b) At least five business days prior to the Closing, Seller will
deliver to Purchaser an audited balance sheet of the Company as at December 31,
1996 ("Audited Balance Sheet") and audited statements of income, stockholders'
equity and cash flows of the Company for the fiscal year ended December 31,
1996 (collectively, the "Audited Financials"), accompanied by the unqualified
reports thereon of KPMG/Peat Marwick ("KPMG").
(c) After the date hereof, Seller, the Company and KPMG shall give
Purchaser and its officers, directors, accountants, representatives, advisers
and employees, including those of its affiliates, free and full access during
normal business hours to the Company's assets, premises and books and records,
including the audit work papers of KPMG, and such other information as
Purchaser or its officers, directors, accountants and employees, including
those of its affiliates, may from time to time reasonably request, relating to
the Draft Audited Balance Sheet, Draft Audited Financials, Audited Balance
Sheet and Audited Financials.
4. Purchase Price for Shares.
(a) In full consideration for the Shares, Purchaser shall pay to
Seller an aggregate purchase price (the "Purchase Price") equal to FIFTEEN
MILLION DOLLARS ($15,000,000). Purchaser may elect to reduce the purchase
price by FIVE HUNDRED THOUSAND DOLLARS ($500,0000) provided Purchaser delivers
to Seller at Closing a release executed by Tu Nguyen of Seller's obligation to
pay the $500,000 earn out payment payable to Tu Nguyen under the original
acquisition agreement pursuant to which Seller acquired the Company from Tu
Nguyen. The Purchase Price shall be payable as follows:
(i) An amount equal to FOURTEEN MILLION FIVE HUNDRED THOUSAND
DOLLARS ($14,500,000) (subject to reduction of $500,000 if Purchaser delivers
to Seller the Nguyen release as contemplated in (a) above) at the Closing, by
2
<PAGE> 8
delivery to Seller by wire transfer to an account specified by Seller no less
than one business day prior to the Closing.
(ii) An amount (the "Escrowed Amount") equal to FIVE HUNDRED
THOUSAND DOLLARS ($500,000) at the Closing, by delivery, to a mutually agreed
upon entity as escrow agent (the "Escrow Agent"), pursuant to an escrow
agreement in the form attached hereto as Exhibit B ("Escrow Agreement"), of a
certified or official bank check or wire transfer.
(iii) If the Company is required in connection with
obtaining a consent from the Landlord of the Company's principal headquarters
at 2219 Old Oakland Road, San Jose, California to incur any expense or is
obligated to increase a security deposit, then at the Closing Seller will
authorize the use of up to $150,000 of funds otherwise due to be placed in
Escrow to be used for such purpose for a one year period, following which one
year period the amount so applied, with interest at the rate specified in the
Escrow Agreement, shall be returned by Purchaser to the Escrow Agent for use in
accordance with such Escrow Agreement or to Seller if no claims are outstanding
under the Escrow Agreement. The form of Escrow Agreement shall be revised, to
the extent necessary, to reflect the above agreement.
5. Representations and Warranties of Seller. Seller represents,
warrants and agrees as set forth below. All references to "Seller's Knowledge"
shall mean solely to the knowledge of Seller's Chief Executive Officer,
President, Chief Financial Officer, President of International Business and
President of North American Operations. All references to "Nguyen's Knowledge"
shall mean solely to the knowledge of Tu Nguyen.
(a) Ownership and Delivery of the Shares and Execution and Effect of
Agreement. Seller is the record and beneficial owner of all of the Shares.
The Shares constitute all of the issued and outstanding shares of capital stock
of the Company, and, except as set forth on Schedule 5(a), are free and clear
of any and all liens, pledges, security interests, options, encumbrances,
charges, agreements or claims of any kind whatsoever ("claims"). Seller has
the full right, power and authority to enter into and to perform this
Agreement, the Tax Allocation Agreement between Purchaser and Seller and
attached hereto as Exhibit C (the "Tax Allocation Agreement"), the Escrow
Agreement and all other agreements, certificates and documents executed or
delivered, or to be executed or delivered, by Seller in connection herewith
(collectively, with this Agreement, "Seller's Documents"). On the Closing
Date, Seller will have the full right, power and authority to sell, assign,
transfer and deliver all of the Shares as provided in this Agreement, and such
delivery will convey to Purchaser lawful, valid and marketable title to the
Shares, free and clear of any and all liens, claims and encumbrances. This
Agreement has been duly authorized, executed and delivered by Seller, and
Seller's Documents are (or when executed and delivered will be) legal, valid
and binding obligations of Seller, enforceable against Seller in accordance
with their respective terms, except to the extent enforceability may be limited
by equitable principles or by bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditors' rights.
3
<PAGE> 9
(b) Organization; Good Standing; Authority. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California, and has full power and authority to own and
lease its assets and properties and to conduct its business as it is presently
being conducted. The Company is duly qualified to do business and is in good
standing as a foreign corporation in every jurisdiction in which the conduct of
its business or the ownership or leasing of its assets requires such
qualification. The copies of the Company's Articles of Incorporation, as
amended (certified by the Secretary of State of the State of California), and
By-Laws (certified by the Secretary of the Company) which have been previously
delivered to Purchaser are correct and complete.
(c) Capitalization. The authorized capital stock of the Company
consists solely of 1,000,000 shares of common stock, of which 235,866 shares
are issued and outstanding. All of the outstanding shares of common stock of
the Company are duly authorized, validly issued and outstanding, fully paid and
nonassessable and, except for such shares, there are no outstanding shares of
capital stock or other securities of the Company. There is no existing option,
warrant, call, commitment or other agreement requiring the issuance or sale of
any additional shares of stock or other securities of the Company and no shares
of stock or other securities of the Company are reserved for issuance for any
purpose. Except as set forth on Schedule 5(c), there are no agreements,
commitments or restrictions relating to ownership, pledges, voting or transfer
of any shares of stock or other securities of the Company. The Company has no
subsidiaries and has no equity interest in any corporation, partnership, joint
venture or other entity. The Company has conducted its business only through
the Company and Peripheral Computer Support GmbH, a German corporation and
former subsidiary of the Company.
(d) Financial Statements. Seller previously has delivered to
Purchaser the Draft Audited Balance Sheet, the Draft Audited Financials, and
monthly reports of the Company for the months of January and February, 1997.
Each of the Draft Audited Financials and Draft Audited Balance Sheet have
been, and each of the Audited Financials and the Audited Balance Sheet will be,
prepared in accordance with the Company's books and records, present or will
present fairly the financial position and results of operations of the Company
as at the dates and for the fiscal year indicated and, in the case of the Draft
Audited Financials and the Draft Audited Balance Sheet have been, and in the
case of the Audited Financials and Audited Balance Sheet will be, prepared in
accordance with United States generally accepted accounting principles applied
on a consistent basis. The monthly reports for the months of January and
February 1997 have been prepared in accordance with the Company's books and
records.
(e) Liabilities. There are no material liabilities or contingencies
of the Company (whether accrued, unmatured, contingent or otherwise, and
whether due or to become due), except (i) as set forth or adequately reserved
against on the face of the Draft Audited Balance Sheet or the Audited Balance
Sheet or the footnotes thereto; (ii) as expressly referred to in Schedule 5(e)
hereto; and (iii) trade payables and other current liabilities (other than
funded indebtedness, monetary guaranties and liabilities under contracts
involving the receipt or expenditure of more than $25,000) incurred since
December 31, 1996 in the ordinary course of business and which are not,
individually or in the aggregate, material and
4
<PAGE> 10
adverse. On the Closing Date and assuming fulfillment of the condition set
forth in Section 10(k), there will be no liabilities or indebtedness or
contingencies of the Company whatsoever (whether accrued, unmatured, contingent
or otherwise and whether due or to become due) to Seller, Cerplex S.A.S. or any
of their affiliates. Other than as provided above, to Seller's Knowledge there
is no basis for the assertion against the Company of any other material
liability or loss contingency.
(f) No Adverse Change. Since December 31, 1996, the Company has
operated its business only in the ordinary course of business as theretofore
conducted, and there has been no: (i) material adverse change in the business,
properties, assets, liabilities, commitments, earnings, financial condition or
prospects of the Company or, taking the Company's revenues and expenses as a
whole, the Company's gross profit margins; (ii) property damage or destruction
resulting in a loss or cost to the Company of more than $10,000 in the
aggregate, whether or not covered by insurance; or (iii) act or omission which,
if taken or omitted after the date of this Agreement and before the Closing
would violate Section 7(b) below. Since December 31, 1996, there has been no
material adverse change in the ratio and composition of current assets to
current liabilities from that set forth in the Draft Audited Balance Sheet.
(g) Customers and Suppliers. Schedule 5(g) hereto contains a list
of the Company's ten largest customers and suppliers (measured by dollar volume
of purchases and sales, as applicable) and the dollar amount and percentage of
the Company's business which each such customer or supplier represented during
the fiscal year ending December 31, 1996. Except as disclosed on Schedule
5(g), to Seller's Knowledge, the Company is engaged in no material disputes
with such customers or suppliers, and no such customer or supplier has informed
Seller or the Company of any intention to terminate business or change the
manner in which it is presently doing business with the Company. To Seller's
Knowledge, no customer or supplier listed on Schedule 5(g) is considering
termination, non-renewal or any adverse modification of its arrangements with
the Company, and, except for the consents set forth on Schedule 5(t), to
Seller's Knowledge the transactions contemplated by this Agreement will not
have a material adverse effect on the Company's relationship with any of such
suppliers or customers.
(h) Title to Properties; Absence of Encumbrances. The Company has
good and marketable title to or, in the case of leases and licenses, valid and
subsisting leasehold interests or licenses in, all of its properties and assets
of whatever kind used in the operation of the Company and its subsidiaries
(whether real, personal or mixed, tangible or intangible) (collectively, the
"Assets") including, without limitation (i) cash, accounts receivable,
inventory, equipment, office furniture and furnishings, trade names, trademarks
and patents, all operating contracts, agreements, licenses and leases; (ii) all
properties and assets that are shown on the Audited Balance Sheet or the Draft
Audited Balance Sheet (except for assets sold in the ordinary course of
business since December 31, 1996) and (iii) properties and assets that are
shown on any schedule hereto, in each case free and clear of any and all liens,
mortgages, pledges, security interests, prior assignments, claims and
encumbrances of any kind whatsoever, except as may be set forth in Schedule
5(h) hereto and except for other immaterial liens, claims or encumbrances
incurred in the ordinary course of business which
5
<PAGE> 11
would not impair in any respect the Company's use or operation of its
properties and Assets in the ordinary course of business. All Assets,
properties and rights relating to the Company's business are held by, and all
material agreements, obligations and transactions relating to the Company's
business have been entered into, incurred and conducted by, the Company rather
than Seller or any of its affiliates.
(i) Real and Personal Property. The Company owns no real property,
building or other like structures. Schedule 5(i) hereto contains a complete
and correct list of all real property (including buildings and structures)
leased by the Company. All such real property, buildings and structures, and
the equipment therein, and the operations and maintenance thereof, comply with
any applicable agreements and restrictive covenants and conform to all
applicable legal requirements (as defined in Section 5(t) below) affecting the
use or enjoyment of the real property leased by the Company, including those
relating to the environment, health and safety, land use and zoning. All work
required to be done by the Company as tenant has been duly performed. To
Seller's Knowledge, Seller and the Company have received no notice of any
condemnation or other proceeding, pending or threatened, which would affect the
use of any such property by the Company. Schedule 5(i) hereto contains a
complete and correct list and brief description of all equipment, machinery,
computers, furniture, leasehold improvements, vehicles and other personal
property owned or leased by the Company and all interests therein as of the
date specified on such schedule. The Company's equipment and other assets
(whether leased or owned) are in good operating condition and repair, subject
to ordinary wear and tear.
(j) Patents, Trademarks and Copyrights. The Company has no
registered trademarks, tradenames or service marks and, to Seller's Knowledge,
has no pending applications or registrations with respect to the foregoing.
The Company uses "Peripheral Computer Support," "PCS" and the Company's logo
(collectively, the "Trademarks") as tradenames and for trademarks and/or
service marks. Seller may have common law rights to the Trademarks. To
Seller's Knowledge, the Company has not received notice from any third party
that the use of the Trademarks by the Company infringes the rights of third
parties. While the Company believes that its processes, pricing, business
plans and other confidential information are important to its business and may
be deemed to be trade secrets, the Company has no patents, copyrights or other
intellectual property that it deems proprietary, and no such rights of third
parties are used in the Company's business except for standard third party
noncustom software (e.g., Windows 95, etc.) which the Seller believes the
Company has adequate rights to use. To Seller's Knowledge, the Company is not
infringing, or otherwise unlawfully using, patents, copyrights or other
intellectual property rights of third parties. The Company is using no other
trademarks or trade names other than the Trademarks and Seller's name in its
business.
(k) Contracts, Leases and Commitments. Seller has furnished to
Purchaser true copies of the contracts, leases and commitments listed in
Schedule 5(k) hereto, including summaries of the terms of any unwritten
commitments. To Seller's Knowledge and to Nguyen's Knowledge (other than with
respect to any leases), except as set forth in that Schedule: (1) the Company
and the other parties thereto have complied in all material respects with such
contracts, leases and commitments, all of which are valid and enforceable;
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<PAGE> 12
(2) such contracts, leases and commitments are in full force and effect and
there exists no event or condition which with or without notice or lapse of
time would be a default thereunder, give rise to a right to accelerate or
terminate any provision thereof or give rise to any lien, claim, encumbrance or
restriction on any of the Assets of the Company; and (3) all of such contracts,
leases and commitments have been entered into on an arm's-length basis. To
Seller's Knowledge and to Nguyen's Knowledge (other than with respect to any
leases), the Company is not a party, nor are any of its Assets or business
subject, to any contract, open purchase order, lease or commitment not listed
in such Schedule (including without limitation purchase or sales commitments,
license agreements, financing or security agreements or guaranties, repurchase
agreements, agency agreements, manufacturers representative agreements,
commission agreements, employment or collective bargaining agreements, pension,
bonus or profit-sharing agreements, group insurance, medical or other fringe
benefit plans, and leases of real or personal property), other than (i)
contracts terminable without penalty on not more than 30 days' notice that do
not involve, individually or in the aggregate, the receipt or expenditure of
more than $50,000 in any one year, and (ii) immaterial contracts for leases and
standard services which do not, individually, require payments of more than
$2,000 per month or, in the aggregate, require payments in the aggregate
exceeding $50,000 per year. If any of the contracts listed in Schedule 5(k)
should provide for expiration or be subject to termination before the Closing,
Seller after consultation with Purchaser shall cause the Company to use all
reasonable efforts to extend such contracts on reasonable terms in accordance
with the Company's past practice.
(l) Inventory. Schedule 5(l) hereto contains a list of the
Company's inventory as at December 31, 1996, setting forth a brief description
of each item by category and quantity, and by unit and aggregate values.
Except for inventory that has been adequately reserved against on the Company's
Draft Audited Financial Statements or spare parts which are used by the Company
in the normal course of its business, the Company's inventory is in good and
marketable condition and is saleable in the normal course of the Company's
business. Each item of the Company's inventory will be carried on the Audited
Balance Sheet, and is carried on the Draft Audited Balance Sheet, at the lower
of cost or market, with cost determined on a first-in, first-out basis in
accordance with United States generally accepted accounting principles.
Inventory conforming to this representation and warranty shall be deemed
"Eligible Inventory."
(m) Accounts Receivable; Accounts Payable. Schedule 5(m) hereto is
an accurate aged list of the Company's accounts receivable as at December 31,
1996. Except as set forth on Schedule 5(m) hereto, the Company's accounts
receivable arose in the ordinary course of business for goods or services
delivered or rendered, constitute only valid, undisputed claims, and are not
subject to counterclaims or setoffs. Except as set forth on Schedule 5(m)
hereto, all of the Company's accounts payable arose in the ordinary course of
business for goods or services delivered or rendered to the Company and all of
the Company's material accounts payable have been paid in a reasonably timely
manner and there has been no material change in the aging of payables since
December 31, 1996.
(n) Permits; Compliance with Laws. The Company holds the
governmental licenses, permits and authorizations listed in Schedule 5(n)
hereto which,
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except as set forth in that Schedule, are valid and unimpaired, will be
unaffected by a transfer of all of the Shares of the Company to Purchaser, and
constitute all of the licenses, permits and authorizations required for the
ownership or occupancy of its properties and Assets and the operation of its
business. The Company's business is and has been operated in compliance
therewith in all material respects and all laws and regulations (federal,
state, local and foreign) applicable to it, and all required reports and
filings with governmental authorities have been properly made. The
consummation of the transactions contemplated by this Agreement will not give
rise to any liability of the Company for severance pay or termination pay.
Except as set forth on Schedule 5(n), since June 29, 1995 and, to Seller's
Knowledge, for the fourteen (14) months prior thereto, the Company has not
entered into any agreement with, had any material dispute with, or been
investigated by, any governmental authority or like third party.
(o) Employees. Schedule 5(o) hereto contains a list of the names,
office locations, compensation and dates of hire for all employees of the
Company as at December 31, 1996 with compensation in excess of $50,000. Except
as disclosed on Schedule 5(o) hereto, to Seller's Knowledge and to Nguyen's
Knowledge, there have been no efforts within the last three years to attempt to
organize the Company's employees, and no strike or labor dispute involving the
Company has occurred during the last three years or, to Seller's Knowledge and
to Nguyen's Knowledge, is threatened. Except as set forth on Schedule 5(o),
the Company has complied in all material respects with applicable wage and
hour, equal employment, safety and other legal requirements relating to its
employees.
(p) Employee Benefit Plans. Neither the Company nor any member of
any controlled group (within the meaning of Section 4001(a)(14) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or Section 414(b),
(c), (m) or (o) of the Code of which the Company was at any time a member (a
"Controlled Group Member"), has ever maintained or presently maintains or has
any obligation or liability with respect to any "employee benefit plan" subject
to Title IV of ERISA or Section 412 of the Code. Neither the Company nor its
predecessors or a Controlled Group Member has ever contributed to or otherwise
participated in or has any obligation or liability with respect to or has been
required to contribute to or otherwise participate in any "multiemployer plan",
as defined in Section 4001(a)(3) of ERISA or any single employer pension plan
(within the meaning of Section 400(a)(15) of ERISA) which is subject to
Sections 4063 and 4064 of ERISA. Schedule 5(p) contains a true and complete
list of each employee benefit plan within the meaning of Section 3(3) of ERISA
and any other pension, retirement, profit-sharing, deferred compensation,
option, bonus, stock, welfare, medical, disability, insurance, severance,
incentive or other benefit plan, whether written or oral, maintained by the
Company or a Controlled Group Member, or to which the Company contributes, for
any of the Company's employees or under which the Company has or could have any
obligation or liability (each a "Plan" and, collectively, the "Plans"), setting
forth the name of the Plans and the names and addresses of the trustees, and
the basis of the Company's contributions. True and complete copies of each of
the Plans and related trusts are available for review by Purchaser. There has
also been furnished the three most recent actuarial report required to be
prepared with respect to any of such Plans, the most recent Internal Revenue
Service
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<PAGE> 14
("Service") determination letter, the most recent Summary Plan Description and
the most recent Annual Report on Form 5500 series.
The Company is not liable for and will not be liable for any
liability of any other Controlled Group Member (including predecessors) with
regard to any "employee benefit plan" (within the meaning of Section 3(3) of
ERISA) including, without limitation, withdrawal liability. The Company, each
Controlled Group Member, each Plan and each "plan sponsor" or "administrator"
(within the meaning of Section 3(16) of ERISA) of each "welfare benefit plan"
(within the meaning of Section 3(1) of ERISA) has complied in all material
respects with the requirements of Section 4980B of the Code and Title I,
Subtitle B, Part 6 of ERISA.
With respect to each of the Plans on Schedule 5(p):
(i) with respect to each Plan intended to be qualified under
Section 401(a) of the Code, the Plan is so qualified, and a determination
letter from the Service has been received to the effect that the Plan is
qualified under Section 401(c) of the Code and any trust maintained pursuant
thereto is exempt from federal income taxation under Section 501 of the Code,
and Seller and the Company know of no event or circumstances which has occurred
or will occur through the Closing Date (including without limitation the
transactions contemplated by this Agreement) which would cause the loss of such
qualification or exemption or the imposition of any penalty or tax liability;
(ii) all contributions required by the Plan or by law with
respect to all periods through the Closing Date shall have been made by such
date (or provided for by the Company by adequate reserves on its financial
statements) including, without limitation, the discretionary profit sharing
contribution determined to be made by the Company's Board of Directors with
respect to the plan year ending December 31, 1996;
(iii) there are no violations of ERISA with respect to the
filing of applicable reports, documents and notices regarding the Plan with the
Secretary of Labor or Secretary of the Treasury or furnishing such documents to
participants or beneficiaries, as the case may be which in the aggregate would
give rise to a material liability;
(iv) except as disclosed on Schedule 5(p), no material claim,
lawsuit, arbitration or other material action has been threatened in writing,
asserted or instituted against the Plan, any trustee or fiduciary thereof,
Seller, the Company or any of the assets of any trust or the Plan, other than
routine claims for benefits;
(v) all amendments required to bring the Plan into conformity
with any of the applicable provisions of ERISA and the Code have been duly
adopted;
(vi) any bonding required with respect to the Plan in accordance
with applicable provisions of ERISA has been obtained and is in full force and
effect;
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<PAGE> 15
(vii) the Plan has been maintained in all material respects
in accordance with its terms and related documents and the terms and the
provisions of all applicable laws, including without limitation, ERISA (and the
rules and regulations thereunder);
(viii) neither Seller, the Company, nor to the knowledge of
Seller and the Company, any other party has engaged in a "prohibited
transaction," as such term is defined in Section 4975 of the Code or Section
406 of ERISA, with respect to the Plan (and the transactions contemplated by
this Agreement will not constitute or directly or indirectly result in such a
"prohibited transaction") which could subject the Company, Seller or the
Purchaser, or any officer, director or employee of any of the foregoing, or any
trustee, administrator or other fiduciary of the Plan, to a material tax or
penalty on prohibited transactions imposed by ERISA or the Code;
(ix) Seller has not been notified of an audit of any Plan
by the Service or the Department of Labor; and
(x) the Company is not obligated to maintain, contribute
to, or in any way provide for any post-employment benefits of any kind
whatsoever (other than under Section 4980B of the Code, the Federal Social
Security Act or a plan qualified under Section 401(a) of the Code) to any
current or future retiree or terminee.
(xi) No Plan is "Voluntary employees beneficiary
association" within the meaning of Code Section 501(c)(9) or a "Welfare
benefit" within the meaning of Section 419 of the Code.
(q) Insurance. Schedule 5(q) hereto contains a complete and correct
list of all policies of insurance of any kind or nature covering the Company,
including without limitation policies of life, fire, theft, casualty, product
liability, workmen's compensation, business interruption, employee fidelity and
other casualty and liability insurance, indicating the type of coverage, name
of insured, the insurer, the premium, the expiration date of each policy and
the amount of coverage. All such policies (i) are with insurance companies
reasonably believed by Seller to be financially sound and reputable and are in
full force and effect; (ii) are sufficient for compliance with all requirements
of law and of all applicable agreements; (iii) are valid, outstanding and
enforceable policies; and (iv) provide adequate insurance coverage for the
assets and operations of the Company for all risks normally insured against by
persons carrying on the same business as the Company. All premiums payable
with respect to such policies have been paid. Complete and correct copies of
such policies have been furnished to Purchaser. Prior to the Closing, Seller
shall cause the Company to maintain in full force and effect all such policies
of insurance or comparable insurance coverage. Since December 31, 1993, the
Company has not been denied any insurance coverage which it has requested or
made any material reduction in the scope or change in the nature of its
insurance coverage. The products liability and personal injury insurance
maintained by the Company has been on a "claims made" basis during the two-year
period prior to the Closing Date.
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(r) Litigation. Schedule 5(r) hereto contains a complete and
correct list of all actions, suits, proceedings, claims or governmental
investigations pending or, to Seller's Knowledge and to Nguyen's Knowledge,
threatened against, the Company or any of its Assets, or, in connection with
the Company's business, Seller or any of the Company's officers, directors or
employees. Except as set forth on Schedule 5(r) hereto, neither the Company
nor, in connection with the Company's business, Seller or any of the Company's
officers, directors or employees, is subject or party to any judgment, order,
or other direction of or stipulation with any court or other governmental
authority or tribunal, or, to the Seller's Knowledge, in violation of any other
legal requirements (as defined in subparagraph 5(t) below), and, to Seller's
Knowledge, no reasonable basis for a claim of such a violation exists. To the
Seller's Knowledge, there are no proposed legal requirements that might
adversely affect in any material respect the operation or prospects of the
Company's business.
(s) Environmental Matters.
(i) Definitions. As used herein, the following terms shall
have the following meanings: (A) "Environmental Laws" shall mean all federal,
state, local or common laws, rules, regulations, ordinances and directives
relating to the protection of human health and the environment and any permits,
licenses, authorizations or approvals issued thereunder; (B) "Hazardous
Materials" shall mean any substance subject to regulation under Environmental
Laws as a hazardous substance, hazardous waste, hazardous material, toxic
substance, pollutant or contaminant or similar denomination intended to classify
substances by reason of toxicity, carcinogenicity, ignitability, corrosivity or
reactivity and includes pesticides and petroleum and petroleum-derived products
and chlorinated solvents.
(ii) To Seller's Knowledge and to Nguyen's Knowledge, the
Company has not caused or permitted to exist, as a result of an intentional or
unintentional action or omission, a disposal, discharge, emission, release or
threatened release of a Hazardous Material on, from or under any property now
or previously owned or operated by the Company, or by any entity from which the
Company may have acquired liability contractually or by operation of law, other
than in compliance with the Environmental Laws or a permit or approval issued
thereunder.
(iii) To Seller's Knowledge and to Nguyen's Knowledge, there
are no underground storage tanks, asbestos containing material, polychlorinated
biphenyls or Hazardous Materials at any property now or previously owned by the
Company or leased or operated by the Company, other than Hazardous Materials
maintained in small quantities and in their original containers for use in the
ordinary course of business.
(iv) To Seller's Knowledge and to Nguyen's Knowledge, there
are no conditions existing at any real property now or previously owned or
operated by the Company, or by any entity from which the Company may have
acquired liability contractually or by operation of law, which require, or
which with the giving of notice or the passage of time or both would require,
remedial action, removal or closure by the Company pursuant to Environmental
Laws.
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<PAGE> 17
(t) Restrictions. The authorization, execution, delivery and
performance of Seller's Documents and the consummation of the transactions
contemplated hereby and thereby do not and will not (i) violate any of the
provisions of the Company's Articles of Incorporation or By-Laws, (ii) except
as set forth on Schedule 5(t), violate, conflict with, result in a breach of or
constitute a default under, require any notice or consent under, give rise to a
right of termination of, or accelerate the performance required by, any terms
or provisions of any agreement, instrument or writing of any nature to which
the Company or Seller is a party or is bound, or any of their Assets or
business is subject, (iii) subject to compliance with the Hart- Scott-Rodino
Antitrust Improvements Act of 1976, as amended, and the rules and regulations
thereunder (the "HSR Act"), violate, or result in a breach of, conflict with,
or require any notice, filing or consent under, any statute, rule, regulation
or other provision of law, or any order, judgment or other direction of a court
or other tribunal, or any other governmental requirement, permit, registration,
license or authorization applicable to the Company, Seller or any of their
Assets or business, in each case whether foreign or domestic (collectively,
"legal requirements"), or (iv) result in the creation of any lien, claim,
encumbrance or restriction on any of the Company's Assets or properties.
Except as set forth on Schedule 5(t), the Company is not party to any
non-compete or similar agreement which in any way restricts the operation of
the Company's business.
(u) Transactions with Affiliates.
(i) Since December 31, 1996, the Company has made no dividends
in respect of its capital stock or other distributions or payments of any kind
whatsoever whether in cash or other property to Seller or any of its
subsidiaries or affiliates, except (w) payments to Seller for payroll and
payroll taxes, insurance and similar matters where the payment to Seller is
equal to the amount paid by Seller to the Company or to the Company employees
or to an unaffiliated third party on behalf of the Company, (x) payments made
for commercial repair transactions at arms length pricing in the ordinary
course of the Company's business and consistent with past practice and which do
not adversely affect the Company, (y) the payment to Seller of $2,192,261
(inclusive of payment made through the Closing Date) relating to the Cerplex
S.A.S. inventory and (z) the $180,000 payment to Seller made in January 29,
1997 relating to the transfer of profits for preceding quarters ("Permitted
Intercompany Transactions"). No payment made to Seller with respect to the
Cerplex S.A.S. inventory pursuant to clause (y) above shall (1) result in the
creation of any lien, claim, encumbrance or restriction on any of the Company's
Assets or properties, (2) result in the creation of any obligation on the part
of the Company to Cerplex S.A.S. or any other affiliate or subsidiary of Seller
or any third party or (3) violate any legal requirement (as defined in
subparagraph 5(t) above).
(ii) Except as set forth in Schedule 5(u) hereto and except for
ordinary dealings with its employees and employment arrangements, since June
29, 1995, Seller and, to Seller's Knowledge, the Company have had no direct or
indirect dealings with Tu Nguyen or with any other key employee of the Company
or with any of their affiliates, associates or relatives. Except as set forth
in Schedule 5(u) and except for employment arrangements with its employees, the
Company has no obligation to or claim against Tu Nguyen or any other key
employee of the Company, or any of their affiliates, associates or
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<PAGE> 18
relatives, and no such person or entity has any obligation to or claim against
the Company. To Seller's Knowledge, Schedule 5(u) reasonably describes the
nature and extent of any products, services or benefits provided to the Company
by any such person or entity without a corresponding charge equal to the fair
market value of such products, services or benefits. To Seller's Knowledge,
neither Tu Nguyen, any other key employee of the Company, nor any of their
affiliates, associates or relatives has any direct or indirect interest of any
kind in any business or entity which is competitive with the Company.
(v) Books and Records. The books and records of the Company from
which the Company's financial statements are prepared are complete and correct
in all material respects. The minute books of the Company, as previously made
available to Purchaser, contain complete and accurate records of all meetings
and accurately reflect all other corporate action of the shareholders and board
of directors of the Company.
(w) Illegal Payments. To Seller's Knowledge and to Nguyen's
Knowledge, the Company and its officers, directors, employees and agents have
not made any illegal payments to, or provided any illegal benefit or inducement
for, any governmental official, supplier, customer or other person, in an
attempt to influence any such person to take or to refrain from taking any
action relating to the Company.
(x) Officers and Directors; Bank Accounts, etc. Schedule 5(x)
hereto lists all officers, directors and fiduciaries of the Company; all bank
accounts and safe deposit boxes maintained by the Company and all authorized
signatories therefor, specifying their respective authority; and all credit
cards under which employees of the Company may incur liability, and the persons
holding such cards. No person or entity holds any general or special power of
attorney from the Company.
(y) Expenses Related to this Agreement. The Company has not paid
for any expenses incident to the negotiation or preparation of Seller's
Documents or for any broker's, finder's or similar fee.
(z) Accuracy of Documents and Information. To Seller's Knowledge,
no representations or warranties made by Seller in this Agreement, nor any
schedule, certificate or exhibit attached to this Agreement or furnished by
Seller as required by Section 10 hereof, contains or will contain as of the
Closing any untrue statement of a material fact, or omits or will omit as of
the Closing to state a material fact necessary to make the statements or facts
contained herein or therein not misleading.
6. Representations and Warranties of Purchaser. Purchaser and
Lincolnshire represent, warrant and agree that:
(a) Organization and Good Standing. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Purchaser has not conducted any business prior to the date
hereof, and has no material assets or liabilities. Lincolnshire is a limited
partnership organized under the State of Delaware.
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(b) Execution and Effect of Agreement. Each of Purchaser and
Lincolnshire, as appropriate, has the full right, power and authority to enter
into and perform this Agreement, the Tax Allocation Agreement, the Escrow
Agreement and all other agreements, certificates and documents executed or
delivered or to be executed or delivered by Purchaser in connection herewith
(collectively, with this Agreement, "Purchaser's Documents"). Each of
Purchaser and Lincolnshire, as appropriate, has taken all actions necessary to
authorize it to execute, deliver and perform Purchaser's Documents. This
Agreement has been duly executed and delivered by Purchaser and Lincolnshire
and Purchaser's Documents are (or when executed and delivered by Purchaser and
Lincolnshire, will be) legal, valid and binding obligations of Purchaser and
Lincolnshire, enforceable in accordance with their respective terms.
(c) Restrictions. The authorization, execution, delivery and
performance of Purchaser's Documents and the consummation of the transactions
contemplated hereby and thereby do not and will not (i) violate any of the
provisions of Lincolnshire's partnership agreement or Purchaser's Certificate
of Incorporation or By-Laws, (ii) violate, conflict with, result in a breach of
or constitute a default under, require any notice or consent under, give rise
to a right of termination of, or accelerate the performance required by, any
terms or provisions of any agreement, instrument or writing of any nature to
which Purchaser or Lincolnshire is a party or is bound or any of its Assets or
business is subject, or (iii) subject to compliance with the HSR Act, violate,
conflict with or result in a breach of, or require any notice, filing or
consent under, any statute, rule, regulation or other provision of law, or any
order, judgment or other direction of a court or other tribunal, or any other
governmental requirement, permit, registration, license or authorization
applicable to Purchaser or Lincolnshire.
7. Covenants of Seller. Seller covenants and agrees that between
the date hereof and the Closing:
(a) Access by Purchaser. Purchaser and its officers, directors,
employees, accountants, representatives and advisers, and those of its
affiliates, shall have free and full access during normal business hours (upon
prior notice to the Company) to the Company's assets, premises, books and
records, key employees and accountants, including the audit work papers of
KPMG, and its customers and suppliers, and the Company shall furnish Purchaser
with such information and copies of such documents as Purchaser may reasonably
request. In addition to the requirements of Section 3 hereof, Seller or the
Company shall promptly furnish to Purchaser all financial statements of the
Company that are prepared in the ordinary course of business, including without
limitation monthly reports of sales, revenue and cash flow and quarterly and
monthly balance sheets.
(b) Conduct of Business. Except as expressly permitted or required
below, the business of the Company shall be conducted only in the ordinary
course, consistent with the present conduct of its business, and Seller and the
Company shall use all reasonable efforts to maintain, preserve and protect the
Assets and goodwill of the Company. The Company shall not, without the prior
written consent of Purchaser, take or commit to take any of following actions:
(i) amend its By-Laws or Certificate of Incorporation, (ii) issue
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<PAGE> 20
any additional shares of capital stock or issue, sell or grant any option or
right to acquire or otherwise dispose of any of its authorized but unissued
capital stock or other corporate securities, (iii) declare or pay any dividends
or make any other distribution in cash or property on its capital stock other
than Permitted Intercompany Transactions, (iv) repurchase or redeem any shares
of its capital stock, (v) incur, or perform, pay or otherwise discharge, any
obligation or liability (absolute or contingent), except for current
obligations and liabilities incurred in the ordinary course of business
consistent with past practice, (vi) enter into any employment agreement with,
or become liable for any bonus, profit-sharing or incentive payment to, or
increase the compensation or benefits of, any of its officers, directors or
employees, except pursuant to presently existing plans, arrangements or
agreements disclosed herein or in a schedule hereto, other than normal year-end
bonuses and year-end salary increases, (vii) sell, transfer or acquire any
properties or Assets, tangible or intangible, other than in the ordinary course
of business, (viii) make any material changes in its customary method of
operations, including marketing, selling and pricing policies and maintenance
of business premises, fixtures, furniture and equipment, (ix) modify, amend or
cancel any of its existing leases or enter into any contracts, agreements,
leases or understandings other than in the ordinary course of business or enter
into any loan agreements, (x) make any investments other than in certificates
of deposit or short- term commercial paper, (xi) make any payments or incur any
liability in connection with expenses incident to the negotiation or
preparation of Seller's Documents, (xii) accelerate or discount the collection
of accounts receivable, nor delay the payment of accounts payable or (xiii)
make any dividend, cash distribution or payment to Seller or any of its
subsidiaries or affiliates other than Permitted Intercompany Transactions.
Notwithstanding the foregoing, the Company shall make the payment to Seller of
the unpaid balance on the original amount of $2,192,261 relating to the Cerplex
S.A.S. Inventory prior to Closing.
(c) Supplements. If any representation, warranty or statement of
Seller, or any schedule delivered to Purchaser, shall be or become incorrect,
Seller, as the case may be, shall deliver to Purchaser a supplement in order
that, if possible, said representation, warranty, statement, or schedule, as so
supplemented, shall be true and correct. It is understood and agreed that the
delivery of such a supplement to Purchaser shall not in any manner constitute a
waiver by Purchaser of any of its rights under this Agreement, provided that if
(i) a representation, warranty or statement of Seller prior to the Closing, or
any schedule delivered to Purchaser, shall become incorrect after the date
hereof, (ii) Seller as soon as possible delivers to Purchaser at least five (5)
business days prior to the Closing (in accordance with Section 18 hereof) a
supplement in order that said representation, warranty, statement, or schedule,
as so supplemented, shall be true and correct, and (iii) Seller provides
Purchaser with such other information as Purchaser may reasonably request in
connection with such supplement, then Purchaser shall, at its sole option,
elect (x) to consummate the Closing and thereby cure and correct for all
purposes any breach of representation, warranty or statement which would have
existed by reason of Seller not having made such supplement or (y) if Purchaser
determines in its sole discretion that such representation, warranty or
statement was material, to terminate this Agreement, without further liability
on the part of the parties hereto.
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(d) Employment. If Purchaser fails to continue to employ all
employees listed on Schedule 7(d) at each employee's current pay for at least
thirty (30) days and institute a severance policy which complies with the
requirements of ERISA, Purchaser will cause the Company to be responsible for
any and all liabilities associated with such failure and the limitations under
Section 16 shall not apply to any breach of this Section. The Company will
retain all liability for payment of the accrued but unused vacation, floating
holidays and occasional absence accruals on Schedule 7(d).
8. Covenants of Purchaser. Purchaser covenants and agrees that
between the date hereof and the Closing:
(a) Representations and Warranties. Purchaser will not take any
action which would cause any of the representations and warranties made by it
in Purchaser's Documents not to be true and correct in all material respects on
and as of the Closing Date with the same force and effect as if such
representations and warranties had been made on and as of the Closing Date.
(b) Best Efforts to Close. Purchaser and Lincolnshire acknowledge
that time is of the essence for Seller with respect to the Closing of this
Agreement, and agree to use their best efforts to cause the Closing to occur as
soon as practicable after the date hereof. Such efforts shall include good
faith efforts to expedite to the extent reasonably possible the receipt of
financing from their equity and debt sources without requiring its equity
sources to fund more quickly than required by its existing agreements.
9. Conditions Precedent to Obligations of Purchaser. The
obligation of Purchaser to consummate the transactions contemplated by this
Agreement are subject to the fulfillment, at or before the Closing, of each of
the following conditions, any of which may be waived by Purchaser in writing,
and Seller shall use its best efforts to cause such conditions to be fulfilled:
(a) Representations and Warranties. Each of the representations and
warranties of Seller in Seller's Documents shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date, except to the extent that any of
such representations and warranties refers specifically to a date other than
the Closing Date, in which case such representations and warranties shall be
true and correct in all material respects on and as of such date.
(b) Performance of Seller. Seller shall have, or shall have caused
the Company to have, performed and complied in all material respects with all
agreements, covenants and conditions required by Seller's Documents to be
performed or complied with by Seller or the Company at or before the Closing.
(c) Delivery of Shares. All of the Shares shall have been delivered
to Purchaser for purchase by it on the Closing Date in accordance with Section
11(a)(i) hereof.
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<PAGE> 22
(d) Employment Agreement. Tu Nguyen shall have entered into an
employment agreement, management stockholders agreement, subscription agreement
and noncompete agreement (collectively, the "Employment Agreement").
(e) Opinion of Counsel to Seller. Seller shall have delivered to
Purchaser an opinion of Brobeck Phleger & Harrison LLP, counsel to Seller,
dated the Closing Date, in the form attached hereto as Exhibit D (the "BPH
Opinion").
(f) Certificate. Purchaser shall have received a certificate
executed by Seller dated the Closing Date, certifying as to the fulfillment of
the conditions set forth in Sections 9(a), (b), (c), (g), (j), (k), (l) and (m)
("Seller's Certificate").
(g) Litigation. No action or proceeding shall be pending or
threatened before any court, tribunal or governmental body, and no claim or
demand shall have been made against Purchaser, Seller or the Company, seeking
to restrain or prohibit or to obtain damages or other relief in connection with
the consummation of the transactions contemplated by Seller's Documents or
Purchaser's Documents, or which might materially affect the business of the
Company.
(h) Escrow Agreement. Seller shall have entered into the Escrow
Agreement with Purchaser and the Escrow Agent in the form of Exhibit B hereto.
(i) Financing. Purchaser shall have obtained bank financing (the
"Financing") for the purchase of the Shares contemplated by this Agreement on
terms and conditions reasonably satisfactory to it.
(j) Release of Liens. Purchaser shall have received evidence (the
"Release Evidence") reasonably satisfactory to Purchaser, of the termination of
all loan agreements and security agreements relating to the Assets of the
Company or the Shares, of the termination and release of all liens and security
interests in the Assets of the Company and in the Shares and of the termination
of any UCC financing statements except with respect to equipment leased to the
Company, the existence of which are not material.
(k) No Material Adverse Change. Purchaser shall have received at
least five (5) business days prior to the Closing Date, the Audited Financials
and Audited Balance Sheet. There shall have been no material adverse change in
the financial condition, results of operations, business or prospects of the
Company described in the Audited Financials and Audited Balance Sheet from the
financial condition, results of operations, business or prospects of the
Company described in the Draft Audited Financials and Draft Audited Balance
Sheet, except for the elimination of (i) "Due from parent" of $1,152,292 and
(ii) "Due from affiliates" of $1,363 from the Assets shown on the Draft Audited
Balance Sheet and the corresponding reduction in total stockholders' equity.
(l) Intercompany Indebtedness. Since December 31, 1996, there shall
have been no intercompany transactions between the Company and Seller or its
affiliates other than Permitted Intercompany Transactions.
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<PAGE> 23
(m) No Payments to Affiliates. Since December 31, 1996 and up to
and including the Closing Date, the Company shall have made no dividends,
distributions or payments whatsoever, whether in cash or other property, to
Seller or any of its subsidiaries or affiliates, other than Permitted
Intercompany Transactions.
(n) Tax Allocation Agreement. Seller shall have entered into the
Tax Allocation Agreement with Purchaser in the form of Exhibit C hereto.
(o) HSR Act. The expiration or early termination of the applicable
waiting period under the HSR Act shall have occurred (the "HSR Condition").
10. Conditions Precedent to Obligations of Seller. The obligations
of Seller to consummate the transactions contemplated by this Agreement are
subject to the fulfillment, at or before the Closing, of each of the following
conditions, any of which may be waived by Seller in writing, and Purchaser
shall use its best efforts to cause such conditions to be fulfilled:
(a) Representations and Warranties. The representations and
warranties of Purchaser and Lincolnshire in Purchaser's Documents shall be true
and correct in all material respects on and as of the Closing Date with the
same force and effect as though the same had been made on and as of the Closing
Date, except to the extent that any of such representations and warranties
refers specifically to a date other than the Closing Date, in which case such
representations and warranties shall be true and correct in all material
respects on and as of such date.
(b) Performance by Purchaser. Purchaser shall have performed and
complied in all material respects with the agreements, covenants and conditions
required by Purchaser's Documents to be performed or complied with by it at or
before the Closing.
(c) Purchase Price. The Purchase Price shall have been paid as
provided in Section 4(a) above. If applicable, the Nguyen release shall be
unconditional and in form and substance reasonably satisfactory to Seller.
(d) Opinion of Counsel to Purchaser. Purchaser shall have delivered
to Seller an opinion of Proskauer Rose Goetz & Mendelsohn LLP, counsel to
Purchaser, dated the Closing Date, in form and substance reasonably
satisfactory to Seller and its counsel (the "PRG&M Opinion").
(e) Certificate. Seller shall have received a certificate executed
by Purchaser, dated the Closing Date, certifying as to the fulfillment of the
conditions set forth in Sections 10(a), (b), (c) and (f).
(f) Litigation. No action or proceeding shall be pending or
threatened before any court, tribunal or governmental body, and no claim or
demand shall have been made against Purchaser, Seller or the Company, seeking
to restrain or prohibit or to obtain
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<PAGE> 24
damages or other relief in connection with the consummation of the transactions
contemplated by Purchaser's Documents or Seller's Documents.
(g) Escrow Agreement. Purchaser shall have entered into the Escrow
Agreement with Seller and the Escrow Agent in the form of Exhibit B attached
hereto.
(h) Tax Allocation Agreement. Purchaser shall have entered into the
Tax Allocation Agreement with Seller in the form of Exhibit C hereto.
(i) Lender Consents. Seller shall have obtained all consents and/or
waivers required under the loan agreements with Seller's senior and/or
subordinated lenders in connection with the execution, delivery and performance
of Seller's Documents and the transactions contemplated thereby.
(j) HSR Act. The expiration or early termination of the applicable
waiting period under the HSR Act shall have occurred (the "HSR Condition").
(k) Payment of Permitted Intercompany Transactions. All Permitted
Intercompany Transactions, which include the remaining balance of the
$2,192,261 relating to the Cerplex S.A.S. Inventory, shall be paid on or prior
to Closing.
11. Closing Deliveries.
(a) Deliveries of Seller. At the Closing, Seller shall deliver, or
shall cause to be delivered, to Purchaser, the following:
(i) Certificates representing the Shares, without legends,
duly endorsed in blank or accompanied by stock powers duly endorsed in blank, as
Purchaser may designate, together with any required stock transfer tax stamps
affixed and cancelled and all taxes on such transfer, if any, paid in full, all
at the expense of Seller. Such Shares shall be delivered to Purchaser, free
and clear of all claims.
(ii) The Tax Allocation Agreement.
(iii) The BPH Opinion.
(iv) Seller's Certificate.
(v) Escrow Agreement.
(vi) The Release Evidence.
(vii) Duly executed resignations of such officers, directors
and fiduciaries of the Company as Purchaser shall designate at least two days
prior to the Closing.
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<PAGE> 25
(b) Deliveries of Purchaser. At the Closing, Purchaser shall
deliver or cause to be delivered to Seller the following:
(i) The Purchase Price, less the Escrowed Amount, by certified
or official bank check or by wire transfer, as Seller may select.
(ii) The PRG&M Opinion.
(iii) Purchaser's Certificate.
(iv) Escrow Agreement.
(v) The Tax Allocation Agreement.
(c) Deliveries to the Escrow Agent. At the Closing, Purchaser shall
deliver or cause to be delivered to the Escrow Agent, the Escrowed Amount.
12. Restrictive Covenant. For two years (five years in the case of
Tu Nguyen) after the Closing Date, each of Seller and Purchaser shall not, and
shall not permit its affiliates, to directly or indirectly solicit the services
of (whether as an employee, officer, consultant, independent contractor or
otherwise), any person who is then (or was at any time within one year (two
years in the case of Tu Nguyen) prior to the time of such solicitation) an
employee, officer, sales representative or agent of the Company or of Seller,
respectively. Because the breach or attempted or threatened breach of this
restrictive covenant will result in immediate and irreparable injury to
Purchaser or Seller, as the case may be, for which Purchaser or Seller, as the
case may be, will not have an adequate remedy at law, Purchaser or Seller, as
the case may be, shall be entitled, in addition to all other remedies, to a
decree of specific performance of this covenant and to a temporary and
permanent injunction enjoining such breach, without posting bond or furnishing
similar security. The provisions of this Section 12 are in addition to and
independent of any agreements or covenants contained in any other agreement
between the Company and Seller.
13. Brokers. Each party represents to the other that it has had no
dealings with any broker or finder in connection with the transactions
contemplated by this Agreement. Should any other claim be made for a broker's,
finder's or similar fee, on account of any actions or dealings by a party or
its agents, such party shall indemnify and hold the other party harmless from
and against any and all liability and expenses, including reasonable attorneys'
fees incurred by reason of any claim made by such broker.
14. Indemnification by Seller. Subject in all respects to Section
16, Seller shall indemnify, defend and hold harmless Purchaser and its
affiliates (including the Company), promptly upon demand at any time and from
time to time, against any and all losses, liabilities, claims, actions, damages
and expenses, including without limitation reasonable attorneys' fees and
disbursements (collectively, "Losses"), arising out of or in connection with
any of the following: (a) any misrepresentation or breach of any warranty made
by Seller in any of Seller's Documents, (b) any breach or nonfulfillment of any
20
<PAGE> 26
covenant or agreement made by Seller in any of Seller's Documents and (c) the
sale of Peripheral Computer Support GmbH, a German corporation and a former
subsidiary of the Company.
15. Indemnification by Purchaser. Subject in all respects to Section 16,
Purchaser and Lincolnshire shall indemnify, defend and hold harmless Seller,
promptly upon demand at any time and from time to time, against any and all
Losses arising out of or in connection with any of the following: (a) any
misrepresentation or breach of any warranty made by Purchaser in any of
Purchaser's Documents and (b) any breach or nonfulfillment of any covenant or
agreement made by Purchaser in Purchaser's Documents.
16. Further Provisions Regarding Indemnification.
(a) Survival. Subject to Section 16(b), all representations,
warranties, indemnities, covenants and agreements made by Seller and Purchaser
in Seller's or Purchaser's Documents shall survive the Closing, notwithstanding
any examination or investigation made by or for any party; provided, however,
(i) that the representations and warranties made by Seller (other than Sections
5(a), 5(c) and 5(s)) and Purchaser in this Agreement shall expire on the first
anniversary of the Closing Date, (ii) the representations and warranties made
by Seller in Section 5(a) and Section 5(c) hereof shall not expire, (iii) the
representations and warranties made by Seller in Section 5(s) shall expire on
the date that all applicable statute of limitations with respect to
Environmental Laws have expired and (iv) the survival of representations and
warranties, covenants and obligations contained in the Tax Allocation Agreement
shall be as set forth in Section 5.2 of the Tax Allocation Agreement; and
provided further, however, that any claims for indemnification that have been
made before such dates shall survive until the final resolution thereof.
(b) Limitations.
(i) Neither Seller nor Purchaser (each sometimes being
hereinafter referred to in this Section 16 as a "party") shall be entitled to
indemnification for Losses arising out of matters referred to in Section 14(a)
or Section 15(a), as applicable, unless it shall have given written notice to
the other party, setting forth its claim for indemnification in reasonable
detail, prior to the expiration of the applicable representation, warranty,
obligation, covenant or agreement as set forth in Section 16(a) above or the
Tax Allocation Agreement.
(ii) Notwithstanding anything contained in this Agreement to the
contrary, Seller (1) shall have no obligation hereunder to provide
indemnification for the first $100,000 of Losses (without counting Losses from
Immaterial Claims, as defined below), (2) shall have no further indemnification
obligation hereunder once Seller has paid to Purchaser a total of $4,000,000 in
Losses for all claims other than Ownership Claims, Capitalization Claims, Tax
Claims and Environmental Claims (each as defined below), (3) Seller shall have
no further indemnification obligation hereunder for all claims for Losses
(inclusive of claims regarding a breach of Section 5(a) hereof (an "Ownership
Claim"), Section 5(c) hereof (a "Capitalization Claim"), Section 5(s) hereof
(an "Environmental Claim"), and the Tax
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<PAGE> 27
Allocation Agreement (a "Tax Claim")) once Seller has paid to Purchaser an
amount equal to $15,000,000 and (4) in no event shall Seller or Purchaser have
any liability for any singular incident or fact involving a breach, inaccuracy
or omission of Seller or Purchaser, as applicable, if the Losses from such
singular incident or fact are equal to or less than $2,500 (an "Immaterial
Claim"); and provided further, however, that the foregoing limitation on
Seller's indemnification obligation set forth in clause 1 above shall not apply
to Losses arising out of or in connection with any misrepresentation or breach
of any warranty made by Seller in Sections 5(a), 5(c), 5(r) (to the extent
Seller or Tu Nguyen actually knows of a threatened claim), 5(s) and 5(w) and
Section 13 hereof and in the Tax Allocation Agreement.
(c) Defense. An indemnified party shall promptly give written
notice to the indemnifying party after the indemnified party has knowledge that
any legal proceeding has been instituted or any claim has been asserted in
respect of which indemnification may be sought under the provisions of Section
14 or 15. If the indemnifying party, within 10 days after the indemnified
party has given such notice (or within such shorter period of time as an answer
or other responsive motion may be required), shall have acknowledged in writing
his or its obligation to indemnify, then the indemnifying party shall have the
right to control the defense of such claim or proceeding, and the indemnified
party shall not settle or compromise such claim or proceeding without the
written consent of the indemnifying party, which consent shall not unreasonably
be withheld or delayed. The indemnified party may in any event participate in
any such defense with his or its own counsel and at his or its own expense.
Notwithstanding the foregoing, the right to indemnification hereunder shall not
be affected by any failure of an indemnified party to give such notice (or by
delay by an indemnified party in giving such notice) unless, and then only to
the extent that, the rights and remedies of the indemnifying party shall have
been prejudiced as a result of the failure to give, or delay in giving, such
notice.
(d) Payments. Each amount payable to Purchaser by Seller under
Section 14 (an "Indemnification Amount") shall be paid by Purchaser and Seller
directing the Escrow Agent, pursuant to the terms of Escrow Agreement, to
deliver to Purchaser an amount equal to the Indemnification Amount. Subject to
the limitations on Purchaser's right to indemnification set forth in Section
16(b), any Indemnification Amount remaining unsatisfied after delivery of
amounts held by the Escrow Agent shall be paid promptly in cash, certified
check or wire transfer to Purchaser by Seller (it being understood that
Purchaser's source of payment of Indemnification Amounts under Section 14 are
not limited to the Escrowed Amount). Each amount payable to Purchaser by
Seller under Section 14 shall be paid promptly in cash, certified check or wire
transfer to Purchaser by Seller.
(e) Calculation of Damages. An indemnified party shall be entitled
to recover the full amount of any Loss incurred due to the matter for which
indemnification is sought, but any recovery shall be net of any benefit
received by the indemnified party due to such Loss, including, without
limitation, any tax benefit, insurance proceeds or warranty reimbursements.
(f) Certain Events. Neither Lincolnshire nor Purchaser shall have
any liability under this Agreement if Purchaser fails to close because LaSalle
National Bank (the
22
<PAGE> 28
"Lender") fails to close with respect to the financing due to a bona fide,
material environmental liability of the Company identified prior to the Closing
Date or the failure of Seller to remove any liens on, or security interests in,
the Assets of the Company or the Shares by the Closing Date.
17. Further Assurances. The parties shall cooperate and take such
actions, and execute such other documents, at the Closing or subsequently, as
either may reasonably request in order to carry out the provisions or purpose
of this Agreement.
18. Notices. All notices or other communications in connection with
this Agreement shall be in writing and shall be considered given when
personally delivered, telecopied (provided that telecopy is supplemented by
overnight original copy delivery), mailed by overnight courier or three
business days after being mailed by registered or certified mail, postage
prepaid, return receipt requested, as follows:
If to Seller:
The Cerplex Group, Inc.
1382 Bell Avenue
Tustin, California 92780
Attn: President
With a copy to:
Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Attn: Frederic A. Randall, Jr., Esq.
Fax: (714) 752-7535
If to Purchaser:
PCS Acquisition Co., Inc.
c/o Lincolnshire Management, Inc.
780 Third Avenue, 45th Floor
New York, New York 10017
Attn: C. Kenneth Clay
Fax: (212) 755-5457
With a copy to:
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, New York 10036
Attn: Arnold J. Levine, Esq.
Fax: (212) 969-2900
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<PAGE> 29
19. Entire Agreement. This Agreement (which includes the schedules
and exhibits hereto) sets forth the parties' final and entire agreement with
respect to its subject matter and supersedes any and all prior understandings
and agreements. This Agreement can be amended, supplemented or changed, and
any provision hereof can be waived, only by a written instrument making
specific reference to this Agreement signed by the party against whom
enforcement of any such amendment, supplement, change or waiver is sought.
20. Successors. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and assigns;
provided, however, that neither this Agreement nor any right or obligation
hereunder may be assigned or transferred, except that Purchaser may assign this
Agreement and its rights hereunder to any affiliate or any direct or indirect
wholly-owned subsidiary of Purchaser and either Purchaser or Seller may assign
this Agreement to financial institutions.
21. Section Headings. The section headings in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
22. Other Discussions. Unless this Agreement shall have been
terminated, neither Seller nor the Company shall enter into any negotiations
regarding the acquisition of any assets or capital stock of the Company.
23. Fees and Expenses. Each of the parties hereto shall pay their
own respective expenses in connection with the transactions contemplated
herein, including without limitation the preparation and negotiation of this
Agreement and its schedules and exhibits and the costs, fees and expenses of
their respective advisors and lenders. No costs, fees or expenses incurred by
Purchaser or Seller shall be borne by the Company.
24. Severability. If any provision of this Agreement shall be held
by any court of competent jurisdiction to be illegal, invalid or unenforceable,
such provision shall be construed and enforced as if it had been more narrowly
drawn so as not to be illegal, invalid or unenforceable, and such illegality,
invalidity or unenforceability shall have no effect upon and shall not impair
the enforceability of any other provision of this Agreement.
25. Governing Law. This Agreement shall be governed by and
construed and interpreted in accordance with the internal law of the State of
California (without reference to its rules as to conflicts of law).
26. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
27. Third Parties. Nothing expressed or implied in this Agreement
is intended, or shall be construed, to confer upon or give any person or entity
other than Seller and Purchaser any rights or remedies under or by reason of
this Agreement.
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<PAGE> 30
28. Other Agreements.
(a) Confidentiality. Whether or not the Closing occurs, each
of the parties will treat in confidence all documents, materials and other
information disclosed by any other party, whether during the course of the
negotiations leading to the execution of this Agreement or thereafter, in its
investigation of the other parties and in the preparation of agreements,
schedules and other documents relating to the consummation of such transactions
contemplated hereby. If this Agreement is terminated, Purchaser and Seller will
each use its reasonable efforts to return to the other all originals and copies
of non-public documents and materials which have been furnished in connection
with this Agreement.
(b) Publicity. Prior to the Closing, Purchaser, on the one
hand, and Seller, on the other hand, shall consult with and obtain the consent
of the other before issuing any press release or making any similar disclosure
concerning this Agreement or the transactions referred to in this Agreement,
unless, in the reasonable judgment of the party issuing the release or making
the disclosure, the release or disclosure is required as a matter of law (in
which case it or they shall consult as set forth above prior to issuing the
release or making the disclosure). Purchaser acknowledges that Seller will
make a press release promptly following the execution of this Agreement.
25
<PAGE> 31
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
PCS ACQUISITION CO., INC.
By: /s/ C. KENNETH CLAY
---------------------------------------
C. Kenneth Clay
Title:
THE CERPLEX GROUP, INC.
By: /s/ RICHARD C. DAVIS
---------------------------------------
Richard C. Davis
President of International Business
LINCOLNSHIRE EQUITY PARTNERS, L.P.
By: Lincolnshire Equity Partners, L.P. its
general partner
By: /s/ C. KENNETH CLAY
-----------------------------------
C. Kenneth Clay
Title:
26
<PAGE> 32
DISCLOSURE SCHEDULES
to the
Stock Purchase Agreement
dated March 28, 1997
relating to the purchase of
all of the Outstanding Stock of
Peripheral Computer Support, Inc.
27
<PAGE> 1
EXHIBIT 4.17
WAIVER AND AMENDMENT AGREEMENT
WAIVER AND AMENDMENT AGREEMENT (this "Agreement"), dated as of October
31, 1996, by and among THE CERPLEX GROUP, INC., a Delaware corporation
(together with its successors and assigns, the "Company"), THE NORTHWESTERN
MUTUAL LIFE INSURANCE COMPANY, JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY and
NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC (collectively, the
"Noteholders").
RECITALS:
A. The Company has entered into those certain separate Note
Purchase Agreements, each dated as of November 19, 1993 (collectively, as
amended pursuant to the terms of each of the amendment agreements set forth in
Schedule A to this Agreement, the "Note Purchase Agreement" ), with each of the
Noteholders, pursuant to which the Company originally issued and sold to the
Noteholders
(i) an aggregate principal amount of Seventeen Million
Two Hundred Fifty Thousand Dollars ($17,250,000) of the Company's
Series A 9.00% Senior Subordinated Notes Due November 19, 2001 (as
amended, the "Notes"), and
(ii) an aggregate principal amount of Five Million Seven
Hundred Fifty Thousand Dollars ($5,750,000) of the Company's Series B
9.00% Senior Subordinated Notes Due November 19, 2001 (the "Series B
Notes"). The Company has prepaid the Series B Notes and such Series B
Notes are no longer issued and outstanding.
B. The Noteholders are the current holders of one hundred percent
(100%) of the Notes outstanding as of the Effective Date.
C. The Company and the Noteholders have entered into that certain
Warrant Agreement (the "Existing 1996 Warrant Agreement," and as amended
hereby, the "Amended 1996 Warrant Agreement"), dated as of April 15, 1996,
pursuant to which the Company issued one million warrants of the Company to the
Noteholders.
D. Pursuant to a notice to the Noteholders dated September 23,
1996, the Company notified the Noteholders of certain Defaults and Events of
Defaults under Section 6.3 and Section 6.4 of the Note Purchase Agreement (the
"Noticed Events of Default," such term to include, for purposes of avoidance of
doubt, all Defaults and Events of Defaults under Section 6.3 and Section 6.4 of
the Note Purchase Agreement that may have existed prior to the date of such
notice or after the date of such notice and prior to the Effective Date (as
hereinafter defined)) and the Company has requested that the Noteholders waive
the Noticed Events of Default.
E. In consideration of the aforesaid waivers, the Company has
agreed that the Existing 1996 Warrant Agreement shall be amended by changing
the definition of "Initial Purchase Price" therein from $6.00 to $2.50.
F. The Noteholders are agreeable, subject to the terms and
conditions set forth below, to granting the aforesaid waivers, and in
connection therewith, each of the Company and the Noteholders has agreed to
amend the Existing 1996 Warrant Agreement as set forth herein.
<PAGE> 2
G. Unless otherwise expressly provided for herein, capitalized
terms used herein and defined in the Note Purchase Agreement are used herein
with the meanings ascribed to them in the Note Purchase Agreement.
AGREEMENT:
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. WAIVER.
Subject to the satisfaction of the conditions set forth in Section 4,
the Noteholders hereby waive, on the Effective Date, each of the Noticed Events
of Default and agree that the effectiveness of Section 6.3 and Section 6.4
shall be temporarily suspended from and including the Effective Date to and
including the earlier to occur of (a) the date that any holder of Senior Debt
takes any action in respect of any default or any event of default under any
Senior Credit Document and (b) November 30, 1996 (the "Reinstatement Date").
After the Reinstatement Date, Section 6.3 and Section 6.4 shall be in full
force and effect. Except for the foregoing express waivers and suspensions, the
terms of this Agreement shall not operate as a waiver of, or otherwise
prejudice, the rights, remedies or powers of the Noteholders under the Note
Purchase Agreement, under the Notes or under applicable law and all of such
rights, remedies and powers are hereby expressly reserved.
SECTION 2. AMENDMENT TO THE EXISTING 1996 WARRANT AGREEMENT;
AFFIRMATION.
2.1 Amendment to the Existing 1996 Warrant Agreement.
The Company and, subject to the satisfaction of the conditions set
forth in Section 4, each of the Noteholders hereby amend and restate the
definition of "Initial Purchase Price" in the Existing 1996 Warrant Agreement
as set forth below:
INITIAL PURCHASE PRICE -- means Two Dollars and Fifty Cents ($2.50).
2.2 AFFIRMATION OF OBLIGATIONS.
The Company hereby acknowledges and affirms all of its obligations
under the terms of the Note Purchase Agreement and under the Existing 1996
Warrant Agreement, as amended hereby.
SECTION 3. WARRANTIES AND REPRESENTATIONS.
To induce the Noteholders to enter into this Agreement, the Company
warrants and represents to the Noteholders that as of the Effective Date:
3.1 CORPORATE ORGANIZATION AND AUTHORITY.
The Company:
2
<PAGE> 3
(a) is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware;
(b) has all legal and corporate power and authority to
own and operate its Properties and to carry on its business as now
conducted and as presently proposed to be conducted;
(c) has all licenses, certificates, permits, franchises
and other governmental authorizations necessary to own and operate its
Properties and to carry on its business as now conducted and as
presently proposed to be conducted, except where the failure to have
such licenses, certificates and permits, either individually or in the
aggregate, would not have, and could not reasonably be expected to
have, a Material Adverse Effect; and
(d) has duly qualified or has been duly licensed, and is
authorized to do business and is in good standing, as a foreign
corporation in each state except where the failure to be so qualified
or licensed and authorized and in good standing, either individually
or in the aggregate, would not have, and could not reasonably be
expected to have, a Material Adverse Effect.
3.2 COMPLIANCE WITH LAW.
The Company:
(a) is not in violation of any law, ordinance, governmental rule
or regulation to which it is subject; and
(b) has not failed to obtain any license. certificate, permit,
franchise or other governmental authorization necessary to the ownership of its
Property or to the conduct of its business;
which violation or failure to obtain, either individually or in the aggregate,
would have, or could reasonably be expected to have, a Material Adverse Effect.
3.3 LEGAL AND AUTHORIZED; OBLIGATIONS ARE ENFORCEABLE.
(A) AUTHORIZATION. The execution and delivery by the
Company of this Agreement and the performance by the Company of its
obligations hereunder are within the corporate powers of the Company
and do not conflict with, result in any breach in any of the
provisions of, constitute a default under, or result in the creation
of any Lien upon any Property of the Company under the provisions of,
any agreement, charter instrument, bylaw or other instrument to which
it is a party or by which it or any of its Property may be bound.
(B) OBLIGATIONS ARE LEGAL AND ENFORCEABLE. The execution
and delivery by the Company of this Agreement have been duly
authorized by all necessary action on the part of the Company, and
this Agreement has been executed and delivered by one or more duly
authorized officers of the Company. This Agreement constitutes a
legal, valid and binding
3
<PAGE> 4
obligation of the Company, enforceable against the Company in
accordance with its terms, except that the enforceability thereof may
be:
(i) limited by applicable bankruptcy,
reorganization, arrangement, insolvency, moratorium or other
similar laws affecting the enforceability of creditors' rights
generally;
(ii) subject to the availability of equitable
remedies; and
(iii) with respect to indemnity and contribution,
limited by state or federal laws relating to Securities or by
the public policy underlying such laws.
3.4 NO DEFAULTS.
(A) NO OTHER DEFAULTS. No Defaults or Events of Default
exist, other than the Noticed Events of Default. No Senior Nonpayment
Default exists that has not been waived and no Senior Nonpayment
Default Notice has been issued by any holder of Senior Debt.
(B) AMENDED FINANCING DOCUMENTS. No event has occurred
and no condition exists that, upon the execution, delivery and
effectiveness of this Agreement would constitute a Default or an Event
of Default other than in respect of the Noticed Events of Default.
(C) CHARTER INSTRUMENT, OTHER AGREEMENTS. The Company is
not in violation in any respect of any term of any charter instrument
or bylaw. Except with respect to the failure of the Company to pay the
promissory note payable to Lucent Technologies, Inc., the Company is
not in violation in any material respect of any term in any agreement
or other instrument to which it is a party or by which it or any of
its Property may be bound, which would have, or could reasonably be
expected to have, a Material Adverse Effect.
SECTION 4. CONDITIONS.
The waiver by the Noteholders set forth in Section 1 and the amendment
described in Section 2 shall become effective on October 31, 1996 (the
"Effective Date"), subject to all of the following conditions having been
satisfied on or prior to such date:
4.1 EXECUTION AND DELIVERY OF THIS AGREEMENT.
The Company and the Required Holders and all of the Warrantholders (as
such term is defined in the Existing 1996 Warrant Agreement) shall have
executed and delivered counterparts of this Agreement.
4.2 WAIVER BY HOLDERS OF SENIOR DEBT.
The Company and each holder of Senior Debt whose consent is required
therefor pursuant to the terms of the Senior Credit Documents shall have
executed and delivered waivers with respect to all defaults and all events of
default which exist under such Senior Credit Documents
4
<PAGE> 5
(including, without limitation, each of such events that relate to each of the
Noticed Events of Default). The Company shall have delivered to each Noteholder
a copy of the Limited Waiver entered into among the Company and the holders of
Senior Debt, in the form of the execution draft of the Limited Waiver
previously delivered to each Noteholder, together with a certification by a
Senior Officer of the Company stating that such copy is a true and correct copy
and such Limited Waiver cures or waives all defaults and all events of default
which exist under the Senior Credit Documents.
4.3 NO DEFAULT; REPRESENTATIONS AND WARRANTIES TRUE.
After giving effect to Section 1 hereof, no Default or Event of
Default under the Note Purchase Agreement shall exist and the warranties and
representations set forth in Section 3 hereof shall be true and correct on the
Effective Date.
4.4 AUTHORIZATION OF TRANSACTIONS.
The Company shall have authorized, by all necessary corporate action,
its execution, delivery and performance of this Agreement and the consummation
of all transactions contemplated by this Agreement and evidence of the same
shall have been delivered to the Noteholders.
4.5 EXPENSES.
The Company shall have paid all costs and expenses of the Noteholders
relating to this Agreement (including, without limitation, any fees and
disbursements of their special counsel).
4.6 PROCEEDINGS SATISFACTORY.
All proceedings taken in connection with this Agreement shall be
satisfactory to the Noteholders and their special counsel. The Noteholders and
their special counsel shall have received copies of such documents and papers
as they may reasonably request in connection therewith, in form and substance
satisfactory to them.
SECTION 5. MISCELLANEOUS.
5.1 GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND ENFORCED IN
ACCORDANCE WITH, AND GOVERNED BY, INTERNAL NEW YORK LAW.
5.2 DUPLICATE ORIGINALS.
Two or more duplicate originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument. This Agreement may be executed in one
or more counterparts and shall be effective when at least one counterpart shall
have been executed by each party hereto, and each set of counterparts which,
collectively, show execution by each party hereto shall constitute one
duplicate original.
5
<PAGE> 6
5.3 EFFECT OF THIS AGREEMENT.
Except as specifically provided in this Agreement, no terms or
provisions of the Note Purchase Agreement have been modified or changed by this
Agreement and the terms and provisions of the Note Purchase Agreement shall
continue in full force and effect. Except as specifically provided in this
Agreement, no terms or provisions of the Existing 1996 Warrant Agreement have
been modified or changed by this Agreement and the terms and provisions of the
Existing 1996 Warrant Agreement, as amended hereby, shall continue in full
force and effect. This Agreement and the waivers and amendments contained
herein shall have and be in effect on and after the Effective Date.
5.4 WAIVERS AND AMENDMENTS OF THIS AGREEMENT.
Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally, or by any action or inaction, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
5.5 SECTION HEADINGS.
The titles of the sections hereof appear as a matter of convenience
only, do not constitute a part of this Agreement and shall not affect the
construction hereof.
5.6 COSTS AND EXPENSES.
On the Effective Date, the Company shall pay all costs and expenses of
the Noteholders related hereto, including, but not limited to, the statement
for fees and disbursements of the Noteholders' special counsel presented to the
Company on the Effective Date for matters in connection with this Agreement.
The Company will also pay upon receipt of any statement thereof, each
additional statement for fees and disbursements of the Noteholders' special
counsel rendered after the Effective Date in connection with this Agreement.
The obligations of the Company under this Section 5.6 shall survive the payment
or prepayment of the Notes and the termination of the Note Purchase Agreement.
5.7 SURVIVAL.
All warranties, representations, certifications and covenants made by
the Company hereunder, or in any certificate or other instrument delivered
pursuant hereto or thereto, shall be considered to have been relied upon by the
Noteholders and shall survive the execution of this Agreement regardless of any
investigation made by or on behalf of the Noteholders. All statements in any
such certificate or other instrument shall constitute warranties and
representations of the Company hereunder.
[REMAINDER OF PAGE INTENTIONALLY BLANK. NEXT PAGE IS SIGNATURE PAGE.]
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on their behalf by a duly authorized officer or agent thereof, as
the case may be, as of the date first above written.
THE CERPLEX GROUP, INC.
By
--------------------------------------
Name: James R. Eckstaedt
Title: Senior Vice President and CFO
Accepted:
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By
--------------------------------
Name:
Title:
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
BY________________________________
Name:
Title:
NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC
By________________________________
Name:
Title:
[Signature page to the WAIVER AND AMENDMENT AGREEMENT among THE CERPLEX GROUP,
INC. and the Noteholders listed therein.]
7
<PAGE> 8
SCHEDULE A
Amendment No. 1 to Note Purchase Agreement dated as of May 26, 1994.
Amendment No. 2 to Note Purchase Agreement dated as of July 29, 1994.
Amendment Agreement dated as of October 27, 1994.
Waiver and Amendment Agreement dated as of April 15, 1996.
Schedule A-1
<PAGE> 1
EXHIBIT 4.18
================================================================================
THE CERPLEX GROUP, INC.
_____________________________
WAIVER AND AMENDMENT AGREEMENT
_____________________________
DATED DECEMBER 9, 1996
$17,250,000
SERIES A SENIOR SUBORDINATED NOTES DUE NOVEMBER 19, 2001
================================================================================
<PAGE> 2
WAIVER AND AMENDMENT AGREEMENT
WAIVER AND AMENDMENT AGREEMENT (this "Agreement"), dated December 9,
1996, by and among THE CERPLEX GROUP, INC., a Delaware corporation (together
with its successors and assigns, the "Company"), THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY, JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY and NORTH
ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC (collectively, the
"Noteholders").
RECITALS:
A. The Company has entered into those certain separate Note
Purchase Agreements, each dated as of November 19, 1993 (collectively, as
amended pursuant to the terms of each of the amendment agreements set forth in
Schedule A to this Agreement and as in effect prior to the effectiveness of
this Agreement, the "Existing Note Purchase Agreement," and, as amended by this
Agreement, the "Amended Note Purchase Agreement"), with each of the
Noteholders, pursuant to which the Company originally issued and sold to the
Noteholders
(i) an aggregate principal amount of Seventeen Million
Two Hundred Fifty Thousand Dollars ($17,250,000) of the Company's
Series A 9.00% Senior Subordinated Notes Due November 19, 2001 (as
amended, the "Notes"), and
(ii) an aggregate principal amount of Five Million Seven
Hundred Fifty Thousand Dollars ($5,750,000) of the Company's Series B
9.00% Senior Subordinated Notes Due November 19, 2001 (the "Series B
Notes"). The Company has prepaid the Series B Notes and such Series B
Notes are no longer issued and outstanding.
B. The Noteholders are the current holders of one hundred percent
(100%) of the Notes outstanding as of the Effective Date.
C. Pursuant to a notice to the Noteholders dated September 23,
1996, the Company notified the Noteholders of certain Defaults and Events of
Defaults under Section 6.3 and Section 6.4 of the Existing Note Purchase
Agreement (the "Noticed Events of Default," such term to include, for purposes
of avoidance of doubt, all Defaults and Events of Defaults under Section 6.3
and Section 6.4 of the Existing Note Purchase Agreement that may have existed
prior to the date of such notice or after the date of such notice and prior to
the effective date of the October 1996 Waiver (as hereinafter defined)) and the
Company has requested that the Noteholders continue the waiver of such Noticed
Events of Default provided for in the October 1996 Waiver until [December 31,
1996].
D. Pursuant to a Waiver and Amendment Agreement dated as of
October 31, 1996, the Noteholders waived the aforesaid Noticed Events of
Default until November 30, 1996 and, pursuant to a letter agreement dated
November 26, 1996, extended such waiver until December 9, 1996 (the "October
1996 Waiver").
THE CERPLEX GROUP, INC. 1 WAIVER AND AMENDMENT AGREEMENT
<PAGE> 3
E. The Company has further requested that certain of the
provisions in the Existing Note Purchase Agreement be amended, as more
particularly provided herein.
F. The Noteholders are agreeable, subject to the terms and
conditions set forth below, to granting the aforesaid waivers and modifying the
Existing Note Purchase Agreement as hereinafter set forth, and in connection
therewith, each of the Company and the Noteholders has agreed to amend the
Existing Note Purchase Agreement as set forth herein.
AGREEMENT:
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS.
The terms used herein and not defined herein shall have the meanings
assigned to such terms in the Existing Note Purchase Agreement. As used in this
Agreement, the following terms have the respective meanings specified below:
"AGREEMENT, THIS" -- means this Waiver and Amendment Agreement, as it
may be amended from time to time.
"AMENDED NOTE PURCHASE AGREEMENT" -- Recital A.
"COMPANY" -- the introductory sentence.
"EFFECTIVE DATE" -- Section 5.
"EXISTING NOTE PURCHASE AGREEMENT" -- Recital A.
"1996 WARRANT AGREEMENT" -- Section 3.2.
"NOTEHOLDERS" -- the introductory sentence.
"NOTES" -- Recital A.
"NOTICED EVENTS OF DEFAULT" -- Recital C.
"OCTOBER 1996 WAIVER" -- Recital C.
SECTION 2. WAIVER.
Subject to the satisfaction of the conditions set forth in Section 4,
the Noteholders hereby continue the waiver provided in the October 1996 Waiver
in respect of each of the Noticed Events of Default until [December 31, 1996]
and agree that the effectiveness of Section 6.3 and Section 6.4 shall be
temporarily suspended from and including the effective date of the October 1996
Waiver to and including the earlier to occur of (a) the date that any holder of
Senior Debt takes any action in respect of any default or any event of default
under
THE CERPLEX GROUP, INC. 2 WAIVER AND AMENDMENT AGREEMENT
<PAGE> 4
any Senior Credit Document and (b) [December 31, 1996] (the "Reinstatement
Date"). After the Reinstatement Date, Section 6.3 and Section 6.4 shall be in
full force and effect. Except for the foregoing express waivers and
suspensions, the terms of this Agreement shall not operate as a waiver of, or
otherwise prejudice, the rights, remedies or powers of the Noteholders under
the Note Purchase Agreement, under the Notes or under applicable law and all of
such rights, remedies and powers are hereby expressly reserved.
SECTION 3. AMENDMENTS TO THE EXISTING NOTE PURCHASE AGREEMENT;
1996 WARRANT AGREEMENT; AFFIRMATION.
3.1 AMENDMENTS TO THE EXISTING NOTE PURCHASE AGREEMENT.
The Company and, subject to the satisfaction of the conditions set
forth in Section 5, each of the Noteholders hereby consent and agree to the
amendments to the Existing Note Purchase Agreement set forth in Exhibit A to
this Agreement. Each such amendment is incorporated herein by reference as if
set forth verbatim in this Agreement.
3.2 AMENDMENT TO THE EXISTING 1996 WARRANT AGREEMENT.
In connection with the October 1996 Waiver, that certain Warrant
Agreement (the "1996 Warrant Agreement"), dated as of April 15, 1996, among the
Company and the Noteholders was changed by amending and restating the
definition of "Initial Purchase Price" therein to mean $2.50. For purposes of
the avoidance of doubt and in confirmation of said amendment, each of the
Warrant Certificates (as such term is defined in the 1996 Warrant Agreement)
issued under the 1996 Warrant Agreement and currently outstanding as well as
Exhibit A to the 1996 Warrant Agreement are hereby further amended and modified
by changing the references therein to "initial purchase price" and "Purchase
Price" from "Six Dollars ($6.00) per share" to "Two Dollars and Fifty Cents
($2.50) per share." This amendment to each of the Warrant Certificates
currently outstanding shall be effective without any further action required on
the part of the Noteholders or the Company and without the need to submit such
Certificates to Company for any notation of said change thereon or to otherwise
exchange such Certificates for new Warrant Certificates.
3.3 AFFIRMATION OF OBLIGATIONS.
The Company hereby acknowledges and affirms all of its obligations
under the terms of the Existing Note Purchase Agreement, as amended hereby, and
the 1996 Warrant Agreement and the Warrant Certificates issued thereunder, as
amended hereby.
SECTION 4. WARRANTIES AND REPRESENTATIONS.
To induce the Noteholders to enter into this Agreement, the Company
warrants and represents to the Noteholders that as of the Effective Date:
THE CERPLEX GROUP, INC. 3 WAIVER AND AMENDMENT AGREEMENT
<PAGE> 5
4.1 CORPORATE ORGANIZATION AND AUTHORITY.
The Company:
(a) is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware;
(b) has all legal and corporate power and authority to
own and operate its Properties and to carry on its business as now
conducted and as presently proposed to be conducted;
(c) has all licenses, certificates, permits, franchises
and other governmental authorizations necessary to own and operate,
its Properties and to carry on its business as now conducted and as
presently proposed to be conducted, except where the failure to have
such licenses, certificates and permits, either individually or in the
aggregate, would not have, and could not reasonably be expected to
have, a Material Adverse Effect; and
(d) has duly qualified or has been duly licensed, and is
authorized to do business and is in good standing, as a foreign
corporation in each state except where the failure to be so qualified
or licensed and authorized and in good standing, either individually
or in the aggregate, would not have, and could not reasonably be
expected to have, a Material Adverse Effect.
4.2 COMPLIANCE WITH LAW.
The Company:
(a) is not in violation of any law, ordinance,
governmental rule or regulation to which it is subject; and
(b) has not failed to obtain any license, certificate,
permit, franchise or other governmental authorization necessary to the
ownership of its Property or to the conduct of its business;
which violation or failure to obtain, either individually or in the aggregate,
would have, or could reasonably be expected to have, a Material Adverse Effect.
4.3 LEGAL AND AUTHORIZED; OBLIGATIONS ARE ENFORCEABLE.
(A) AUTHORIZATION. The execution and delivery by the
Company of this Agreement and the performance by the Company of its
obligations hereunder and under the Amended Note Purchase Agreement
are within the corporate powers of the Company and do not conflict
with, result in any breach in any of the provisions of, constitute a
default under, or result in the creation of any Lien upon any Property
of the Company under the provisions of, any agreement, charter
instrument, bylaw or other instrument to which it is a party or by
which it or any of its Property may be bound.
THE CERPLEX GROUP, INC. 4 WAIVER AND AMENDMENT AGREEMENT
<PAGE> 6
(B) OBLIGATIONS ARE LEGAL AND ENFORCEABLE. The execution
and delivery by the Company of this Agreement have been duly
authorized by all necessary action on the part of the Company, and
this Agreement has been executed and delivered by one or more duly
authorized officers of the Company. This Agreement and the Amended
Note Purchase Agreement constitute legal, valid and binding
obligations of the Company, enforceable against the Company in
accordance with their respective terms, except that the enforceability
thereof may be:
(i) limited by applicable bankruptcy,
reorganization, arrangement, insolvency, moratorium or other
similar laws affecting the enforceability of creditors' rights
generally;
(ii) subject to the availability of equitable
remedies; and
(iii) with respect to indemnity and contribution,
limited by state or federal laws relating to Securities or by
the public policy underlying such laws.
4.4 PENDING LITIGATION.
Except as set forth in Schedule 4.4, there are no proceedings, actions
or investigations pending or, to the knowledge of the Company, threatened
against or affecting the Company in any court or before any Governmental
Authority or arbitration board or tribunal that, either individually or in the
aggregate, would have or could reasonably be expected to have a Material
Adverse Effect. The Company is not in default with respect to any judgment,
order, writ, injunction or decree of any court, Governmental Authority or
arbitration board or tribunal that, either individually or in the aggregate,
would have or could reasonably be expected to have a Material Adverse Effect.
Except as previously disclosed to the Noteholders, the Company has not
received any notice of termination of any material contract, lease or other
agreement or suffered any material damage, destruction or loss (whether or not
covered by insurance) or had any employee strike, work-stoppage, slowdown or
lock-out or any substantial, non-frivolous threat directed to it of any
imminent strike, work-stoppage, slowdown or lock-out.
4.5 GOVERNMENTAL CONSENT.
Neither the nature of the Company, nor of any of its businesses or
Properties, nor any relationship between the Company and any other Person, nor
any circumstance in connection herewith or in connection with the execution and
delivery of this Agreement is such as to require a consent, approval or
authorization of, or filing, registration or qualification with, any
Governmental Authority on the part of the Company as a condition to the
execution and delivery thereof.
4.6 NO DEFAULTS.
(A) NO OTHER DEFAULTS. No Defaults or Events of Default
exist, other than the Noticed Events of Default.
THE CERPLEX GROUP, INC. 5 WAIVER AND AMENDMENT AGREEMENT
<PAGE> 7
(B) FINANCING DOCUMENTS. No event has occurred and no
condition exists that, upon the execution, delivery and effectiveness
of this Agreement would constitute a Default or an Event of Default.
(C) CHARTER INSTRUMENT, OTHER AGREEMENTS. The Company is
not in violation in any respect of any term of any charter instrument
or bylaw. Except as set forth in Schedule 4.6, the Company is not in
violation in any material respect of any term in any agreement or
other instrument to which it is a party or by which it or any of its
Property may be bound, which would have, or could reasonably be
expected to have, a Material Adverse Effect.
SECTION 5. CONDITIONS.
The waiver by the Noteholders set forth in Section 2 and the consent
of the Noteholders to the amendments described in Section 3 shall become
effective on the date (the "Effective Date") upon which all of the following
conditions have been satisfied:
5.1 EXECUTION AND DELIVERY OF THIS AGREEMENT.
The Company and the Required Holders shall have executed and delivered
counterparts of this Agreement.
5.2 WAIVER BY HOLDERS OF SENIOR DEBT.
The Company and each holder of Senior Debt whose consent is required
therefor pursuant to the terms of the Senior Credit Documents shall have
executed and delivered waivers with respect to all events of default which
exist under such Senior Credit Documents, all in form and scope satisfactory to
the Noteholders in their sole discretion. The Company shall have delivered to
each Noteholder a copy of the Second Amendment to Credit Agreement and Limited
Waiver entered into among the Company and the holders of Senior Debt, together
with a certification by a Senior Officer of the Company stating that such copy
is a true and correct copy and such Second Amendment to Credit Agreement and
Limited Waiver cures or waives all events of default which exist under the
Senior Credit Documents as of the date hereof.
5.3 NO DEFAULT; REPRESENTATIONS AND WARRANTIES TRUE.
After giving effect to Section 2, hereof, no Default or Event of
Default under the Amended Note Purchase Agreement shall exist, the warranties
and representations set forth in Section 4 hereof shall be true and correct on
the Effective Date, and the Noteholders shall have received a certificate,
dated as of the Effective Date and signed by a Senior Officer, certifying to
such matters, certifying that all of the conditions specified in this Section 5
have been satisfied.
5.4 AUTHORIZATION OF TRANSACTIONS.
The Company shall have authorized, by all necessary corporate action,
its execution, delivery and performance of this Agreement and the consummation
of all transactions
THE CERPLEX GROUP, INC. 6 WAIVER AND AMENDMENT AGREEMENT
<PAGE> 8
contemplated by this Agreement and evidence of the same shall have been
delivered to the Noteholders. The Noteholders shall have received a
certificate, dated as of the Effective Date and signed by the Secretary or the
Assistant Secretary of the Company, certifying to the resolutions in respect of
such authorization and to such other matters as the Noteholders shall
reasonably request.
5.5 OPINIONS OF COUNSEL.
The Noteholders shall have received from each of (a) Brobeck, Phleger
& Harrison, counsel to the Company, and (b) Hebb & Gitlin, a legal opinion
substantially in the form set forth in Exhibit B1 and Exhibit B2, respectively,
and as to such other matters as the Noteholders may reasonably request.
5.6 EXPENSES.
The Company shall have paid all costs and expenses to the Noteholders
relating to this Agreement in accordance with Section 6.6 (including, without
limitation, any attorney's fees and disbursements).
5.7 PROCEEDINGS SATISFACTORY.
All proceedings taken in connection with this Agreement shall be
satisfactory to the Noteholders and their special counsel. The Noteholders and
their special counsel shall have received copies of such documents and papers
as they may reasonably request in connection therewith, in form and substance
satisfactory to them.
SECTION 6. MISCELLANEOUS.
6.1 GOVERNING LAW.
THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND ENFORCED IN
ACCORDANCE WITH, AND GOVERNED BY, INTERNAL NEW YORK LAW.
6.2 DUPLICATE ORIGINALS.
Two or more duplicate originals of this Agreement may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument. This Agreement may be executed in one
or more counterparts and shall be effective when at least one counterpart shall
have been executed by each party hereto, and each set of counterparts which,
collectively, show execution by each party hereto shall constitute one
duplicate original.
6.3 EFFECT OF THIS AGREEMENT.
Except as specifically provided in this Agreement, no terms or
provisions of the Existing Note Purchase Agreement have been modified or
changed by this Agreement and the terms
THE CERPLEX GROUP, INC. 7 WAIVER AND AMENDMENT AGREEMENT
<PAGE> 9
and provisions of the Existing Note Purchase Agreement, as amended hereby,
shall continue in full force and effect. This Agreement and the waivers and
amendments contained herein shall have and be in effect on and after the
Effective Date.
6.4 WAIVERS AND AMENDMENTS OF THIS AGREEMENT.
Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally, or by any action or inaction, but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
6.5 SECTION HEADINGS.
The titles of the sections hereof appear as a matter of convenience
only, do not constitute a part of this Agreement and shall not affect the
construction hereof.
6.6 COSTS AND EXPENSES.
On the Effective Date, the Company shall pay all costs and expenses of
the Noteholders related hereto, including, but not limited to, the statement
for fees and disbursements of the Noteholders' special counsel presented to the
Company on the Effective Date for matters in connection with this Agreement.
The Company will also pay upon receipt of any statement thereof, each
additional statement for fees and disbursements of the Noteholders' special
counsel rendered after the Effective Date in connection with this Agreement.
The obligations of the Company under this Section 6.6 shall survive the payment
or prepayment of the Notes and the termination of the Amended Note Purchase
Agreement.
6.7 SURVIVAL
All warranties, representations, certifications and covenants made by
the Company hereunder or in any certificate or other instrument delivered
pursuant hereto or thereto shall be considered to have been relied upon by the
Noteholders and shall survive the execution of this Agreement, regardless of
any investigation made by or on behalf of the Noteholders. All statements in
any such certificate or other instrument shall constitute warranties and
representations of the Company hereunder.
[REMAINDER OF PAGE INTENTIONALLY BLANK. NEXT PAGE IS SIGNATURE PAGE.]
THE CERPLEX GROUP, INC. 8 WAIVER AND AMENDMENT AGREEMENT
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on their behalf by a duly authorized officer or agent thereof, as
the case may be, as of the date first above written.
THE CERPLEX GROUP, INC.
By:
------------------------------------------
Name: James R. Eckstaedt
Title: Senior Vice President and CFO
Accepted:
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY
By
-------------------------------------------------
Name: John E. Schlifske
Title: Vice President
JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
By
-------------------------------------------------
Name: Dana Donovan
Title: Senior Investment Officer
NORTH ATLANTIC SMALLER COMPANIES INVESTMENT TRUST PLC
By
-------------------------------------------------
Name:
Title:
[Signature page to the WAIVER AND AMENDMENT AGREEMENT among THE CERPLEX GROUP,
INC. and the Noteholders listed therein.]
THE CERPLEX GROUP, INC. 9 WAIVER AND AMENDMENT AGREEMENT
<PAGE> 11
SCHEDULE A
Amendment No. 1 to Note Purchase Agreement dated as of May 26, 1994.
Amendment No. 2 to Note Purchase Agreement dated as of July 29, 1994.
Amendment Agreement dated as of October 27, 1994.
Waiver and Amendment Agreement dated as of April 15, 1996.
Waiver and Amendment Agreement dated as of October 31, 1996 (as extended by
that certain letter agreement dated November 26, 1996)
THE CERPLEX GROUP, INC. Schedule A-1 WAIVER AND AMENDMENT AGREEMENT
<PAGE> 1
EXHIBIT 4.19
THE CERPLEX GROUP, INC.
March 28, 1997
VIA FACSIMILE TRANSMISSION
To the Persons on the Distribution List
Attached Hereto
Ladies and Gentlemen:
The Cerplex Group, Inc. (the "Company") and each of The Northwestern
Mutual Life Insurance Company, John Hancock Mutual Life Insurance Company and
North Atlantic Smaller Companies Investment Trust plc (collectively, the
"Noteholders") are parties to separate Note Purchase Agreements, each dated as
of November 19, 1993 (collectively, as amended, the "Note Agreement"), regarding
$17,250,000 original principal amount of the Company's Series A Senior
Subordinated Notes due November 19, 2001 and $5,750,000 original principal
amount of the Company's Series B Senior Subordinated Notes due November 19, 2001
(the Company has prepaid the Series B Senior Subordinated Notes and they are no
longer issued and outstanding). The Note Agreement was most recently amended
pursuant to the terms of that certain Waiver and Amendment Agreement (the
"December 1996 Waiver Agreement"), dated December 9, 1996, among the Company and
the Noteholders. Capitalized terms are used herein with the meanings assigned
thereto in the Note Agreement.
Pursuant to the terms of the December 1996 Waiver Agreement, the
Noteholders agreed to extend the waiver of the Noticed Events of Default (as
such term is defined in the December 1996 Waiver Agreement) until March 31,
1997. Upon the termination of such waiver, the Company will continue to be in
default in respect of the Noticed Events of Default and the Company hereby (a)
notifies the Noteholders of an Event of Default under Section 6.2 of the Note
Agreement (the "Section 6.2 Default") and (b) requests that the Noteholders
forbear from exercising rights and remedies available to them with respect to
the Noticed Events of Default and the Section 6.2 Default, to and including the
earlier of (i) the date on which any agreement by the parties to the Senior
Credit Documents to forbear from exercising remedies available under the Senior
Credit Documents expires or is terminated and (ii) April 9, 1997 (the
"Forbearance Period").
The Company hereby represents to each of you that, other than the
Noticed Events of Default and the Section 6.2 Default, no Default or Event of
Default under the Note Agreement exists as of the date hereof.
By its execution of a counterpart of this letter, and upon the express
conditions precedent set forth below, each Noteholder hereby agrees to forbear
from exercising any remedies that are or may be available under the Note
Agreement by reason of the occurrence and continuance of the Noticed Events of
Default and the Section 6.2 Default during the
<PAGE> 2
Forbearance Period. The conditions precedent to the effectiveness of the
agreements set forth in this letter are as follows:
(a) the Company and the Required Holders shall have executed
and delivered counterparts of this letter,
(b) the Company and each holder of Senior Debt whose consent
is required therefor pursuant to the terms of the Senior Credit Documents shall
have executed and delivered the Extension and Forbearance Agreement dated as of
March 31, 1997, and
(c) other than the Noticed Events of Default and the Section
6.2 Default, no Default of Event of Default shall exist under the Note
Agreement.
Except as specifically provided in this letter, no terms or provisions
of the Note Agreement or the December 1996 Waiver Agreement have been modified
or changed by this letter.
If you are in agreement with the foregoing, please execute the copy of
this letter attached hereto and return it (via facsimile transmission) to your
counsel, Hebb & Gitlin (860-278-8968).
Sincerely,
THE CERPLEX GROUP, INC.
By:
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 4.20
THE CERPLEX GROUP, INC.
---------------------------------------------------
AMENDED AND RESTATED
NOTE PURCHASE AGREEMENT
---------------------------------------------------
DATED AS OF APRIL 9, 1997
$17,250,000
9.50% SENIOR SUBORDINATED NOTES DUE NOVEMBER 19, 2001
<PAGE> 2
TABLE OF CONTENTS
(NOT A PART OF THE AGREEMENT)
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. PRELIMINARY STATEMENT; CLOSING................................................................ 1
1.1 Preliminary Statement................................................................ 1
1.2 The Closing.......................................................................... 2
1.3 Failure to Tender, Failure of Conditions............................................. 3
1.4 Expenses............................................................................. 3
2. WARRANTIES AND REPRESENTATIONS................................................................ 4
2.1 Corporate Organization and Authority................................................. 4
2.2 Compliance with Law.................................................................. 4
2.3 Legal and Authorized; Obligations are Enforceable.................................... 5
2.4 Pending Litigation; Other Material Matters........................................... 5
2.5 Governmental Consent................................................................. 6
2.6 No Defaults.......................................................................... 6
2.7 Financial Statements; Debt; Material Adverse Change.................................. 6
2.8 Subsidiaries and Affiliates.......................................................... 7
2.9 Title to Properties.................................................................. 7
2.10 Taxes................................................................................ 8
2.11 Restrictions on Company and Subsidiaries............................................. 8
2.12 ERISA................................................................................ 8
2.13 Environmental Compliance............................................................. 9
2.14 Senior Credit Documents.............................................................. 10
3. CLOSING CONDITIONS............................................................................ 10
3.1 Opinions of Counsel.................................................................. 10
3.2 Warranties and Representations True.................................................. 10
3.3 Officers' Certificates............................................................... 11
3.4 Private Placement Number............................................................. 11
3.5 Amendment to Warrant Agreement....................................................... 11
3.6 Chief Executive Officer.............................................................. 11
3.7 Wells Fargo Credit Agreement......................................................... 11
3.8 Expenses............................................................................. 11
3.9 Other Existing Noteholders........................................................... 12
3.10 Compliance with this Agreement....................................................... 12
3.11 Proceedings Satisfactory............................................................. 12
4. PAYMENTS...................................................................................... 12
4.1 Interest............................................................................. 12
4.2 Mandatory Principal Payments......................................................... 13
4.3 Optional Prepayments................................................................. 13
4.4 Offer to Prepay upon Change in Control............................................... 14
4.5 Partial Prepayment Pro Rata.......................................................... 16
4.6 Notation of Notes on Prepayment...................................................... 16
4.7 No Other Optional Prepayments........................................................ 16
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
5. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES................................................. 17
5.1 Registration of Notes................................................................ 17
5.2 Exchange of Notes.................................................................... 17
5.3 Replacement of Notes................................................................. 18
5.4 Issuance Taxes....................................................................... 18
6. COVENANTS..................................................................................... 18
6.1 Incurrence of Debt................................................................... 18
6.2 Senior Debt Maintenance.............................................................. 21
6.3 Intentionally Omitted................................................................ 21
6.4 Intentionally Omitted................................................................ 21
6.5 Restricted Payments.................................................................. 21
6.6 Liens................................................................................ 22
6.7 Transfers of Property, Subsidiary Stock, etc......................................... 26
6.8 Consolidation, Merger, etc........................................................... 29
6.9 Pari Passu Obligations............................................................... 30
6.10 Transactions with Affiliates......................................................... 30
6.11 Nature of Business................................................................... 30
6.12 Payment of Taxes and Claims, etc..................................................... 30
6.13 Maintenance of Properties; Corporate Existence; etc.................................. 31
6.14 Payment of Notes and Maintenance of Office........................................... 32
6.15 ERISA, etc........................................................................... 32
6.16 No Reacquisitions of Notes........................................................... 33
6.17 Private Offering..................................................................... 33
6.18 Minimum Profitability................................................................ 33
6.19 Minimum Ratio of Accounts Receivable to Loans........................................ 34
6.20 Current Ratio........................................................................ 34
6.21 Minimum Consolidated Tangible Net Worth.............................................. 35
6.22 Amendment to Certificate of Incorporation............................................ 35
7. INFORMATION AS TO COMPANY..................................................................... 35
7.1 Financial and Business Information................................................... 35
7.2 Officers' Certificates............................................................... 39
7.3 Accountants' Certificates............................................................ 40
7.4 Inspection........................................................................... 40
7.5 Confidential Information............................................................. 40
7.6 Reports to NAIC...................................................................... 42
8. EVENTS OF DEFAULT............................................................................. 42
8.1 Nature of Events..................................................................... 42
8.2 Default Remedies..................................................................... 44
8.3 Annulment of Acceleration of Notes................................................... 45
9. INTERPRETATION OF THIS AGREEMENT.............................................................. 46
9.1 Terms Defined........................................................................ 46
9.2 GAAP................................................................................. 66
9.3 Directly or Indirectly............................................................... 67
9.4 Section Headings and Table of Contents and Construction.............................. 67
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C> <C>
9.5 Governing Law........................................................................ 67
10. SUBORDINATION................................................................................. 67
10.1 Notes Subordinate to Senior Debt..................................................... 67
10.2 Payment Over of Proceeds Upon Dissolution, etc....................................... 68
10.3 Prior Payment to Senior Debt Upon Acceleration of Notes.............................. 69
10.4 Default or Acceleration in Respect of Senior Debt.................................... 69
10.5 Payment Permitted.................................................................... 71
10.6 Subrogation to Rights of Holders of Senior Debt...................................... 71
10.7 Provisions Solely to Define Relative Rights.......................................... 71
10.8 Agreement to Effectuate Subordination................................................ 72
10.9 No Waiver of Subordination Provisions................................................ 73
10.10 Reliance on Judicial Order or Certificate of Liquidating Agent....................... 73
10.11 Prohibited Payments Held in Trust.................................................... 74
10.12 Miscellaneous........................................................................ 74
10.13 Additional Senior Debt............................................................... 74
11. MISCELLANEOUS................................................................................. 75
11.1 Communications....................................................................... 75
11.2 Reproduction of Documents............................................................ 76
11.3 Survival............................................................................. 76
11.4 Successors and Assigns............................................................... 76
11.5 Amendment and Waiver................................................................. 77
11.6 Payments on Notes.................................................................... 78
11.7 Entire Agreement; Severability....................................................... 79
11.8 Duplicate Originals, Execution in Counterpart........................................ 79
Annex 1 -- Information as to Existing Noteholders
Annex 2 -- Amendments to Existing Note Purchase Agreement
Annex 3 -- Information as to Company
Exhibit A -- Form of 9.50% Senior Subordinated Note due November 19, 2001
Exhibit B1 -- Form of Closing Opinion of Counsel to the Company
Exhibit B2 -- Form of Closing Opinion of Special Insurance Company Counsel
Exhibit C -- Form of Officers' Certificate
Exhibit D -- Form of Secretary's Certificate
Exhibit E -- Form of Second Amendment to 1996 Warrant Agreement
Exhibit F -- Form of Second Amendment to 1993 Warrant Agreement
Exhibit G -- Form of Confirmation of Subordination
</TABLE>
iii
<PAGE> 5
THE CERPLEX GROUP, INC.
---------------------------------------------------
AMENDED AND RESTATED
NOTE PURCHASE AGREEMENT
---------------------------------------------------
$17,250,000
9.50% SENIOR SUBORDINATED NOTES DUE NOVEMBER 19, 2001
Dated as of April 9, 1997
[SEPARATELY ADDRESSED TO EACH OF THE
EXISTING NOTEHOLDERS ON ANNEX 1 HERETO]
Ladies and Gentlemen:
THE CERPLEX GROUP, INC., a Delaware corporation (together with its
successors and assigns, the "COMPANY"), hereby agrees with you as follows:
1. PRELIMINARY STATEMENT; CLOSING
1.1 PRELIMINARY STATEMENT.
(a) ORIGINAL AGREEMENTS. The Company has entered into those
certain separate Note Purchase Agreements, each dated as of November
19, 1993 (collectively, as amended pursuant to the terms of each of the
amendment agreements set forth in Annex 2 to this Agreement, the
"EXISTING NOTE PURCHASE AGREEMENT"), with each of the Existing
Noteholders, pursuant to which the Company originally issued and sold
to the Existing Noteholders
(i) an aggregate principal amount of Seventeen
Million Two Hundred Fifty Thousand Dollars ($17,250,000) of
the Company's Series A 9.00% Senior Subordinated Notes Due
November 19, 2001 (as amended prior to the effectiveness of
the amendment contemplated by Section 1.1(c), the "EXISTING
NOTES"), and
(ii) an aggregate principal amount of Five Million
Seven Hundred Fifty Thousand Dollars ($5,750,000) of the
Company's Series B 9.00% Senior Subordinated Notes Due
November 19, 2001 (the "SERIES B NOTES"). The Company has
prepaid the Series B Notes and the Series B Notes are no
longer issued and outstanding.
1
<PAGE> 6
The Existing Noteholders are the current holders of one hundred percent (100%)
of the Existing Notes outstanding as of the Closing Date. The Existing Notes
have an aggregate principal amount outstanding as of the Closing Date of
Seventeen Million Two Hundred Fifty Thousand Dollars ($17,250,000).
(b) COMPANY REQUEST. The Company has requested the consent of the
Existing Noteholders to the amendment and restatement in full of the Existing
Notes and the Existing Note Purchase Agreement.
(c) AMENDMENTS. Upon the satisfaction of the conditions set forth in
Section 3, each of the Company and the Existing Noteholders agree that
(i) the Existing Notes shall be amended and restated in full
in the form of Exhibit A (the Existing Notes as so amended and restated
are herein referred to as the "NOTES," such term to include each Note
delivered pursuant to any provision of this Agreement and each Note
delivered in substitution or exchange for any such Note pursuant to any
such provision) and the Notes shall be substituted in the place of the
Existing Notes; and
(ii) the Existing Note Purchase Agreement shall be amended and
restated in full in the form hereof, provided that all warranties and
representations of the Company made pursuant to or in connection with
the Existing Note Purchase Agreement shall continue and shall be deemed
for all purposes to be warranties and representations made as of the
date or dates (unless relating to another date) as of which each such
warranty and representation was made.
1.2 THE CLOSING.
(a) SUBSTITUTION OF NOTES. The Company and you agree to the amendment
and restatement, in accordance with the provisions of this Agreement, of the
Existing Notes. You will surrender to the Company all Existing Notes held by
you, whereupon the Company will execute and deliver to you one or more Notes in
an aggregate principal amount as set forth below your name on Annex 1.
(b) THE CLOSING. The closing (the "CLOSING") of the substitution of
Notes for the Existing Notes will be held on April 9, 1997 (the "CLOSING DATE")
at 11:00 a.m., local time, at the office of Hebb & Gitlin, a Professional
Corporation, One State Street, Hartford, Connecticut. At the Closing the Company
will deliver to you one or more Notes (as set forth below your name on Annex 1),
in the denominations and the aggregate principal amount indicated on Annex 1,
dated February 19, 1997 and payable to the holder indicated on Annex 1.
(c) OTHER EXISTING NOTEHOLDERS. Contemporaneously with the execution
and delivery hereof, the Company is entering into a separate Amended and
Restated Note Purchase Agreement identical (except for the name and signature of
the Existing Noteholder) hereto (this Agreement and such other separate Amended
and Restated Note Purchase Agreements, collectively, as may be amended from time
to time, the "NOTE
2
<PAGE> 7
PURCHASE AGREEMENTS") with each other Existing Noteholder
(collectively, the "OTHER EXISTING NOTEHOLDERS") listed in Annex 1.
1.3 FAILURE TO TENDER, FAILURE OF CONDITIONS.
If at the Closing the Company fails to tender to you the Notes to be
substituted thereat, or if the conditions specified in Section 3 to be fulfilled
at the Closing have not been fulfilled, you may thereupon elect to be relieved
of all further obligations hereunder. Nothing in this Section 1.4 shall operate
to relieve the Company from any of its obligations hereunder or to waive any of
your rights against the Company.
1.4 EXPENSES.
(a) GENERALLY. Whether or not the Notes are substituted for
the Existing Notes, the Company will promptly (and in any event within
thirty (30) days of receiving any statement or invoice therefor) pay
all fees, expenses and costs relating hereto, including, but not
limited to (without duplication):
(i) the cost of reproducing this Agreement and the other
documents delivered in connection with the Closing;
(ii) the reasonable fees and disbursements of Special
Insurance Company Counsel incurred in connection with this Agreement;
(iii) the cost of delivering the Notes to your home office or
custodian bank, insured to your satisfaction; and
(iv) the fees, expenses and costs incurred in complying with
each of the conditions to closing set forth in Section 3.
(b) COUNSEL. Without limiting the generality of the foregoing,
it is agreed and understood that the Company will pay, at the Closing,
the statement for reasonable fees and disbursements of Special
Insurance Company Counsel presented at the Closing and the Company will
also pay upon receipt of any statement therefor each additional
statement for reasonable fees and disbursements of Special Insurance
Company Counsel rendered after the Closing in connection with the
substitution of the Notes for the Existing Notes or the matters
referred to in Section 1.4(a).
(c) AMENDMENT EXPENSES. The Company will pay when billed the
fees, expenses, costs and disbursements (including, without limitation,
the reasonable fees and the disbursements of your attorneys,
accountants and other expert, legal and financial advisers) relating to
the consideration, evaluation, analysis, assessment, negotiation,
preparation and/or execution of any amendments, waivers or consents
pursuant to the provisions hereof, whether in the ordinary course of
performance of the Note Purchase Agreements or in connection with any
controversy or potential controversy thereunder or resulting from any
work-out, restructuring or other similar proceedings relating to such
performance and whether or not any such amendments, waivers or consents
are executed or otherwise consummated.
3
<PAGE> 8
(d) SURVIVAL. The obligations of the Company under this
Section 1.4, Section 5.4 and Section 8.2(e) shall survive the payment
of the Notes and the termination hereof.
2. WARRANTIES AND REPRESENTATIONS
To induce you to enter into this Agreement, the Company warrants and
represents to you that as of the Closing Date:
2.1 CORPORATE ORGANIZATION AND AUTHORITY.
The Company and each Subsidiary:
(a) is a corporation duly incorporated, validly existing and
in good standing under the laws of its jurisdiction of incorporation;
(b) has all legal and corporate power and authority to own and
operate its Properties and to carry on its business as now conducted
and as presently proposed to be conducted;
(c) has all licenses, certificates, permits, franchises and
other governmental authorizations necessary to own and operate its
Properties and to carry on its business as now conducted and as
presently proposed to be conducted, except where the failure to have
such licenses, certificates and permits, either individually or in the
aggregate, would not have, and could not reasonably be expected to
have, a Material Adverse Effect; and
(d) has duly qualified or has been duly licensed, and is
authorized to do business and is in good standing, as a foreign
corporation in each state except where the failure to be so qualified
or licensed and authorized and in good standing, either individually or
in the aggregate, would not have, and could not reasonably be expected
to have, a Material Adverse Effect.
2.2 COMPLIANCE WITH LAW.
Neither the Company nor any Subsidiary:
(a) is in violation of any law, ordinance, governmental rule
or regulation to which it is subject; and
(b) has failed to obtain any license, certificate, permit,
franchise or other governmental authorization necessary to the
ownership of its Property or to the conduct of its business;
which violation or failure to obtain, either individually or in the aggregate,
would have, or could reasonably be expected to have, a Material Adverse Effect.
4
<PAGE> 9
2.3 LEGAL AND AUTHORIZED; OBLIGATIONS ARE ENFORCEABLE.
(a) AUTHORIZATION. The execution and delivery by the Company
of this Agreement and the Notes and the performance by the Company of
its obligations hereunder and thereunder are within the corporate
powers of the Company and do not conflict with, result in any breach in
any of the provisions of, constitute a default under, or result in the
creation of any Lien upon any Property of the Company under the
provisions of, any agreement, charter instrument, bylaw or other
instrument to which it is a party or by which it or any of its Property
may be bound.
(b) OBLIGATIONS ARE LEGAL AND ENFORCEABLE. The execution and
delivery by the Company of this Agreement and the Notes have been duly
authorized by all necessary action on the part of the Company, and this
Agreement and the Notes have been executed and delivered by one or more
duly authorized officers of the Company. This Agreement and the Notes
constitute legal, valid and binding obligations of the Company,
enforceable against the Company in accordance with their respective
terms, except that the enforceability thereof may be:
(i) limited by applicable bankruptcy, reorganization,
arrangement, insolvency, moratorium or other similar laws
affecting the enforceability of creditors' rights generally;
(ii) subject to the availability of equitable
remedies; and
(iii) with respect to indemnity and contribution,
limited by state or federal laws relating to Securities or by
the public policy underlying such laws.
2.4 PENDING LITIGATION; OTHER MATERIAL MATTERS.
(a) PENDING LITIGATION. Except as set forth in PART 2.4(A) OF
ANNEX 3, there are no proceedings, actions or investigations pending
or, to the knowledge of the Company, threatened against or affecting
the Company or any Subsidiary in any court or before any Governmental
Authority or arbitration board or tribunal that, either individually or
in the aggregate, would have or could reasonably be expected to have a
Material Adverse Effect. Neither the Company nor any Subsidiary is in
default with respect to any judgment, order, writ, injunction or decree
of any court, Governmental Authority or arbitration board or tribunal
that, either individually or in the aggregate, would have or could
reasonably be expected to have a Material Adverse Effect.
(b) OTHER MATERIAL MATTERS. Except as previously disclosed to
you, neither the Company nor any Subsidiary has received any notice of
termination of any material contract, lease or other agreement or
suffered any material damage, destruction or loss (whether or not
covered by insurance) or had any employee strike, work-stoppage,
slowdown or lock-out or any substantial, non-frivolous threat directed
to it of any imminent strike, work-stoppage, slowdown or lock-out.
5
<PAGE> 10
2.5 GOVERNMENTAL CONSENT.
Neither the nature of the Company or any Subsidiary, nor of any of
their respective businesses or Properties, nor any relationship between or among
the Company, any Subsidiary and any other Person, nor any circumstance in
connection herewith or in connection with the execution and delivery of this
Agreement or the Notes is such as to require a consent, approval or
authorization of, or filing, registration or qualification with, any
Governmental Authority on the part of the Company as a condition to the
execution and delivery hereof or thereof.
2.6 NO DEFAULTS.
(a) NO OTHER DEFAULTS. Upon the execution, delivery and
effectiveness of the Note Purchase Agreements, no Defaults or Events of
Default shall exist.
(b) NO DEFAULTS IN CONNECTION WITH THIS AGREEMENT. No event
has occurred and no condition exists that, upon the execution, delivery
and effectiveness of this Agreement, would constitute a Default or an
Event of Default.
(c) CHARTER INSTRUMENT, OTHER AGREEMENTS. Neither the Company
nor any Subsidiary is in violation in any respect of any term of any
charter instrument or bylaw. Except as set forth in PART 2.6(C) OF
ANNEX 3, neither the Company nor any Subsidiary is in violation in any
material respect of any term in any agreement or other instrument to
which it is a party or by which it or any of its Property may be bound,
which would have, or could reasonably be expected to have, a Material
Adverse Effect.
2.7 FINANCIAL STATEMENTS; DEBT; MATERIAL ADVERSE CHANGE.
(a) FINANCIAL STATEMENTS. The Company has delivered to you the
financial statements required pursuant to the provisions of the
Existing Note Purchase Agreement. All of such financial statements have
been prepared in accordance with GAAP consistently applied, and present
fairly, in all material respects, the financial position of the Company
and the Subsidiaries as of the respective dates specified therein and
the results of their operations and cash flows for the periods
specified therein.
(b) DEBT. PART 2.7(B) OF ANNEX 3 lists all Debt of the Company
and the Subsidiaries as of the Closing Date, after giving effect to the
transactions contemplated by the Wells Fargo Credit Agreement, and
provides the following information with respect to each item of such
Debt: the obligor, each guarantor thereof and each other Person
similarly liable in respect thereof, the holder thereof, the
outstanding amount, the current portion of the outstanding amount, the
final maturity, required sinking fund payments, and a description of
the collateral securing such Debt.
(c) MATERIAL ADVERSE CHANGE. Except as set forth in PART
2.7(C) OF ANNEX 3, since December 31, 1996, there has been no change in
the business, operations, profits, financial condition, Properties or
business prospects of the Company and the Subsidiaries, taken as a
whole, except changes that, in the aggregate, could not reasonably be
expected to have a Material Adverse Effect.
6
<PAGE> 11
(d) OPERATING PLAN. The Company has delivered to you its 1997
Operating Plan. The assumptions used in preparation of the 1997
Operating Plan were reasonable when made and continue to be reasonable.
The 1997 Operating Plan has been prepared in good faith, has a
reasonable basis and represents the good faith opinion of the Company
as to the projected results of the operations of the Company. No
material facts have occurred since the preparation of the 1997
Operating Plan that would cause the 1997 Operating Plan, taken as a
whole, not to be reasonably attainable in the good faith belief of the
Company, and the Company does not have, on the Closing Date, any
material obligations (whether accrued, matured, absolute, actual,
contingent or otherwise) that are not reflected in the 1997 Operating
Plan.
2.8 SUBSIDIARIES AND AFFILIATES.
(a) OWNERSHIP OF SUBSIDIARIES. PART 2.8(A) OF ANNEX 3 states
the name of each of the Subsidiaries, its jurisdiction of organization
and the percentage of its Voting Stock beneficially owned by the
Company and each other Subsidiary.
(b) AFFILIATES. PART 2.8(B) OF ANNEX 3 sets forth the name of
each Affiliate and the nature of the affiliation of such Affiliate.
(c) TITLE TO SHARES. Each of the Company and the Subsidiaries
has good title to all of the shares it purports to own of the stock of
each Subsidiary, free and clear in each case of any Lien. All such
shares have been duly issued and are fully paid and nonassessable.
2.9 TITLE TO PROPERTIES.
(a) GENERAL. The Company and the Subsidiaries have good and
sufficient title to all of the Property reflected in the most recent
consolidated balance sheet referred to in Section 2.7(a) and to all of
the Property purported to have been acquired by the Company and the
Subsidiaries after said date (except as sold or otherwise disposed of
in the ordinary course of business), except for such failures to have
good title as are immaterial to such balance sheet and that, in the
aggregate for all such failures, could not reasonably be expected to
have a Material Adverse Effect. All Property of the Company and the
Subsidiaries is free from Liens not permitted by Section 6.6.
(b) LEASES. All leases necessary for the conduct of the
business of the Company and the Subsidiaries are valid and subsisting
and are in full force and effect, except for such failures to be valid
and subsisting that, in the aggregate for all such failures, could not
reasonably be expected to have a Material Adverse Effect.
(c) INTELLECTUAL PROPERTY. The Company and the Subsidiaries
own, possess or have the right to use all of the licenses, permits,
franchises, patents, copyrights, trademarks, service marks and trade
names necessary for the present and currently planned future conduct of
their respective businesses, without any known conflict with the rights
of others, except for such failures to own, possess, or have the right
to use, that, in the aggregate for all such failures, could not
reasonably be expected to have a Material Adverse Effect.
7
<PAGE> 12
2.10 TAXES.
(a) RETURNS FILED; TAXES PAID. All tax returns required to be
filed and which are due (taking into account any permitted extensions)
by the Company, the Subsidiaries and any other Person with which the
Company or any Subsidiary files or will file a consolidated return in
any jurisdiction have in fact been filed on a timely basis. All taxes,
assessments, fees and other governmental charges upon the Company, the
Subsidiaries and any such Person, and upon any of their respective
Properties, income or franchises, that are due and payable have been
paid, except for such failures to pay that, in the aggregate for all
such Persons, could not reasonably be expected to have a Material
Adverse Effect. The Company does not know of any proposed additional
tax assessment against it, the Subsidiaries or any such Person that
could reasonably be expected to have a Material Adverse Effect.
(b) BOOK PROVISIONS ADEQUATE. The amount of the liability for
taxes reflected in each of the statements of financial condition
referred to in Section 2.7(a) is in each case an adequate provision for
taxes as of the dates of such statements of financial condition
(including, without limitation, any payment due pursuant to any tax
sharing agreement) as are or may become payable by any one or more of
the Company, the Subsidiaries and the other Persons consolidated with
the Company in such financial statements in respect of all tax periods
ending on or prior to such dates.
2.11 RESTRICTIONS ON COMPANY AND SUBSIDIARIES.
Neither the Company nor any Subsidiary:
(a) is a party to any contract or agreement, or subject to any
charter or other corporate restriction that, in the aggregate for all
such contracts, agreements, and charter and corporate restrictions, is
reasonably likely to have a Material Adverse Effect;
(b) is a party to any contract or agreement that restricts the
substitution of the Notes for the Existing Notes or the execution and
delivery of, or compliance with, the Note Purchase Agreements by the
Company; or
(c) has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its Property,
whether now owned or hereafter acquired, to be subject to a Lien not
permitted by Section 6.6.
2.12 ERISA.
(a) ERISA COMPLIANCE. The Company and the ERISA Affiliates are
in compliance in all material respects with all applicable provisions
of ERISA.
(b) PENSION PLANS; MULTIEMPLOYER PLANS. Neither the Company
nor any ERISA Affiliate maintains, administers, contributes to, or is
required to contribute to, or, has maintained, administered,
contributed to or was required to contribute to, any Pension Plan or
Multiemployer Plan that covers any employee or former employee of any
such Person.
8
<PAGE> 13
(c) RETIREMENT PLANS. There are no claims (other than claims
for benefits in the ordinary course), actions, or lawsuits asserted or
instituted against the Company or any ERISA Affiliate in respect of any
Retirement Plan, and no such Person has knowledge of any threatened
litigation or claims against the assets of any Retirement Plan or
against any fiduciary of such Retirement Plan or with respect to the
operation of such Retirement Plan.
(d) WELFARE BENEFIT PLANS. Neither the Company nor any ERISA
Affiliate maintains or has established any "welfare benefit plan," as
defined in section 3 of ERISA, that provides for continuing benefits or
coverage for any participant or any beneficiary of a participant after
such participant's termination of employment except as may be required
by the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended, and the regulations thereunder or except as to plans with
respect to which such participant or beneficiary pays his or her
allocable share of the premium or other material costs of providing
benefits or coverage under such plan.
(e) PROHIBITED TRANSACTIONS. The substitution of the Notes for
the Existing Notes will not constitute a "prohibited transaction" (as
such term is defined in section 406 of ERISA or section 4975 of the
IRC) that could subject any Person to the penalty or tax on prohibited
transactions imposed by section 502 of ERISA or section 4975 of the
IRC, and neither the Company nor any ERISA Affiliate, nor any "employee
benefit plan" (as such term is defined in section 3 of ERISA) of either
the Company or any ERISA Affiliate or any trust created thereunder or
any trustee or administrator thereof, has engaged in any "prohibited
transaction" that could subject any such Person, or any other party
dealing with such employee benefit plan or trust, to such penalty or
tax.
2.13 ENVIRONMENTAL COMPLIANCE.
(a) COMPLIANCE -- Except as disclosed on PART 2.13(a) OF ANNEX
3, the Company and each Subsidiary is in compliance with all
Environmental Protection Laws in effect in each jurisdiction where it
are presently doing business or is located, other than any
non-compliance that could not reasonably be expected to have a Material
Adverse Effect.
(b) LIABILITY -- Except as disclosed on PART 2.13(b) OF ANNEX
3, neither the Company nor any Subsidiary is subject to any liability
under any Environmental Protection Law that, in the aggregate, could be
reasonably expected to have a Material Adverse Effect.
(c) NOTICES -- Except as disclosed on PART 2.13(c) OF ANNEX 3,
neither the Company nor any Subsidiary has received any:
(i) written notice from any Governmental Authority by
which any of its present or previously-owned or leased real
Properties has been designated, listed, or identified in any
manner by any Governmental Authority charged with
administering or enforcing any Environmental Protection Law as
a hazardous substance disposal or removal site, "Super Fund"
clean-up site, or candidate for removal or closure pursuant to
any Environmental Protection Law;
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(ii) written notice of any Lien arising under or in
connection with any Environmental Protection Law that has
attached to any revenues of, or to, any of its owned or leased
real Properties; or
(iii) summons, citation, notice, directive, letter,
or other written communication from any Governmental Authority
concerning any intentional or unintentional action or omission
by the Company or any Subsidiary in connection with its
ownership or leasing of any real Property resulting in the
releasing, spilling, leaking, pumping, pouring, emitting,
emptying, dumping, or otherwise disposing of any hazardous
substance into the environment resulting in any material
violation of any Environmental Protection Law;
which, in any such case, relates to or makes reference to an event or
condition that could reasonably be expected to have a Material Adverse
Effect.
2.14 SENIOR CREDIT DOCUMENTS.
The Company has provided to you true, correct and complete copies of
the Wells Fargo Credit Agreement and each of the other Senior Credit Documents,
and there is no agreement or understanding between or among the Company, Wells
Fargo or any of the other financial institutions party to the Senior Credit
Documents except as set forth in the Senior Credit Documents.
3. CLOSING CONDITIONS
Your obligations under this Agreement, including, without limitation,
the obligation to exchange the Existing Notes for the Notes, are subject to the
following conditions precedent:
3.1 OPINIONS OF COUNSEL.
You shall have received from
(a) Brobeck, Phleger & Harrison, counsel for the Company,
and
(b) Special Insurance Company Counsel,
closing opinions, each dated as of the Closing Date, substantially in the
respective forms set forth in Exhibit B1 and Exhibit B2 and as to such other
matters as you may reasonably request. This Section 3.1 shall constitute
direction by the Company to such counsel named in the foregoing clause (a) to
deliver such closing opinion to you.
3.2 WARRANTIES AND REPRESENTATIONS TRUE.
The warranties and representations contained in Section 2 shall be true
and correct on the Closing Date.
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3.3 OFFICERS' CERTIFICATES.
You shall have received:
(a) a certificate dated the Closing Date and signed by a
Senior Officer, substantially in the form of Exhibit C; and
(b) a certificate dated the Closing Date and signed by the
Secretary or an Assistant Secretary of the Company, substantially in
the form of Exhibit D.
3.4 PRIVATE PLACEMENT NUMBER.
There shall have been obtained a private placement number for the Notes
from the CUSIP Service Bureau of Standard & Poor's, a division of McGraw-Hill,
Inc., and you shall have been informed of such private placement number.
3.5 AMENDMENT TO WARRANT AGREEMENT.
The Company and the holders of the Warrants shall have entered into an
amendment to the 1996 Warrant Agreement substantially in the form of Exhibit E
and an amendment to the 1993 Warrant Agreement substantially in the form of
Exhibit F.
3.6 CHIEF EXECUTIVE OFFICER.
The Company shall have delivered to you a copy of the report prepared
by Hydrick & Struggles with respect to the contemplated employment of a new
chief executive officer, and you shall be satisfied with the Company's progress
with respect to such employment.
3.7 WELLS FARGO CREDIT AGREEMENT.
The Company, Wells Fargo and the other financial institutions party
thereto shall have entered into (a) a Third Amendment to Credit Agreement and
(b) an Amended and Restated Warrant Agreement, which Third Amendment to Credit
Agreement and Amended and Restated Warrant Agreement, and all documents and
instruments executed and delivered in connection therewith, shall be in form and
substance satisfactory to you, including, without limitation, a final maturity
date for the Revolving Credit Facility and for the Term Loan Facility of no
earlier than May 1, 1998. The Company shall have delivered to you a copy of a
fully executed counterpart of such Third Amendment to Credit Agreement and a
fully executed counterpart of such Amended and Restated Warrant Agreement,
certified as true and correct by a Senior Officer.
3.8 EXPENSES.
All fees and disbursements required to be paid pursuant to Section
1.4(b) or referred to in Section 1.4(d) shall have been paid in full.
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3.9 OTHER EXISTING NOTEHOLDERS.
None of the Other Existing Noteholders shall have failed to execute and
deliver a Note Purchase Agreement.
3.10 COMPLIANCE WITH THIS AGREEMENT.
The Company shall have performed and complied with all agreements and
conditions contained in this Agreement that are required to be performed or
complied with by it on or prior to the Closing Date, and such performance and
compliance shall remain in effect on the Closing Date.
3.11 PROCEEDINGS SATISFACTORY.
All proceedings taken in connection with the substitution of the Notes
for the Existing Notes and all documents and papers relating thereto (including,
without limitation, the documents and papers referred to above in this Section
3) shall be satisfactory to you and Special Insurance Company Counsel. You and
Special Insurance Company Counsel shall have received copies of such documents
and papers as you or they may reasonably request in connection therewith or in
connection with Special Insurance Company Counsel's closing opinion, all in form
and substance satisfactory to you and Special Insurance Company Counsel.
4. PAYMENTS
4.1 INTEREST.
Interest shall accrue on the unpaid principal balance of the Notes on
the basis of a 360-day year of twelve 30-day months at the rate of nine and
fifty one-hundredths percent (9.50)% per annum, and shall be payable, in
arrears, semi-annually on August 19 and February 19 in each year, until the
principal amount of the Notes in respect of which such interest shall have
accrued shall become due and payable, and interest shall accrue on any overdue
principal (including any overdue prepayment of principal) and Make-Whole Amount,
if any, and (to the extent permitted by applicable law) on any overdue
installment of interest, at a rate (the "DEFAULT RATE") equal to the lesser of
(a) the highest rate allowed by applicable law, and
(b) the greater of (i) thirteen and fifty one-hundredths
percent (13.50)% per annum or (ii) the Chase Manhattan Prime Rate, from
time to time in effect.
At all times during the existence of a Senior Nonpayment Default Blockage
Period, the unpaid principal balance of the Notes and any overdue installment of
interest shall bear interest at the Default Rate. Interest was last paid on the
Existing Notes on February 19, 1997. The interest payment due on August 19, 1997
shall include interest from and including February 19, 1997 through and
including August 18, 1997 at the rate of nine and fifty one-hundredths percent
(9.50)% per annum.
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4.2 MANDATORY PRINCIPAL PAYMENTS.
The Company shall pay, and there shall become due and payable:
(a) on November 19, 1999, thirty-three and one-third percent
(33-1/3%) of the aggregate principal amount of the Notes outstanding on
such date;
(b) on November 19, 2000, fifty percent (50%) of the aggregate
principal amount of the Notes outstanding on such date; and
(c) on November 19, 2001, the entire principal amount of the
Notes outstanding on such date.
Each such payment shall be at one hundred percent (100%) of the principal amount
payable, together with interest accrued thereon to the date of payment.
4.3 OPTIONAL PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. The Company may, on any scheduled
interest payment date, prepay the principal amount of the Notes in part
or in whole, in each case together with:
(i) an amount equal to the Make-Whole Amount
determined as of the prepayment date in respect of the
principal amount of the Notes being so prepaid; and
(ii) interest then due and payable on such scheduled
interest payment date.
(b) NOTICE OF OPTIONAL PREPAYMENT. The Company will give
notice of any optional prepayment of the Notes to each holder of Notes
not less than thirty (30) days or more than sixty (60) days before the
scheduled interest payment date fixed for prepayment, which notice
shall be accompanied by a certificate, executed by a Senior Financial
Officer and dated the date of such notice, specifying:
(i) such scheduled interest payment date fixed for
prepayment;
(ii) that such prepayment is to be made pursuant to
Section 4.3(a) of this Agreement;
(iii) the principal amount of each Note to be prepaid
on such date;
(iv) the interest to be paid on each such Note,
accrued to such scheduled interest payment date fixed for
prepayment; and
(v) a reasonably detailed calculation of an estimated
Make-Whole Amount, if any (calculated as if the date of such
notice was the date of prepayment), due in connection with
such prepayment.
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Notice of prepayment having been so given, the aggregate principal
amount of the Notes to be prepaid specified in such notice, together
with the Make-Whole Amount as of the specified prepayment date with
respect thereto, if any, and accrued interest thereon shall become due
and payable on the specified prepayment date. Two (2) Business Days
prior to the making of such prepayment, the Company shall deliver to
each holder of Notes by facsimile transmission a certificate of a
Senior Financial Officer specifying the details of the calculation of
such Make-Whole Amount in respect of the specified prepayment date,
together with a copy of all applicable documentation utilized by the
Company in connection with its determination of the Make-Whole Discount
Rate in respect of such prepayment.
4.4 OFFER TO PREPAY UPON CHANGE IN CONTROL.
(a) NOTICE. In the event of either
(i) a Change in Control, or
(ii) the obtaining of knowledge of a Control Event by
any officer of the Company (including, without limitation, via
the receipt of notice of a Control Event from any holder of
Notes),
the Company will, within two (2) Business Days of (A) such Change in
Control or (B) the obtaining of knowledge of such Control Event, as the
case may be, give written notice of such Change in Control or Control
Event to each holder of Notes by registered mail (with a copy thereof
sent via an overnight courier of national or international reputation)
and, simultaneously with the sending of such written notice, give
telephonic advice of such Change in Control or Control Event to an
investment officer or other similar representative or agent of each
such holder specified in Annex 1 at the telephone number specified
therein, or to such other Person at such other telephone number as any
holder of a Note may specify to the Company in writing. In connection
with an action taken by the Company with respect to either clause (A)
or clause (B) of this paragraph, the Company shall, simultaneously with
its giving of notice to the holders of Notes, deliver a similar written
notice to each holder of Senior Debt and request that any prepayment
required under the Wells Fargo Credit Agreement as a result of the
occurrence of an event described in either clause (A) or clause (B) of
this paragraph be waived. The Company shall cooperate with the holders
of Senior Debt in connection with their review of the circumstances
surrounding the occurrence of an event described in either clause (A)
or clause (B) above and the request of the Company for a waiver.
(b) OFFER ON CHANGE IN CONTROL. In the event of a Change in
Control, the written notice to each holder of Notes made pursuant to
Section 4.4(a) shall contain, and such written notice shall constitute,
an irrevocable offer to prepay all, but not less than all, of the Notes
held by such holder on a date specified in such notice (the "CONTROL
PREPAYMENT DATE") that is not less than forty-five (45) days and not
more than sixty (60) days after the date of such notice. (Such notice
shall be dated the date of its dispatch; if the Control Prepayment Date
shall not be specified in such notice, the Control Prepayment Date
shall be the forty-fifth (45th) day after the date of such notice.) If
the Company shall not have received a written response to such notice
from each holder of
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<PAGE> 19
Notes within ten (10) days after the date of posting of such notice to
such holder of Notes, then a second written notice shall be immediately
sent (via an overnight courier of national or international reputation)
by the Company to each such holder of Notes who shall have not
previously responded to the Company.
(c) ACCEPTANCE AND PAYMENT. To accept or reject the offered
prepayment under Section 4.4(b), a holder of Notes shall cause a notice
of such acceptance or rejection to be delivered to the Company not
later than fifteen (15) days after the date of receipt by such holder
of the latest written notice regarding such offered prepayment (it
being understood that the failure by a holder to reject such offered
prepayment prior to the end of such period of fifteen (15) days shall
be deemed to constitute an acceptance of said offer of prepayment). If
so accepted or deemed accepted, such offered prepayment shall be due
and payable on the Control Prepayment Date. Such offered prepayment
shall be made at one hundred percent (100%) of the principal amount of
such Notes, together with (A) the Make-Whole Amount, if any, determined
as of the Control Prepayment Date with respect thereto and (B) interest
on the Notes then being prepaid accrued to the Control Prepayment Date.
(d) OFFICER'S CERTIFICATE. Each offer to prepay the Notes
pursuant to this Section 4.4 shall be accompanied by a certificate,
executed by a Senior Financial Officer and dated the date of such
offer, specifying:
(i) the Control Prepayment Date;
(ii) that such offer is being made pursuant to
Section 4.4(b) of this Agreement and that such offer will be
deemed accepted unless a rejection of such offer is delivered
to the Company prior to the fifteenth (15th) day following the
receipt of the second written notice in respect of such offer
(such second notice being made only to such holders which have
not responded to the first notice within ten (10) days of the
mailing of the same); the statements required in this clause
(ii) shall be made in bold type and shall be underlined;
(iii) the principal amount of each Note offered to be
prepaid;
(iv) the interest that would be due on each such Note
offered to be prepaid, accrued to the date fixed for payment;
(v) a reasonably detailed calculation of an estimated
Make-Whole Amount, if any (calculated as if the date of such
notice was the date of prepayment), that would be due in
connection with such offered prepayment;
(vi) that the conditions of this Section 4.4 have
been fulfilled; and
(vii) in reasonable detail, the nature and date or
proposed date of the Change in Control.
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(e) MAKE-WHOLE AMOUNT DETERMINATION; NOTICE CONCERNING STATUS
OF HOLDERS OF NOTES. Two (2) Business Days prior to the making of all
prepayments contemplated on any Control Prepayment Date, the Company
shall deliver to each holder of Notes by facsimile transmission a
certificate of a Senior Financial Officer specifying the details of the
calculation of the Make-Whole Amount, as of such Control Prepayment
Date, together with a copy of all applicable documentation utilized by
the Company in connection with its determination of the Make-Whole
Discount Rate in respect of such prepayments. Promptly after each
Control Prepayment Date and the making of all prepayments contemplated
on such Control Prepayment Date under this Section 4.4 (and, in any
event, within thirty (30) days thereof), the Company shall deliver to
each holder of Notes a certificate signed by a Senior Financial Officer
containing a list of the then current holders of Notes (together with
their addresses) and setting forth as to each such holder the
outstanding principal amount of Notes held by such holder at such time.
4.5 PARTIAL PREPAYMENT PRO RATA.
If at the time any required prepayment under Section 4.2 or optional
prepayment under Section 4.3(a) is due there is more than one Note outstanding,
the aggregate principal amount of each required or optional partial prepayment
of the Notes shall be allocated among the holders of the Notes at the time
outstanding in proportion, as nearly as practicable, to the respective unpaid
principal amounts of the Notes then outstanding, with adjustments, to the extent
practicable, to equalize for any prior prepayments not in such proportion.
4.6 NOTATION OF NOTES ON PREPAYMENT.
Upon any partial prepayment of a Note, such Note may, at the option of
the holder thereof, be:
(a) surrendered to the Company pursuant to Section 5.2 in
exchange for a new Note in a principal amount equal to the principal
amount remaining unpaid on the surrendered Note;
(b) made available to the Company for notation thereon of the
portion of the principal so prepaid; or
(c) marked by such holder with a notation thereon of the
portion of the principal so prepaid.
In case the entire principal amount of any Note is paid, such Note shall be
surrendered to the Company for cancellation and shall not be reissued, and no
Note shall be issued in lieu of the paid principal amount of any Note.
4.7 NO OTHER OPTIONAL PREPAYMENTS.
Except as provided in Section 4.3, the Company may not make any
optional prepayment (whether directly or indirectly, by purchase, other
acquisition or otherwise) in respect of the Notes.
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5. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES
5.1 REGISTRATION OF NOTES.
The Company will cause to be kept at its office maintained pursuant to
Section 6.14 a register for the registration and transfer of Notes. The name and
address of each holder of one or more Notes, each transfer thereof and the name
and address of each transferee of one or more Notes shall be registered in such
register. The Person in whose name any Note shall be registered shall be deemed
and treated as the owner and holder thereof for all purposes hereof.
5.2 EXCHANGE OF NOTES.
(a) Upon surrender of any Note at the office of the Company
maintained pursuant to Section 6.14 duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder
of such Note or such holder's attorney duly authorized in writing, the
Company will execute and, within five (5) Business Days after such
surrender, deliver, at the Company's expense (except as provided
below), new Notes in exchange therefor, in denominations of at least
One Hundred Thousand Dollars ($100,000) (except as may be necessary to
reflect any principal amount not evenly divisible by One Hundred
Thousand Dollars ($100,000)), in an aggregate principal amount equal to
the unpaid principal amount of the surrendered Note. Each such new Note
shall be payable to such Person as such holder may request and shall be
substantially in the form of Exhibit A. Each such new Note shall be
dated and bear interest from the date to which interest shall have been
paid on the surrendered Note or dated the date of the surrendered Note
if no interest shall have been paid thereon. The Company may require
payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes.
(b) The Company will pay the cost of delivering to or from
such holder's home office or custodian bank from or to the Company,
insured to the reasonable satisfaction of such holder, the surrendered
Note and any Note issued in substitution or replacement for the
surrendered Note.
(c) Each holder of Notes agrees that, in the event it shall
sell or transfer any Note without surrendering such Note to the Company
as set forth in Section 5.2(a), it shall:
(i) prior to the delivery of such Note, make a
notation thereon of all principal, if any, paid on such Note
and shall also indicate thereon the date to which interest
shall have been paid on such Note; and
(ii) promptly notify (or cause the transferee of any
such Note to notify) the Company of the name and address of
the transferee of any such Note so transferred and the
effective date of such transfer.
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<PAGE> 22
5.3 REPLACEMENT OF NOTES.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership (or of ownership by such
Institutional Investor's nominee) and such loss, theft, destruction or
mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company (provided that if the holder of
such Note is an Institutional Investor or a nominee of such
Institutional Investor, such Institutional Investor's own unsecured
agreement of indemnity shall be deemed to be satisfactory for such
purpose), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense will execute and, within five (5) Business Days
after such receipt, deliver, in lieu thereof, a new Note, dated and bearing
interest from the date to which interest shall have been paid on such lost,
stolen, destroyed or mutilated Note or dated the date of such lost, stolen,
destroyed or mutilated Note if no interest shall have been paid thereon.
5.4 ISSUANCE TAXES.
The Company will pay all taxes (if any) due in connection with and as
the result of the initial issuance and sale of the Notes and in connection with
any modification of this Agreement or the Notes and shall save each holder of
Notes harmless without limitation as to time against any and all liabilities
with respect to all such taxes. The obligations of the Company under this
Section 5.4 shall survive the payment or prepayment of the Notes and the
termination hereof.
6. COVENANTS
The Company covenants that on and after the Closing Date and so long as
any of the Notes shall be outstanding:
6.1 INCURRENCE OF DEBT.
(a) INCURRENCE TEST. Subject to clause (c) and clause (d) of
this Section 6.1, the Company will not, and will not permit any
Subsidiary to, at any time incur or in any manner become liable
(collectively, to "INCUR;" and the result of any such Incurring being
referred to herein as an "INCURRENCE"; any extension, renewal,
refunding or refinancing, including, without limitation, any
reborrowing and/or reutilization, of previously Incurred Debt shall be
deemed a new Incurrence thereof) in respect of any Debt (other than the
Debt evidenced by the Notes) unless,
(i) immediately after giving effect to such
Incurrence (including, without limitation, the application of
the proceeds from such Incurrence), Total Debt would not
exceed five hundred percent (500%) of Consolidated Cash Flow
for the period of twelve (12) consecutive calendar months most
recently ended as of the date of such Incurrence,
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(ii) immediately prior to, and immediately after the
consummation of such Incurrence, and after giving effect
thereto, no Default or Event of Default exists or would exist,
and
(iii) immediately after giving effect to such
Incurrence, the Company would not be prohibited pursuant to
Section 10 from making any scheduled payment of interest or
principal to the holders of Notes.
(b) SUBSIDIARY DEBT. The Company will not at any time permit
any Subsidiary to Incur any Debt other than
(i) Debt owed by such Subsidiary to the Company or to
a Wholly-Owned Subsidiary (and the Incurrence of the
aforesaid Debt shall not be subject to the requirements of
Section 6.1(a)),
(ii) Debt owed by such Subsidiary under any Guaranty
issued by such Subsidiary to the holders of Wells Fargo Credit
Agreement Debt pursuant to the Wells Fargo Credit Agreement to
the extent that the Wells Fargo Credit Agreement Debt being so
guaranteed did not exceed the Wells Fargo Credit Limit
determined at the time of the Incurrence of such Wells Fargo
Credit Agreement Debt (and the Incurrence of the aforesaid
Debt under such Guaranty shall not be subject to the
requirements of Section 6.1(a)),
(iii) Debt owed by such Subsidiary pursuant to any
Subsidiary Guaranty issued by such Subsidiary (and the
Incurrence of the aforesaid Debt shall not be subject to the
requirements of Section 6.1(a)), and
(iv) Debt owed by such Subsidiary to a Person other
than the Company or a Wholly-Owned Subsidiary if, but only if,
(A) after giving effect to the Incurrence of
such Debt, the aggregate amount of (1) all Qualified
Seller Debt of all Subsidiaries outstanding at such
time plus (2) all Debt (other than Qualified Seller
Debt and other than Debt described in clauses (i),
(ii) and (iii) above) of all Subsidiaries outstanding
at such time would not exceed Twenty-Two Million
Dollars ($22,000,000) at such time,
(B) after giving effect to the Incurrence of
such Debt, the aggregate amount of all Debt (other
than Qualified Seller Debt and other than Debt
described in clauses (i), (ii) and (iii) above) of
all Subsidiaries outstanding at such time would not
exceed Fifteen Million Dollars ($15,000,000) at such
time, and
(C) such Debt would be permitted to be
Incurred under Section 6.1(a) hereof.
(c) WELLS FARGO CREDIT AGREEMENT DEBT. Anything to the
contrary in this Section 6.1 notwithstanding, the Company may Incur any
Wells Fargo Credit Agreement
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Debt, if, but only if, after giving effect to any such Incurrence, the
aggregate outstanding principal amount of all Wells Fargo Credit
Agreement Debt (including, without limitation, reimbursement
obligations (hereinafter referred to as individually, as a
"REIMBURSEMENT UTILIZATION" and, collectively, as "REIMBURSEMENT
UTILIZATIONS") in respect of letters of credit, the issuances of which
are treated as a utilization of the credit availability under the Wells
Fargo Credit Agreement) would not exceed the Wells Fargo Credit Limit
in effect at the time of such Incurrence.
(d) REFINANCINGS. Anything to the contrary in this Section 6.1
notwithstanding, the Company may Incur any Debt that extends, renews,
refunds or refinances any Debt of the Company (other than Wells Fargo
Credit Agreement Debt) secured by a Lien otherwise permitted under
clause (viii) or clause (ix) of Section 6.6(a) or any Debt of a
Subsidiary secured by a Lien otherwise permitted under clause (viii) or
clause (ix) of Section 6.6(a), if, but only if, the principal amount of
the Debt being so extended, renewed, refunded or refinanced is not
increased in excess of the amount thereof outstanding at the time of
such extension, renewal, refunding or refinancing, no collateral
secures such Debt other than collateral previously provided in the
applicable agreements or documents to secure the Debt being so
extended, renewed, refunded or refinanced, and no Default or Event of
Default would exist.
(e) ASSUMPTIONS. The following assumptions shall apply to all
determinations under this Section 6.1:
(i) each Person that becomes a Subsidiary after the
Closing Date will be deemed to have Incurred all the Debt of
such Person on the date such Person becomes a Subsidiary;
(ii) any Debt of the Company initially held by a
Subsidiary and subsequently sold, transferred or otherwise
disposed of by such Subsidiary to a Person other than another
Subsidiary shall be deemed to have been Incurred by the
Company at the time of such sale, transfer or other
disposition;
(iii) any Debt of the Company or any Subsidiary held
by a Person that was formerly a Subsidiary shall be deemed to
have been Incurred by the Company or such Subsidiary on the
date such Person ceases to be a Subsidiary; and
(iv) for purposes of determining whether the
Incurrence of Debt of the Company (other than Wells Fargo
Credit Agreement Debt) is permitted under Section 6.1(a) at
any time, such determination shall assume that the amount of
Wells Fargo Credit Agreement Debt outstanding at such time is
equal to the greater of (A) the sum of (1) the maximum amount
of Debt under the Revolving Credit Facility committed to the
Company under the Wells Fargo Credit Agreement from time to
time (which is, as of the Closing Date, Six Million Dollars
($6,000,000)) plus (2) the principal amount of Wells Fargo
Credit Agreement Debt then outstanding under the Term Loan
Facility (which is, as of the Closing Date, Thirty-Eight
Million Eight Hundred Sixty-Nine Thousand Nine Hundred
Seventy-Five and 02/100 Dollars ($38,869,975.02)) and (B) the
actual principal amount of Wells
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Fargo Credit Agreement Debt then outstanding and all
Reimbursement Utilizations existing at such time.
6.2 SENIOR DEBT MAINTENANCE.
The Company will not at any time permit the remainder of
(a) the aggregate amount of Senior Debt of the
Company, determined at such time, and any other Debt of the
Company secured by any Lien on Property of the Company, as
determined at such time, minus
(b) the aggregate amount of cash funds of the Company
and the Subsidiaries on hand, on deposit or otherwise
available for immediate use, determined on a consolidated
basis at such time,
to exceed the greater of (i) Fifty-Five Million Dollars ($55,000,000)
and (ii) four hundred percent (400%) of Consolidated Net Worth
determined at such time.
6.3 INTENTIONALLY OMITTED.
6.4 INTENTIONALLY OMITTED.
6.5 RESTRICTED PAYMENTS.
Except for the Restricted Payments described in PART 6.5 OF ANNEX 3,
the Company will not, and will not permit any Subsidiary to, at any time
declare, make or set aside any amount for any Restricted Payment unless:
(a) immediately prior to giving effect to such Restricted
Payment, Consolidated Net Worth shall be at least Twenty-Five Million
Dollars ($25,000,000);
(b) immediately after, and after giving effect to, such
Restricted Payment, the aggregate amount of all Restricted Payments
declared or made on or after November 19, 1993 would not exceed the
greater of
(i) Zero Dollars ($0), and
(ii) twenty-five percent (25%) of Consolidated
Adjusted Net Income for the period commencing on and including
January 1, 1994 and ending on and including the date such
Restricted Payment is declared or made; and
(c) at the time of such declaration and immediately before,
and after giving effect to, such Restricted Payment,
(i) no Default or Event of Default exists or would
exist, and
(ii) the Company would be able to Incur at least One
Dollar ($1.00) of additional Debt in compliance with Section
6.1(a),
21
<PAGE> 26
provided that notwithstanding the foregoing clause (a) and clause (b), the
Company may at any time in the ordinary course of business make any Restricted
Payment constituting a purchase, redemption or other acquisition by the Company
of capital stock from any employee or former employee of the Company which
capital stock
(A) was acquired by such employee or former employee
prior to November 19, 1993 as part of his or her compensation
as an employee of the Company and
(B) the Company shall have the contractual right to
repurchase (such right having arisen at the time such capital
stock was acquired by such employee) as a result of such
employee's death or termination of employment with the Company
at a price per share equal to the greater of (1) the cost of
acquisition of such capital stock by such employee or (2) two
hundred percent (200%) of "book value," as defined below.
The Company will not authorize any Restricted Payment in respect of any class of
its capital stock, which Restricted Payment would give rise to a claim under
applicable law by the proposed recipients thereof to receive payment from the
Company, that is not payable within sixty (60) days of such authorization.
"Book value" shall mean the total of the shareholders' equity of the
Company divided by the number of equity Securities outstanding, as determined by
the Company in accordance with GAAP, as of the last day of the month preceding
the month during which the aforesaid employee is no longer deemed to be an
employee of the Company. For purposes of this paragraph, "equity Securities"
shall mean all outstanding voting Securities of the Company, by whatever name,
and all outstanding Securities of the Company, which are convertible without
further consideration, into voting Securities of the Company.
6.6 LIENS.
(A) NEGATIVE PLEDGE. The Company will not, and will not permit
any Subsidiary to, directly or indirectly cause or permit to exist, or
agree or consent to cause or permit to exist in the future (upon the
happening of a contingency or otherwise), any of their respective
Properties, whether now owned or hereafter acquired, or any of their
respective revenues from such Properties, to be subject to any Lien,
except:
(i) Liens securing Property taxes, assessments or
governmental charges or levies, provided that the payment
thereof is not at the time required by Section 6.12;
(ii) (A) to the extent incurred in good faith and in
the ordinary course of business of the Company or a
Subsidiary, Liens securing the claims or demands of
materialmen, mechanics, carriers, warehousemen, vendors,
landlords and other like Persons, provided that the payment
thereof is not at the time required by Section 6.12, (B) Liens
that are unperfected purchase money Liens, vendor's Liens or
reservations of title by vendors in and to inventory of the
Company or a Subsidiary acquired in the ordinary course of
business of such
22
<PAGE> 27
Person and securing, in each case, obligations whose payment
is not overdue or is being contested as provided in clause (i)
or clause (ii) of Section 6.12 and (C) Liens, if any, arising
from the filing of financing statements under the Uniform
Commercial Code of any jurisdiction by lessors under Operating
Leases entered into with the Company or any Subsidiary in the
ordinary course of business;
(iii) Liens
(A) arising from judicial attachments and
judgments,
(B) securing appeal bonds or supersedeas
bonds, and
(C) arising in connection with court
proceedings (including, without limitation, surety
bonds and letters of credit or any other instrument
serving a similar purpose),
provided that (1) the execution or other enforcement of such
Liens is effectively stayed, (2) the claims secured thereby
are being actively contested in good faith and by appropriate
proceedings, (3) adequate book reserves in accordance with
GAAP shall have been established and maintained and shall
exist with respect thereto and (4) the aggregate amount so
secured for all such Liens shall not at any time exceed Three
Hundred Thousand Dollars ($300,000) (excluding in the
calculation of such Three Hundred Thousand Dollars ($300,000)
any such claims being so secured to the extent, but only to
the extent, such claims will be covered by payments from
insurance maintained by the Company or any Subsidiary (y) in
respect of which insurance the issuer thereof has agreed, in
writing, to make such payments in respect of such claims and
(z) the issuer of which insurance is an independent commercial
insurer that, in the good faith opinion of the Board of
Directors, is capable of discharging its payment obligations
in connection with such insurance);
(iv) Liens incurred or deposits made in the
ordinary course of business
(A) in connection with workers'
compensation, unemployment insurance, social security
and other like laws (other than ERISA);
(B) to secure the performance of letters of
credit, bids, tenders, government contracts, trade
contracts, leases, statutory obligations, surety and
performance and return-of-money bonds (of a type
other than as set forth in Section 6.6(a)(iii) and
other similar obligations in connection with the
borrowing of money, the obtaining of advances or the
payment of the deferred purchase price of Property;
and
(C) to secure Debt incurred by the Company
or its Subsidiaries to one or more institutional
lenders under any agreements with such lenders
pursuant to which customers of the
23
<PAGE> 28
Company or its Subsidiaries may use credit cards to
pay for goods and services invoiced by the Company or
its Subsidiaries, provided that the aggregate amount
of such Debt shall not, in the aggregate at any time,
exceed Two Hundred Thousand Dollars ($200,000).
(v) Liens in the nature of reservations, exceptions,
encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases, subleases and other similar
title exceptions or encumbrances affecting real Property,
provided that they would not, or could not reasonably be
expected to have, either individually or in the aggregate, a
Material Adverse Effect;
(vi) Liens on Property of a Subsidiary, provided that
such Liens secured only obligations owing to the Company or to
a Wholly-Owned Subsidiary, and Liens made or incurred by the
UK Subsidiary on Property located in the United Kingdom and
owned by the UK Subsidiary to secure UK Subsidiary Debt;
(vii) Liens in existence on the Closing Date securing
Debt (other than Senior Debt), provided that such Liens are
described in PART 6.6(a)(VII) OF ANNEX 3;
(viii) Purchase Money Liens, if, after giving effect
to the creation of such Liens and to any concurrent
transactions
(A) each such Purchase Money Lien at no time
secures Debt in an amount exceeding the lesser of (1)
the cost of acquisition or construction of the
particular Property to which such Debt relates and
(2) the Fair Market Value of such Property, as
determined at the time of such acquisition or the
completion of such construction,
(B) no Default or Event of Default would
exist, and
(C) the Company shall be able to Incur at
least One Dollar ($1.00) of additional Debt in
compliance with Section 6.1(a);
(ix) Liens securing Debt existing on Property
acquired by the Company or a Subsidiary after November 19,
1993 which Liens existed at the time of such acquisition, and
Liens securing Debt existing on Property of any Person at the
time such Person becomes a Subsidiary if such time is after
November 19, 1993 (in either such case, whether or not such
acquisition or such Person becoming a Subsidiary is by means
of a purchase, merger, consolidation or otherwise and whether
or not the Company or any Subsidiary assumes any Debt secured
thereby), provided that
(A) such Liens
(1) were not placed on such Property, and do
not secure Debt created, incurred, issued or assumed,
contemporaneously with or in any manner in
contemplation of, the
24
<PAGE> 29
acquisition of such Property by the Company or such
Subsidiary or such Person becoming a Subsidiary,
(2) do not extend to any other Property of
the Company or any Subsidiary after such acquisition
or such Person becomes a Subsidiary, and
(3) are not more favorable in any material
respect to the beneficiaries of such Liens after such
acquisition or such Person becoming a Subsidiary than
they were prior thereto, and
(B) after giving effect to such acquisition or such Person
becoming a Subsidiary, and to any concurrent transactions,
(1) no Default or Event of Default would
exist, and
(2) the Company shall be able to Incur at
least One Dollar ($1.00) of additional Debt in
compliance with Section 6.1(a);
(x) Liens securing obligations arising at any time under the Wells
Fargo Credit Agreement to the extent that the amount so secured does not exceed
the Wells Fargo Adjusted Credit Limit determined at such time;
(xi) Liens securing any Guaranty of obligations arising at any time
under the Wells Fargo Credit Agreement to the extent that the amount so
guaranteed does not exceed the Wells Fargo Adjusted Credit Limit determined at
such time; and
(xii) any Lien permitted by clause (viii) or clause (ix) above securing
Debt which (directly or successively) extends, renews, refunds or refinances
Debt of the type referred to in such clauses, provided that the amount of such
Debt being so extended, renewed, refunded or refinanced was permitted to be so
extended renewed, refunded or refinanced under Section 6.1(a) or Section 6.1(d).
(b) EQUAL AND RATABLE LIEN; EQUITABLE LIEN. In case any Property shall
be subjected to a Lien in violation of this Section 6.6, the Company will
immediately make or cause to be made, to the fullest extent permitted by
applicable law, provision whereby the Notes will be secured equally and ratably
with all other obligations secured thereby pursuant to such agreements and
instruments as shall be approved by the Required Holders, and the Company will
cause to be delivered to each holder of a Note an opinion, satisfactory in form
and substance to the Required Holders, of independent counsel to the effect that
such agreements and instruments are enforceable in accordance with their terms,
and in any such case the Notes shall have the benefit, to the fullest extent
that, and with such priority as, the holders of Notes may be entitled thereto
under applicable law, of an equitable Lien on such Property securing the Notes
(provided that, notwithstanding the foregoing, each holder of Notes shall have
the right to elect at any time, by delivery of written notice of such election
to the Company, to cause the Notes held by such holder not to be secured by such
Lien or such equitable Lien). A violation
25
<PAGE> 30
of this Section 6.6 will constitute an Event of Default, whether or not
any such provision is made pursuant to this Section 6.6(b).
(c) FINANCING STATEMENTS. The Company will not, and will not
permit any Subsidiary to, sign or file a financing statement under the
Uniform Commercial Code of any jurisdiction that names the Company or
such Subsidiary as debtor, or sign any security agreement authorizing
any secured party thereunder to file any such financing statement,
except, in any such case, a financing statement filed or to be filed to
perfect or protect a security interest that the Company or such
Subsidiary is not prohibited to create, assume or incur, or permit to
exist, under the foregoing provisions of this Section 6.6 or to
evidence for informational purposes a lessor's interest in Property
leased to the Company or any such Subsidiary.
6.7 TRANSFERS OF PROPERTY, SUBSIDIARY STOCK, ETC.
(a) TRANSFERS OF PROPERTY. The Company will not, and will not
permit any Subsidiary to, sell, lease as lessor, transfer or otherwise
dispose of any Property (collectively, "to Transfer"; the result of any
such Transferring being referred to herein as a "TRANSFER"), except:
(i) Transfers of inventory and of obsolete or worn
out Property, in each case in the ordinary course of business
of the Company or such Subsidiary;
(ii) Transfers from a Subsidiary or the Company to
the Company or a Wholly-Owned Subsidiary;
(iii) Transfers permitted by, and in compliance with,
clause (i) through clause (iii), inclusive, of Section 6.7(b)
and Transfers permitted by, and in compliance with, Section
6.8(a); and
(iv) any other Transfer of Property at any time to
any Person, other than an Affiliate, for an Acceptable
Consideration, if:
(A) the sum of
(1) the Transfer Value of such
Property, plus
(2) the aggregate Transfer Value of
all other Property of the Company and the
Subsidiaries Transferred (other than in
Transfers referred to in the foregoing
clause (i) through clause (iii), inclusive),
during the period commencing on the first
day of the then current fiscal year of the
Company and ending at the time of such
Transfer,
would not exceed ten percent (10%) of Consolidated
Assets determined as of the end of the fiscal year of
the Company then most recently ended;
26
<PAGE> 31
(B) the sum of
(1) the Transfer Value of such
Property, plus
(2) the aggregate Transfer Value of
all other Property of the Company and the
Subsidiaries Transferred (other than in
Transfers referred to in the foregoing
clause (i) through clause (iii), inclusive),
during the period commencing on November 19,
1993 and ending at the time of such
Transfer,
would not exceed twenty-five percent (25%) of
Consolidated Assets determined as of the end of the
fiscal year of the Company then most recently ended;
and
(C) immediately before and after the
consummation of such Transfer, and after giving
effect thereto,
(1) no Default or Event of Default
exists or would exist and
(2) the Company would be able to
Incur at least One Dollar ($1.00) of
additional Debt in compliance with Section
6.1(a);
provided, that any Transfer that would not satisfy the
requirements of either or both of subclause (A) or subclause
(B) of this clause (iv) shall be deemed to have satisfied such
requirements for purposes of this clause (iv) if, but only if,
(y) within the period of three hundred
sixty-five (365) days after such Transfer, proceeds
of such Transfer, net of reasonable and ordinary
transaction costs and expenses incurred in connection
with such Transfer, are applied by the Company or any
Subsidiary to:
(1) purchase Property for
utilization in the conduct of the business
of the Company and the Subsidiaries as
contemplated in Section 6.11; or
(2) pay, prior to its scheduled
maturity, any Wells Fargo Credit Agreement
Debt, and
(z) the Company shall have informed each
holder of Notes in writing prior to the consummation
of such Transfer of its intended utilization of this
proviso and confirmed in such writing its undertaking
to utilize the aforesaid proceeds of such Transfer as
provided in subparagraph (y) above.
If the proceeds from any Transfer consummated pursuant to the proviso
under clause (iv) above are not utilized, as provided in, and within
the time periods required by, said proviso, an immediate Event of
Default shall then exist under Section 8.1(c). If such
27
<PAGE> 32
proceeds of such Transfer are so utilized, then for all purposes of
subclause (A) and subclause (B) of clause (iv) above, such Transfer
shall thereafter be excluded from any calculations required to be made
under either of said subclauses.
(b) TRANSFERS OF SUBSIDIARY STOCK. The Company will not, and
will not permit any Subsidiary to, Transfer any shares of the stock (or
any warrants, rights or options to purchase stock or other Securities
exchangeable for or convertible into stock) of a Subsidiary (such
stock, warrants, rights, options and other Securities herein called
"SUBSIDIARY STOCK"), nor will any Subsidiary issue, sell or otherwise
dispose of any shares of its own Subsidiary Stock, provided that the
foregoing restrictions do not apply to:
(i) the issuance by a Subsidiary of shares of its own
Subsidiary Stock to the Company or a Wholly-Owned Subsidiary;
(ii) Transfers by the Company or a Subsidiary of
shares of Subsidiary Stock to the Company or a Wholly-Owned
Subsidiary;
(iii) the issuance by a Subsidiary of directors'
qualifying shares; and
(iv) the Transfer of all of the Subsidiary Stock of a
Subsidiary owned by the Company and the other Subsidiaries if:
(A) such Transfer satisfies the requirements
of Section 6.7(a)(iv);
(B) in connection with such Transfer the
entire Investment (whether represented by stock,
Debt, claims or otherwise) of the Company and the
other Subsidiaries in such Subsidiary is Transferred
to a Person other than (1) the Company, (2) a
Subsidiary not simultaneously being disposed of or
(3) an Affiliate;
(C) the Subsidiary being disposed of has no
continuing Investment in any other Subsidiary not
simultaneously being disposed of or in the Company;
and
(D) immediately before and after the
consummation of such Transfer, and after giving
effect thereto,
(1) no Default or Event of Default
exists or would exist and
(2) the Company would be able to
Incur at least One Dollar ($1.00) of
additional Debt in compliance with Section
6.1(a).
28
<PAGE> 33
6.8 CONSOLIDATION, MERGER, ETC.
(a) MERGER AND CONSOLIDATION. The Company will not, and will
not permit any Subsidiary to, merge with or into, consolidate with or
into, or Transfer all or substantially all of its Property to, any
other Person or permit any other Person to merge or consolidate with or
into it (except that a Subsidiary may merge into, consolidate with, or
Transfer all or substantially all of its Property to, the Company or a
Wholly-Owned Subsidiary if the Company or such Wholly-Owned Subsidiary
is the surviving corporation), provided that the foregoing restriction
does not apply to the merger or consolidation of the Company with, or
the Transfer of all or substantially all of its Property to, another
corporation if:
(i) the corporation that results from such merger or
consolidation or acquires all or substantially all of the
Property of the Company (the "SURVIVING CORPORATION") is
organized under the laws of the United States of America or
any state thereof;
(ii) the due and punctual payment of the principal of
and Make-Whole Amount, if any, and interest on all of the
Notes, according to their tenor, and the due and punctual
performance and observance of all the covenants in the Notes
and this Agreement to be performed or observed by the Company,
are expressly assumed by the Surviving Corporation pursuant to
such agreements and instruments as shall be approved by the
Required Holders, and the Company causes to be delivered to
each holder of Notes an opinion of independent counsel, in
form, scope and substance satisfactory to the Required
Holders, to the effect that such agreements and instruments
are enforceable in accordance with their terms; and
(iii) immediately prior to, and immediately after the
consummation of the transaction, and after giving effect
thereto,
(A) no Default or Event of Default exists or
would exist, and
(B) the Company would be able to Incur at
least One Dollar ($1.00) of additional Debt in
compliance with Section 6.1(a).
(b) ACQUISITION OF STOCK, ETC. The Company will not, and will
not permit any Subsidiary to, acquire any stock of any corporation if
upon completion of such acquisition such corporation would be a
Subsidiary, or acquire all of the Property of, or such of the Property
as would permit the transferee to continue any one or more integral
business operations of, any Person unless, immediately after the
consummation of such acquisition, and after giving effect thereto,
(i) no Default or Event of Default exists or would
exist, and
(ii) the Company would be able to Incur at least One
Dollar ($1.00) of additional Debt in compliance with Section
6.1(a).
29
<PAGE> 34
6.9 PARI PASSU OBLIGATIONS.
The Company covenants that its obligations hereunder and under the
Notes do and will, in terms of preference and priority, rank at least pari passu
with all of its obligations in respect of its other present and future Debt
except the Senior Debt.
6.10 TRANSACTIONS WITH AFFILIATES.
Except as set forth in PART 6.10 OF ANNEX 3, the Company will not, and
will not permit any Subsidiary to, enter into any transaction, including,
without limitation, the purchase, sale or exchange of Property or the rendering
of any service, with any Affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of the Company's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than would obtain in a comparable arm's-length transaction with
a Person not an Affiliate.
6.11 NATURE OF BUSINESS.
The Company will not, and will not permit any Subsidiary to, engage in
any business if, as a result thereof, the general nature of the businesses of
the Company and the Subsidiaries, taken as a whole, would be substantially
changed from the businesses thereof described in the Placement Memorandum.
6.12 PAYMENT OF TAXES AND CLAIMS, ETC.
The Company will, and will cause each Subsidiary to, pay before they
become delinquent:
(a) all taxes, assessments and governmental charges or levies
imposed upon it or its Property; and
(b) all claims or demands of materialmen, mechanics, carriers,
warehousemen, vendors, landlords and other like Persons that, if
unpaid, might result in the creation of a Lien upon its Property;
provided, that items of the foregoing description need not be paid
(i) while being actively contested in good faith and
by appropriate proceedings as long as adequate book reserves
have been established and maintained and exist with respect
thereto, and
(ii) so long as the title of the Company or the
Subsidiary, as the case may be, to, and its right to use, such
Property, is not materially adversely affected thereby.
The Company and the Subsidiaries will not elect to be treated as "S
corporations" under section 1361 of the IRC.
30
<PAGE> 35
6.13 MAINTENANCE OF PROPERTIES; CORPORATE EXISTENCE; ETC.
The Company will, and will cause each Subsidiary to:
(a) PROPERTY -- maintain its respective Properties that are
material to its business in good repair, working order and condition,
ordinary wear and tear excepted, and make all necessary renewals,
replacements, additions, betterments and improvements thereto;
(b) INSURANCE -- maintain, with financially sound and
reputable insurers, insurance with respect to its Property and business
against such casualties and contingencies, of such types (including,
without limitation, insurance with respect to losses arising out of
Property loss or damage, public liability, business interruption,
larceny, workers' compensation, embezzlement or other criminal
misappropriation) and in such amounts as is customary in the case of
corporations of established reputations engaged in the same or a
similar business and similarly situated;
(c) FINANCIAL RECORDS -- keep accurate and complete books of
records and accounts in which accurate and complete entries shall be
made of all its business transactions and that will permit the
provision of accurate and complete financial statements in accordance
with GAAP;
(d) CORPORATE EXISTENCE AND RIGHTS --
(i) do or cause to be done all things necessary to
preserve and keep in full force and effect its corporate
existence and franchises, except where the failure to do so,
either individually or in the aggregate, would not have, and
could not reasonably be expected to have, a Material Adverse
Effect, and
(ii) to maintain each Subsidiary as a Subsidiary,
in each case except as permitted by Section 6.7 and Section 6.8(a); and
(e) COMPLIANCE WITH LAW -- not be in violation of any law,
ordinance, governmental rule or regulation, order or writ to which it
is subject, including, without limitation, any Environmental Protection
Law, and not fail to obtain any license, certificate, permit, franchise
or other governmental authorization necessary to the ownership of its
Properties or to the conduct of its business if such violations or
failures to obtain, individually or in the aggregate, would have, or
could reasonably be expected to have, a Material Adverse Effect; and
(f) OTHER FINANCING DOCUMENTS -- comply with the terms and
provisions, to the extent applicable to it, of the Warrant Agreement,
the Warrant Certificates, the Registration Rights Agreement, and the
Observation Rights Agreement.
31
<PAGE> 36
6.14 PAYMENT OF NOTES AND MAINTENANCE OF OFFICE.
The Company will punctually pay, or cause to be paid, the principal of
and interest (and Make-Whole Amount, if any) on, the Notes, as and when the same
shall become due according to the terms hereof and of the Notes, and will
maintain an office at the address of the Company set forth in Section 11.1 where
notices, presentations and demands in respect hereof or of the Notes may be made
upon it. Such office will be maintained at such address until such time as the
Company shall notify the holders of the Notes of any change of location of such
office, which will in any event be located within the United States of America.
6.15 ERISA, ETC.
(a) COMPLIANCE. The Company will, and will cause each ERISA
Affiliate to, at all times with respect to each Pension Plan, make
timely payment of contributions required to meet the minimum funding
standard set forth in ERISA or the IRC with respect thereto, and to
comply with all other applicable provisions of ERISA.
(b) RELATIONSHIP OF VESTED BENEFITS TO PENSION PLAN ASSETS.
The Company will not at any time permit the present value of all
employee benefits vested under each Pension Plan to exceed the assets
of such Pension Plan allocable to such vested benefits at such time, in
each case determined pursuant to Section 6.15(c).
(c) VALUATIONS. All assumptions and methods used to determine
the actuarial valuation of vested employee benefits under Pension Plans
and the present value of assets of Pension Plans will be reasonable in
the good faith judgment of the Company and will comply with all
requirements of law.
(d) PROHIBITED ACTIONS. The Company will not, and will not
permit any ERISA Affiliate to:
(i) engage in any "prohibited transaction" (as
defined in section 406 of ERISA or section 4975 of the IRC)
that would result in the imposition of a material tax or
penalty;
(ii) incur with respect to any Pension Plan any
"accumulated funding deficiency" (as defined in section 302 of
ERISA), whether or not waived;
(iii) terminate any Pension Plan in a manner that
could result in
(A) the imposition of a Lien on the Property of
the Company or any Subsidiary pursuant to section
4068 of ERISA, or
(B) the creation of any liability under section
4062 of ERISA;
(iv) fail to make any payment required by section 515
of ERISA; or
32
<PAGE> 37
(v) at any time be an "employer" (as defined in
section 3(5) of ERISA) required to contribute to any
Multiemployer Plan if, at such time, it could reasonably be
expected that the Company or any Subsidiary will incur
withdrawal liability in respect of such Multiemployer Plan and
such liability, if incurred, together with the aggregate
amount of all other withdrawal liability as to which there is
a reasonable expectation of incurrence by the Company or any
Subsidiary under any one or more Multiemployer Plans, would
have, or could reasonably be expected to have, a Material
Adverse Effect.
6.16 NO REACQUISITIONS OF NOTES.
Except as expressly set forth in Section 4.3, (a) the Company will not
make any optional prepayment in respect of the Notes and (b) the Company will
not, and will not permit any Subsidiary or any Affiliate to, directly or
indirectly, acquire or make any offer to acquire any Notes. In case the Company
prepays in full any Notes, as permitted above, such Notes will thereafter be
cancelled and no Notes will be issued in substitution therefor.
6.17 PRIVATE OFFERING.
The Company will not, and will not permit any Person acting on its
behalf to, offer the Notes or any part thereof or any similar Securities for
issuance or sale to, or solicit any offer to acquire any of the same from, any
Person so as to bring the issuance and sale of the Notes within the provisions
of section 5 of the Securities Act.
6.18 MINIMUM PROFITABILITY.
The Company shall not permit Consolidated Net Income (excluding any
gain on the sale of Peripheral Computer Support, Inc.) for the fiscal quarters
of the Company ending on the dates set forth in the table below to be less than
the amounts set forth opposite such dates.
<TABLE>
<CAPTION>
======================================================================================================
Fiscal Quarter Ending Consolidated Net Income
- ------------------------------------------------------------------------------------------------------
<S> <C>
March 31, 1997 ($5,787,000)
- ------------------------------------------------------------------------------------------------------
June 30, 1997 ($3,820,000)
- ------------------------------------------------------------------------------------------------------
September 30, 1997 ($891,000)
- ------------------------------------------------------------------------------------------------------
December 31, 1997 $607,000
- ------------------------------------------------------------------------------------------------------
March 31, 1998 $650,000
- ------------------------------------------------------------------------------------------------------
June 30, 1998 and thereafter $5,000,000
======================================================================================================
</TABLE>
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<PAGE> 38
6.19 MINIMUM RATIO OF ACCOUNTS RECEIVABLE TO LOANS.
The Company shall not permit the ratio of
(a) the sum of
(i) Consolidated Accounts Receivable as of the last
day of the fiscal quarters of the Company set forth in the
table below plus
(ii) Consolidated Inventory as of such day
to
(b) the aggregate amount of all outstanding Wells Fargo Credit
Agreement Debt as of such day
to be less than the applicable ratio set forth in the following table:
<TABLE>
<CAPTION>
================================================================================================
Fiscal Quarter Ending Minimum Ratio
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
March 31, 1997 0.65 to 1.00
- ------------------------------------------------------------------------------------------------
June 30, 1997 0.63 to 1.00
- ------------------------------------------------------------------------------------------------
September 30, 1997 0.63 to 1.00
- ------------------------------------------------------------------------------------------------
December 31, 1997 0.66 to 1.00
- ------------------------------------------------------------------------------------------------
March 31, 1998 and thereafter 0.67 to 1.00
================================================================================================
</TABLE>
6.20 CURRENT RATIO.
The Company shall not permit the ratio of Consolidated Current Assets
to Consolidated Current Liabilities as of the last day of the fiscal quarters of
the Company set forth in the table below to be less than the applicable ratio
set forth opposite such days.
<TABLE>
<CAPTION>
================================================================================================
Fiscal Quarter Ending Minimum Ratio
- ------------------------------------------------------------------------------------------------
<S> <C>
March 31, 1997 0.56 to 1.00
- ------------------------------------------------------------------------------------------------
June 30, 1997 0.61 to 1.00
- ------------------------------------------------------------------------------------------------
September 30, 1997 0.59 to 1.00
- ------------------------------------------------------------------------------------------------
December 31, 1997 0.62 to 1.00
- ------------------------------------------------------------------------------------------------
March 31, 1998 0.64 to 1.00
- ------------------------------------------------------------------------------------------------
June 30, 1998 and thereafter 1.00 to 1.00
================================================================================================
</TABLE>
34
<PAGE> 39
6.21 MINIMUM CONSOLIDATED TANGIBLE NET WORTH.
The Company shall not permit Consolidated Tangible Net Worth at any
time during any period set forth in the table below to be less than the
applicable amount set forth opposite such period, plus one hundred percent
(100%) of Net Securities Proceeds.
<TABLE>
<CAPTION>
=============================================================================================================
Period Minimum Consolidated Tangible Net Worth
- -------------------------------------------------------------------------------------------------------------
<S> <C>
March 31, 1997 through June 29, 1997 ($9,816,000)
- -------------------------------------------------------------------------------------------------------------
June 30, 1997 through September 29, 1997 ($3,362,000)
- -------------------------------------------------------------------------------------------------------------
September 30, 1997 through ($3,504,000)
December 30, 1997
- -------------------------------------------------------------------------------------------------------------
December 31, 1997 through ($2,263,000)
March 30, 1998
- -------------------------------------------------------------------------------------------------------------
March 31, 1998 ($1,363,000)
- -------------------------------------------------------------------------------------------------------------
June 30, 1998 and thereafter $5,000,000
=============================================================================================================
</TABLE>
6.22 AMENDMENT TO CERTIFICATE OF INCORPORATION.
On or prior to July 15, 1997, the Company will obtain the approval of
the stockholders of the Company, and amend the Certificate of Incorporation of
the Company, to increase the authorized shares of the Common Stock from thirty
million (30,000,000) shares to fifty million (50,000,000) shares.
7. INFORMATION AS TO COMPANY
7.1 FINANCIAL AND BUSINESS INFORMATION.
The Company will deliver to each holder of Notes:
(a) MONTHLY FINANCIAL STATEMENTS -- as soon as practicable
after the end of each month (other than the last month in each fiscal
year of the Company), and in any event within thirty (30) days
thereafter, duplicate copies of
(i) a consolidated balance sheet of the Company and
the Subsidiaries as at the end of such month,
(ii) consolidated statements of income, stockholders'
equity and cash flows of the Company and the Subsidiaries for
such month, and
(iii) an income statement for such month showing the
results of operations for each division of the Company and the
Subsidiaries,
35
<PAGE> 40
all in reasonable detail and certified by a Senior Financial Officer as
fairly presenting the financial condition of the Company and the
Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to
changes resulting from audit and normal year-end adjustments;
(b) QUARTERLY STATEMENTS -- as soon as practicable after the
end of each quarterly fiscal period in each fiscal year of the Company
(other than the last quarterly fiscal period of each such fiscal year),
and in any event within forty-two (42) days thereafter, duplicate
copies of
(i) a consolidated balance sheet of the Company and
the Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income and cash flows
of the Company and the Subsidiaries for such quarter and (in
the case of the second and third quarters) for the portion of
the fiscal year ending with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the immediately preceding fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable to
quarterly financial statements generally (provided that such financial
statements need not contain footnotes), and certified as complete and
correct, subject to changes resulting from year-end adjustments, by a
Senior Financial Officer, and accompanied by the certificate required
by Section 7.2;
(c) ANNUAL STATEMENTS -- as soon as practicable after the end
of each fiscal year of the Company, and in any event within one hundred
(100) days thereafter, duplicate copies of
(i) consolidated and consolidating balance sheets of
the Company and the Subsidiaries, as at the end of such year,
and
(ii) consolidated and consolidating statements of
income, shareholders' equity and cash flows of the Company and
the Subsidiaries for such year,
setting forth in each case in comparative form the figures for the
immediately preceding fiscal year, all in reasonable detail, prepared
in accordance with GAAP, and accompanied by
(A) in the case of such consolidated statements, a
report thereon of independent certified public accountants of
recognized national standing, which report shall (1) contain
no qualifications as to the circumstances of or any
restrictions on the engagement of such independent certified
public accountants or to the scope of the audit conducted by
such independent certified public accountants, (2) express an
opinion in the form of the standard auditor's report under
generally accepted auditing standards which shall state that
such financial statements present fairly, in all material
respects, the financial position of the companies being
reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and that the
examination of
36
<PAGE> 41
such accountants in connection with such financial statements
has been made in accordance with generally accepted auditing
standards, and that such audit provides a reasonable basis for
such opinion in the circumstances, and (3) not constitute or
contain, as the case may be, an adverse opinion, a disclaimer
of opinion, a qualified opinion or a modification to an
opinion, in each case as such terms are understood under
generally accepted auditing standards and would be applied in
respect of the expression of opinion required under subclause
(2) above,
(B) a statement from such independent certified
public accountants that such consolidating statements were
prepared using the same work papers as were used in the
preparation of such consolidated statements,
(C) a certification by a Senior Financial Officer
that such consolidated and consolidating statements are
complete and correct, and
(D) the certificates required by Section 7.2 and
Section 7.3;
(d) AUDIT REPORTS -- promptly upon receipt thereof, a copy of
each other report submitted to the Company or any Subsidiary by
independent accountants in connection with any management report,
special audit report or comparable analysis prepared by them with
respect to the books of the Company or any Subsidiary;
(e) SEC AND OTHER REPORTS -- promptly upon their becoming
available, a copy of each financial statement, report (including,
without limitation, each Quarterly Report on Form 10-Q, each Annual
Report on Form 10-K and each Current Report on Form 8-K), notice or
proxy statement sent by the Company or any Subsidiary to shareholders
generally and of each regular or periodic report and any registration
statement, prospectus or written communication (other than transmittal
letters), and each amendment thereto, in respect thereof filed by the
Company or any Subsidiary with, or received by, such Person in
connection therewith from, the National Association of Securities
Dealers, any securities exchange or the SEC;
(f) ERISA --
(i) immediately upon becoming aware of the occurrence of
any
(A) "reportable event" (as such term is defined in
section 4043 of ERISA), or
(B) "prohibited transaction" (as such term is defined
in section 406 of ERISA or section 4975 of the IRC),
in connection with any Pension Plan or any trust created
thereunder, a written notice specifying the nature thereof,
what action the Company is taking or proposes to take with
respect thereto and, when known, any action taken by the IRS,
the DOL or the PBGC with respect thereto, and
37
<PAGE> 42
(ii) prompt written notice of and, where applicable, a
description of
(A) any notice from the PBGC in respect of the
commencement of any proceedings pursuant to section 4042 of
ERISA to terminate any Pension Plan or for the appointment of
a trustee to administer any Pension Plan,
(B) any distress termination notice delivered to the
PBGC under section 4041 of ERISA in respect of any Pension
Plan, and any determination of the PBGC in respect thereof,
(C) the placement of any Multiemployer Plan in
reorganization status under Title IV of ERISA,
(D) any Multiemployer Plan becoming "insolvent" (as
defined in section 4245 of ERISA) under Title IV of ERISA, and
(E) the whole or partial withdrawal of the Company or
any ERISA Affiliate from any Multiemployer Plan and the
withdrawal liability incurred in connection therewith;
(g) ACTIONS, PROCEEDINGS -- promptly (and in any event, within
three (3) Business Days) after the commencement thereof, notice of any
action or proceeding relating to the Company or any Subsidiary in any
court or before any Governmental Authority or arbitration board or
tribunal as to which there is a reasonable possibility of an adverse
determination and that, if adversely determined, would have a Material
Adverse Effect;
(h) CERTAIN ENVIRONMENTAL MATTERS -- prompt written notice of
and a description of any event or circumstance that, had such event or
circumstance occurred or existed immediately prior to the Closing Date,
would have been required to be disclosed as an exception to any
statement set forth in Section 2.13;
(i) NOTICE OF DEFAULT OR EVENT OF DEFAULT -- immediately upon
becoming aware of the existence of any condition or event that
constitutes a Default or an Event of Default, a written notice
specifying the nature and period of existence thereof and what action
the Company is taking or proposes to take with respect thereto;
(j) NOTICE OF CLAIMED DEFAULT -- immediately upon becoming
aware that the holder of any Note, or of any Debt or any Security of
the Company or any Subsidiary, shall have given notice or taken any
other action with respect to a claimed Default, Event of Default,
default or event of default, a written notice specifying the notice
given or action taken by such holder and the nature of the claimed
Default, Event of Default, default or event of default and what action
the Company is taking or proposes to take with respect thereto;
(k) OPERATION PLAN -- promptly upon its completion, and in any
event prior to thirty (30) days after each fiscal year-end of the
Company, a plan of operations for each
38
<PAGE> 43
of the two (2) fiscal years of the Company following the fiscal year of
the Company then ended, which plan of operation shall include (without
limitation) the following: (i) projected quarterly cash flow statements
of the Company and the Subsidiaries (including, without limitation,
budgeted capital expenditures and projected revenues) on a consolidated
basis and on a division basis, (ii) projected quarterly statements of
operation of the Company and the Subsidiaries on a consolidated basis
and on a division basis, (iii) projected consolidated balance sheet of
the Company and the Subsidiaries based on GAAP as of the last day of
each such fiscal year, (iv) projected consolidated statements of income
and cash flows of the Company and the Subsidiaries for each such fiscal
year based on GAAP and (v) all assumptions upon which such plans of
operations and the foregoing financial statements are based; and
(l) REQUESTED INFORMATION -- with reasonable promptness, such
other data and information as from time to time may be reasonably
requested by any holder of Notes, including, without limitation,
(i) copies of any statement, report or certificate
furnished to any other holder of any Debt or Security of the
Company or any Subsidiary, and
(ii) information requested to comply with any request
of the National Association of Insurance Commissioners in
respect of the designation of the Notes, and
(iii) information requested to comply with 17 C.F.R.
Section 230.144A, as amended from time to time;
provided that any such request with respect to any of the data and
information referred to in the foregoing clause (i), clause (ii) and
clause (iii) shall be deemed to be reasonable for purposes of this
Section 7.1(l). The holders of Notes hereby request, and the Company
agrees to provide to such holders, copies of all monthly financial
statements provided to any purchasers of shares of Series A Preferred
Stock under that certain Stock Purchase Agreement, dated as of November
19, 1993, as amended.
7.2 OFFICERS' CERTIFICATES.
Each set of financial statements delivered to each holder of Notes
pursuant to Section 7.1(a), Section 7.1(b) or Section 7.1(c) shall be
accompanied by a certificate of a Senior Financial Officer setting forth:
(a) COVENANT COMPLIANCE -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Section 6.1 through Section 6.8,
inclusive, and Section 6.18 through Section 6.21, inclusive, during the
period covered by the statement of income then being furnished
(including with respect to each such Section , where applicable, the
calculations of the maximum or minimum amount, ratio or percentage, as
the case may be, permissible under the terms of such Sections , and the
calculation of the amounts, ratio or percentage then in existence); and
39
<PAGE> 44
(b) EVENT OF DEFAULT -- a statement that the signers have
reviewed the relevant terms hereof and have made, or caused to be made,
under their supervision, a review of the transactions and conditions of
the Company and the Subsidiaries from the beginning of the accounting
period covered by the income statements being delivered therewith to
the date of the certificate and that such review shall not have
disclosed the existence during such period of any condition or event
that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists, specifying the nature and period
of existence thereof and what action the Company shall have taken or
proposes to take with respect thereto.
7.3 ACCOUNTANTS' CERTIFICATES.
Each set of annual financial statements delivered pursuant to Section
7.1(c) shall be accompanied by a certificate of the accountants who certify such
financial statements, stating that they have reviewed this Agreement and stating
further, whether, in making their audit, such accountants have become aware of
any condition or event that then constitutes a Default or an Event of Default,
and, if such accountants are aware that any such condition or event then exists,
specifying the nature and period of existence thereof.
7.4 INSPECTION.
The Company will permit the representatives of each Existing Noteholder
(and any of its subsidiaries or affiliates that may after the Closing Date hold
any Notes) and of each Significant Holder to visit and inspect any of the
Properties of the Company or any Subsidiary, to examine all their respective
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers, employees and independent public accountants (and by
this provision the Company authorizes such accountants to discuss the finances
and affairs of the Company and the Subsidiaries) all at such reasonable times
and as often as may be reasonably requested. If, at the time of any visit or
inspection under this Section 7.4, a Default or Event of Default shall exist,
the Company shall pay for all out-of-pocket costs and expenses of or in
connection with such visit or inspection; otherwise, all such out-of-pocket
costs and expenses shall be for the account of the Person or Persons making such
visit or inspection.
7.5 CONFIDENTIAL INFORMATION.
With respect to all data and information that has been or in the future
is furnished to or obtained by any holder of Notes in connection with this
Agreement (excluding, in any case, any such data and information that was or is
available to the public or was not or is not treated as confidential by any one
or more of the Company, the Subsidiaries or the Affiliates), such holder will
hold such data and information in confidence in accordance with the customary
practices and standards of confidentiality generally employed by such holder in
respect of similar data and information obtained in connection with other
comparable investment transactions of such holder. Notwithstanding the
foregoing, any such holder may disclose any data and information furnished to or
obtained by it in connection with this Agreement and the Notes:
(a) the disclosure of which is, in such holder's sole good
faith business and/or legal judgment, reasonably required in connection
with regulatory requirements (including,
40
<PAGE> 45
without limitation, the requirements of the National Association of
Insurance Commissioners) or other legal requirements related to such
holder's affairs, including, without limitation, the disclosure of such
data and information in connection with or in response to (i)
compliance with any law, ordinance or governmental order, regulation,
rule, policy, subpoena, investigation or request, or (ii) any order,
decree, judgment, subpoena, notice of discovery or similar ruling, or
pleading issued, filed, served or purported on its face to be issued,
filed or served (A) by or under authority of any court, tribunal,
arbitration board or any governmental agency, commission, authority,
board or similar entity or (B) in connection with any proceeding
(including, without limitation, any proceeding to enforce the
obligations of the Company under this Agreement or the Notes), cause or
matter pending (or on its face purported to be pending) before any
court, tribunal, arbitration board or any governmental agency,
commission, authority, board or similar entity;
(b) to any one or more of the employees, officers, directors,
agents, attorneys, accountants, professional consultants or trustees of
such holder (or of any subsidiary or affiliate of such holder) who
would have access to such data and information in the normal course of
the performance of such Person's duties for such holder (or for such
subsidiary or affiliate);
(c) to Moody's Investors Service, Inc., Standard & Poor's
Ratings Group or any other nationally recognized financial rating
service that is reviewing the credit rating of any holder of Notes or
is rating or reviewing the rating of the Notes; and
(d) to any prospective purchaser, securities broker or dealer
or investment banker in connection with the resale or proposed resale
of all or any portion of the Notes by such holder.
In connection with any disclosure by any holder of Notes under clause (a) above,
such holder will use reasonable efforts to notify the Company of any such
pending disclosure, provided that (x) such holder shall in no case be liable to
the Company for its failure to effect such notification, (y) the failure to
effect such notification shall not affect the ability of such holder to make the
disclosures contemplated under said clause (a) and (z) this sentence shall not
apply to the delivery of periodic financial statements and information to the
National Association of Insurance Commissioners, the Securities Valuation Office
thereof or any other agency thereof in connection with the rating, evaluation or
other regulatory treatment of the Notes or the Warrants. In connection with any
disclosure by any holder of Notes under clause (d) above, such holder will use
reasonable efforts to cause any prospective purchaser, securities broker or
dealer or investment banker referred to in said clause (d) to enter into a
written confidentiality agreement with the Company containing terms of
confidentiality substantially similar to the terms of confidentiality set forth
in this Section 7.5 prior to effecting such disclosure, provided that (yy) such
holder shall in no case be liable to the Company if such prospective purchaser,
securities broker or dealer or investment banker shall for any reason not enter
into any such confidentiality agreement with the Company and (zz) the failure of
such prospective purchaser, securities broker or dealer or investment banker to
enter into any such confidentiality agreement with the Company shall not affect
the ability of such holder to make the disclosures contemplated under said
clause (d). No holder of Notes will be liable for the breach of this Section 7.5
or of any provision in any aforesaid confidentiality agreement by any other
holder of Notes or by any
41
<PAGE> 46
Person to which any confidential data or information shall be delivered in
accordance with this Section 7.5.
7.6 REPORTS TO NAIC.
Concurrently with the delivery to you of each annual statement and
opinion required by clause (i) and clause (ii) of Section 7.1(c), the Company
will deliver a copy thereof to: Securities Valuation Office, National
Association of Insurance Commissioners, 195 Broadway, New York, New York 10007.
8. EVENTS OF DEFAULT
8.1 NATURE OF EVENTS.
An "EVENT OF DEFAULT" shall exist if any of the following occurs and is
continuing at any time:
(a) PRINCIPAL OR MAKE-WHOLE AMOUNT PAYMENTS -- the Company
shall fail to make any payment of principal or Make-Whole Amount on any
Note on or before the date such payment is due;
(b) INTEREST PAYMENTS -- the Company shall fail to make any
payment of interest on any Note on or before ten (10) days after the
date such payment is due;
(c) PARTICULAR COVENANT DEFAULTS -- the Company or any
Subsidiary shall fail to perform or observe any covenant contained in
Section 6.1 through Section 6.5, inclusive, Section 6.7 through Section
6.10, inclusive, Section 6.18 through Section 6.21, inclusive, or in
Section 7.1(h) or Section 7.1(i);
(d) OTHER DEFAULTS -- (i) the Company or any Subsidiary shall
fail to perform or observe any covenant contained in Section 6.6 and
such failure shall continue for more than ten (10) days after such
failure shall first become known to any officer of the Company or (ii)
the Company or any Subsidiary shall fail to comply with any other
provision hereof, and such failure shall continue for more than thirty
(30) days after such failure shall first become known to any officer of
the Company;
(e) WARRANTIES OR REPRESENTATIONS -- any warranty,
representation or other statement by or on behalf of the Company
contained herein or in any certificate or instrument furnished in
compliance with or in reference hereto shall have been false or
misleading in any material respect when made;
(f) DEFAULT ON DEBT OR SECURITY -- any event shall occur or
any condition shall exist in respect of any Debt or any Security of the
Company or any Subsidiary, or under any agreement securing or relating
to any such Debt or Security, that:
(i) causes such Debt or Security, or a portion
thereof, to become due prior to its stated maturity or prior
to its regularly scheduled date or dates of payment; or
42
<PAGE> 47
(ii) permits any one or more of the holders thereof
or a trustee therefor to require the Company or any Subsidiary
to repurchase such Debt or Security from such holder and one
or more of such Persons shall have demanded or otherwise
required such repurchase;
provided that the aggregate amount of all obligations in respect of all
such Debt and Securities referred to in this clause (f) exceeds at such
time Two Million Dollars ($2,000,000);
(g) INVOLUNTARY BANKRUPTCY PROCEEDINGS --
(i) a receiver, liquidator, custodian or trustee of
the Company or any Subsidiary, or of all or any part of the
Property of either, shall be appointed by court order and such
order shall remain in effect for more than sixty (60) days, or
an order for relief shall be entered with respect to the
Company or any Subsidiary, or the Company or any Subsidiary
shall be adjudicated a bankrupt or insolvent;
(ii) any of the Property of the Company or any
Subsidiary shall be sequestered by court order and such order
shall remain in effect for more than sixty (60) days; or
(iii) a petition shall be filed against the Company
or any Subsidiary under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or
liquidation law of any jurisdiction, whether now or hereafter
in effect, and shall not be dismissed within sixty (60) days
after such filing;
(h) VOLUNTARY PETITIONS -- the Company or any Subsidiary shall
file a petition in voluntary bankruptcy or seeking relief under any
provision of any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect, or shall consent to
the filing of any petition against it under any such law;
(i) ASSIGNMENTS FOR BENEFIT OF CREDITORS, ETC. -- the Company
or any Subsidiary shall make an assignment for the benefit of its
creditors, or shall admit in writing its inability, or shall fail, to
pay its debts generally as they become due, or shall consent to the
appointment of a receiver, liquidator or trustee of the Company or any
Subsidiary or of all or any part of the Property of either; or
(j) UNDISCHARGED FINAL JUDGMENTS -- a final judgment or final
judgments for the payment of money aggregating in excess of Two Hundred
Thousand Dollars ($200,000) (excluding in the calculation of such Two
Hundred Thousand Dollars ($200,000) any final judgments to the extent,
but only to the extent, such judgments will be covered by payments from
insurance maintained by the Company or any Subsidiary (i) in respect of
which insurance the issuer thereof has agreed, in writing, to make such
payments in respect of such judgment and (ii) the issuer of which
insurance is an independent commercial insurer that, in the good faith
opinion of the Board of Directors, is capable of discharging its
payment obligations in connection with such insurance) shall be
outstanding against any one or more of the Company and the Subsidiaries
and any
43
<PAGE> 48
one of such judgments shall have been outstanding for more than thirty
(30) days from the date of its entry and shall not have been discharged
in full or stayed.
8.2 DEFAULT REMEDIES.
(a) ACCELERATION ON EVENT OF DEFAULT.
(i) If any Event of Default specified in clause (g),
clause (h) or clause (i) of Section 8.1 shall exist, all of
the Notes at the time outstanding shall automatically become
immediately due and payable, together with interest accrued
thereon and the Make-Whole Amount (as of the date such Notes
first become due and payable) with respect to such principal
amount of such Notes, in each case without presentment,
demand, protest or notice of any kind, all of which are hereby
expressly waived.
(ii) If any Event of Default other than those
specified in clause (g), clause (h) and clause (i) of Section
8.1 shall exist, then the holders of at least forty percent
(40%) in principal amount of the Notes then outstanding
(exclusive of Notes then owned by any one or more of the
Company, any Subsidiary or any Affiliate) may exercise any
right, power or remedy permitted to such holder or holders by
law and shall have, in particular, without limiting the
generality of the foregoing, the right to declare the entire
principal of, and all interest accrued on, all the Notes then
outstanding to be, and such Notes shall thereupon become,
immediately due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are hereby
expressly waived, and the Company shall immediately pay to the
holder or holders of all the Notes then outstanding the entire
principal of, and interest accrued on, the Notes and, to the
extent permitted by applicable law, the Make-Whole Amount on
the date of such declaration with respect to such principal
amount of such Notes.
(b) ACCELERATION ON PAYMENT DEFAULT. During the existence of
an Event of Default described in Section 8.1(a) or Section 8.1(b), and
irrespective of whether the Notes then outstanding shall have been
declared to be due and payable pursuant to Section 8.2(a)(ii), any
holder of Notes that shall have not consented to any waiver with
respect to such Event of Default may, at such holder's option, by
notice in writing to the Company, declare the Notes then held by such
holder to be, and such Notes shall thereupon become, immediately due
and payable together with all interest accrued thereon, without any
presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, and the Company shall immediately pay to
such holder the entire principal of and interest accrued on such Notes
and, to the extent permitted by applicable law, the Make-Whole Amount
(as of the date of such declaration) with respect to such principal
amount of such Notes.
(c) VALUABLE RIGHTS. The Company acknowledges, and the parties
hereto agree, that the right of each holder to maintain its investment
in the Notes free from repayment by the Company (except as herein
specifically provided for) is a valuable right and that the provision
for payment of a Make-Whole Amount by the Company in the event that the
Notes are prepaid or are accelerated as a result of an Event of
Default, is
44
<PAGE> 49
intended to provide compensation for the deprivation of such right
under such circumstances.
(d) OTHER REMEDIES. During the existence of an Event of
Default and irrespective of whether the Notes then outstanding shall
have been declared to be due and payable pursuant to Section 8.2(a)(ii)
and irrespective of whether any holder of Notes then outstanding shall
otherwise have pursued or be pursuing any other rights or remedies, any
holder of Notes may proceed to protect and enforce its rights hereunder
and under such Notes by exercising such remedies as are available to
such holder in respect thereof under applicable law, either by suit in
equity or by action at law, or both, whether for specific performance
of any agreement contained herein or in aid of the exercise of any
power granted herein, provided that the maturity of such holder's Notes
may be accelerated only in accordance with Section 8.2(a) and Section
8.2(b).
(e) NONWAIVER AND EXPENSES. No course of dealing on the part
of any holder of Notes nor any delay or failure on the part of any
holder of Notes to exercise any right shall operate as a waiver of such
right or otherwise prejudice such holder's rights, powers and remedies.
If the Company shall fail to pay when due any principal of, or
Make-Whole Amount or interest on, any Note, or shall fail to comply
with any other provision hereof, or if there shall be a controversy or
potential controversy between the Company and one or more holders of
Notes as to any of the provisions of this Agreement or the Notes, the
Company shall pay to each holder of Notes, to the extent permitted by
applicable law, such further amounts as shall be sufficient to cover
the costs and expenses (including, without limitation, the reasonable
fees and the disbursements of your attorneys, accountants and other
expert, legal and financial advisers) incurred by each such holder in
collecting any sums due on such Notes or in otherwise assessing,
analyzing or enforcing any rights or remedies that are or may be
available to it.
8.3 ANNULMENT OF ACCELERATION OF NOTES.
If a declaration is made pursuant to Section 8.2(a)(ii) in respect of
all of the Notes of all holders or pursuant to Section 8.2(b) in respect of all
of the Notes of one or more holders, then, in either case, the holders of
sixty-one percent (61%) or more in aggregate principal amount of the Notes then
outstanding (exclusive of Notes then owned by any one or more of the Company,
any Subsidiaries and any Affiliates) may, by written instrument filed with the
Company (and, in the case of any such declaration pursuant to Section 8.2(b),
delivered to the holder or holders of such Notes that were subject to such
declaration), rescind and annul such declaration and the consequences thereof,
provided that at the time such declaration is annulled and rescinded:
(a) no judgment or decree shall have been entered for the
payment of any moneys due on or pursuant hereto or the Notes;
(b) all arrears of interest upon all the Notes and all other
sums payable hereunder and under the Notes (except any principal of, or
interest or Make-Whole Amount on, the Notes that shall have become due
and payable by reason of such declaration under Section 8.2(a)(ii) or
Section 8.2(b), as the case may be) shall have been duly paid; and
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(c) each and every other Default and Event of Default shall
have been waived pursuant to Section 11.5 or otherwise made good or
cured;
and provided further that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereon.
9. INTERPRETATION OF THIS AGREEMENT
9.1 TERMS DEFINED.
ACCEPTABLE CONSIDERATION -- means, with respect to any Transfer of any
Property of the Company or a Subsidiary, cash consideration, promissory notes or
such other consideration (or any combination of the foregoing) received by such
Person in connection with such Transfer as is, in each case, determined by the
Board of Directors, in its good faith opinion, to be in the best interests of
the Company and to reflect the Fair Market Value of such Property.
ACCEPTABLE CONTROL PERSON -- has the meaning set forth in the definition of
"Change in Control."
AFFILIATE -- means, at any time, a Person (other than a Subsidiary):
(a) that directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, the Company;
(b) that beneficially owns or holds five percent (5%) or more of
any class of the Voting Stock of the Company;
(c) five percent (5%) or more of the Voting Stock (or in the case
of a Person that is not a corporation, five percent (5%) or more of the
equity interest) of which is beneficially owned or held by the Company or any
Subsidiary; or
(d) that is an officer or director (or a member of the immediate
family of an officer or director) of the Company or any Subsidiary;
at such time.
As used in this definition,
"control" -- means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
AGREEMENT, THIS -- means this agreement, as it may be amended and
restated from time to time.
BANKRUPTCY CODE -- means the Bankruptcy Reform Act of 1978, as codified
under Title 11 of the United States Code, and the Bankruptcy Rules promulgated
thereunder, as the same may be amended from time to time.
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BOARD OF DIRECTORS -- means, at any time, the board of directors of the
Company or any committee thereof that, in the instance, shall have the lawful
power to exercise the power and authority of such board of directors.
BT -- means British Telecommunications plc, a limited liability company
formed under the laws of the United Kingdom, and any affiliates, successors and
assigns thereof.
BUSINESS DAY -- means, at any time, a day other than (a) a Saturday or
a Sunday, (b) in the case of any Note with respect to which the provisions of
Section 11.6(a) are applicable, a day on which the bank designated (by the
holder of such Note) to receive (for such holder's account) payments on such is
required by law (other than a general banking moratorium or holiday for a period
exceeding four (4) consecutive days) to be closed and (c) a day on which the
banks located in the State of California are required by law (other than a
general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
CAPITALIZED LEASE -- means, at any time, any lease with respect to
which any obligation for rentals thereunder constitutes a Capitalized Lease
Obligation.
CAPITALIZED LEASE OBLIGATION -- means, with respect to any Person, any
rental obligation that is or will be required to be capitalized on a balance
sheet of such Person in accordance with GAAP, in each case taken at the amount
thereof accounted for as indebtedness.
CHANGE IN CONTROL -- means, at any time, the acquisition or holding by
(a) any person (as such term is used in section 13(d) and
section 14(d)(2) of the Exchange Act as in effect on the Closing Date)
other than an Acceptable Control Person, or
(b) related Persons constituting a group (as such term is used
in Rule 13d-5 under the Exchange Act as in effect on the Closing Date)
other than related Acceptable Control Persons constituting such a
group,
of legal and/or beneficial ownership of fifty percent (50%) or more of the
Voting Stock of the Company (determined by total voting power) outstanding at
such time (excluding for such purpose shares owned through any employee benefit
plan of the Company or any trust in connection therewith) or ownership of all or
substantially all of the assets of the Company at such time.
As used in this definition:
Acceptable Control Persons -- means any individual identified
in PART 9.1-ACP OF ANNEX 3 who is, as of the Closing Date, a director,
officer and/or employee of the Company, any spouse, issue or adopted
children or other relative of such individual or any trust for the
exclusive benefit of such individual or his/her spouse, issue or
adopted children or other relatives, provided, in the case of such
trust, that the existing beneficiaries and/or trustee(s) and/or
grantor(s) of such trust have the power to act with respect to the
trust's assets without court approval.
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CHASE MANHATTAN PRIME RATE -- means the "prime rate" as announced from
time to time by Chase Manhattan Bank, N.A. or any successor thereto in New York
City, New York.
CLOSING -- Section 1.2(b).
CLOSING DATE -- Section 1.2(b).
COMMON STOCK -- has the meaning assigned to such term in the Warrant
Agreement.
COMPANY -- has the meaning assigned to such term in the introductory
sentence hereof.
CONSOLIDATED ACCOUNTS RECEIVABLE -- means, at any date of
determination, all present and future rights of the Company and the Subsidiaries
to payment for goods sold or leased or for services rendered (except those
evidenced by instruments or chattel paper) as of such date, as determined in
accordance with GAAP.
CONSOLIDATED ADJUSTED NET INCOME -- with respect to any period means
net earnings (or loss) from continuing operations of the Company and the
Subsidiaries before discontinued operations and extraordinary items (but after
provision for income taxes) and after (without duplication) excluding any
applicable Net Income Excludable Items, all of the above being determined on a
consolidated basis for such Persons for such period in accordance with GAAP,
provided that any deduction in respect of the amortization of any discount
attributed by GAAP to the Notes as a result of the issuance of the Warrants
included in the determination of said net earnings (or loss) shall, for purposes
of determining "Consolidated Adjusted Net Income," be added back to said net
earnings (or loss).
CONSOLIDATED ASSETS -- means, at any time, the amount at which the
assets of the Company and the Subsidiaries would be shown on a consolidated
balance sheet of such Persons at such time after deduction of depreciation,
amortization and all other properly deductible valuation reserves.
CONSOLIDATED CASH FLOW -- means, for any period, the sum of
(a) Consolidated Adjusted Net Income for such period, plus
(b) Consolidated Interest Expense to the extent included in
the determination of such Consolidated Adjusted Net Income, plus
(c) any income tax expense to the extent included in the
determination of such Consolidated Adjusted Net Income, plus
(d) depreciation, amortization and other non-cash charges to
the extent included in the determination of such Consolidated Adjusted
Net Income,
in each case determined on a consolidated basis for the Company and the
Subsidiaries.
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CONSOLIDATED CURRENT ASSETS -- means, as at any date of determination,
the total assets of the Company and the Subsidiaries on a consolidated basis
which may properly be classified as current assets in conformity with GAAP.
CONSOLIDATED CURRENT LIABILITIES -- means, as at any date of
determinations, the total liabilities of the Company and the Subsidiaries on a
consolidated basis which may properly be classified as current liabilities in
conformity with GAAP, including, without limitation, the aggregate principal
amount outstanding under the Revolving Credit Facility as of such date.
CONSOLIDATED INTEREST EXPENSE -- means, for any period, the aggregate
amount of continuing, regular or periodic costs, charges and expenses
(including, without limitation, interest (including the interest component in
respect of Capitalized Leases), amortization expense related to Debt issued at a
discount and other finance and servicing charges) incurred by the Company or any
of the Subsidiaries in effecting, servicing or maintaining Total Debt, all
determined on a consolidated basis for such Persons in accordance with GAAP,
provided that, anything contained in this definition notwithstanding,
"Consolidated Interest Expense" shall not include any amortization of any
discount attributed by GAAP to the Notes as a result of the issuance of the
Warrants.
CONSOLIDATED INVENTORY -- means, as at any date of determination, the
value (calculated at the lower of cost or market) of all inventory of the
Company and the Subsidiaries as of such date, as determined in accordance with
GAAP. As used in this definition, "inventory" means goods (whether consisting of
whole goods, spare parts or components), merchandise and other personal property
to be furnished under any contract of service or held for sale or lease and all
raw materials, work-in-progress, finished goods, returned goods and materials
and supplies of any kind, nature or description that are or might be used or
consumed in the Company's or any Subsidiary's business.
CONSOLIDATED NET INCOME -- means, with respect to any period, net
income (or loss) of the Company and the Subsidiaries determined on a
consolidated basis in accordance with GAAP for such period, provided that there
shall be excluded
(a) the income (or loss) of any Person (other than a
Subsidiary) in which any other Person (other than the Company or any
Subsidiary) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to the Company of any
Subsidiary by such Person during such period,
(b) the income (or loss) of any Person accrued prior to the
date (i) it becomes a Subsidiary or is merged into or consolidated with
the Company or any Subsidiary or (ii) its assets are acquired by the
Company or any Subsidiary,
(c) the income of any Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by such
Subsidiary of such income is not at the time permitted by operation of
the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to
such Subsidiary, and
(d) to the extent not included in the foregoing clause (a),
clause (b) or clause (c), any net extraordinary gains or net non-cash
extraordinary losses.
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CONSOLIDATED NET WORTH -- means, at any time, shareholders' equity of
the Company and the Subsidiaries determined on a consolidated basis less the sum
(without duplication) of the following items and subject to the adjustment set
forth in the last sentence of this definition:
(a) the aggregate amount of all write-ups of assets (y) owned
by the Company or any Subsidiary on November 19, 1993, which write-up
occurred subsequent to December 31, 1992, and (z) acquired by the
Company or any Subsidiary after November 19, 1993, which write-up
occurred subsequent to the acquisition of such assets, plus
(b) all previously issued, reacquired and uncancelled capital
stock of the Company or any of Subsidiary (to the extent included in
shareholders' equity above), plus
(c) amounts attributable to minority interests in a Subsidiary
held by any Person other than the Company or any other Subsidiary (to
the extent that they are included in shareholders' equity above), plus
(d) all notes held by the Company or any Subsidiary from any
Person, which notes evidence such Person's obligation to pay for the
purchase price to the Company or such Subsidiary of capital stock of
the Company or such Subsidiary (as the case may be) purchased by such
Person (to the extent that such notes are reflected in the
determination of shareholders' equity above).
For purposes of the determination of "Consolidated Net Worth," the Notes shall
be accounted for in an amount equal to the aggregate par value of the
outstanding principal balance thereof at the time of any such determination.
CONSOLIDATED TANGIBLE NET WORTH -- means, as at any date of
determination,
(a) the sum of
(i) the capital stock and additional paid-in capital
of the Company and the Subsidiaries, plus
(ii) retained earnings (or minus accumulated
deficits) of the Company and the Subsidiaries, plus
(iii) Debt of the Company evidenced by the Note
Purchase Agreements and other Debt of the Company subordinated
in right of payment to the Wells Fargo Credit Agreement Debt
on terms satisfactory to Wells Fargo;
minus
(b) the sum of
(i) the aggregate amount of all treasury stock, plus
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(ii) goodwill, patents, copyrights, trade names,
trademarks, acquired technology, deferred loan costs and other
intangible assets, plus
(iii) the aggregate amount of all obligations owing
to the Company or any Subsidiary from any stockholder,
employee or Affiliate of the Company or any Subsidiary;
all as determined on a consolidated basis for the Company and the Subsidiaries
in accordance with GAAP.
CONTROL EVENT -- means
(a) the execution by the Company or any other Affiliate of any
letter of intent or similar agreement with respect to any proposed
transaction or event or series of transactions or events that,
individually or in the aggregate, could reasonably be expected to
result in a Change in Control, provided that this clause (a) shall not
be deemed to constitute a "Control Event" if the divulging of any such
letter or agreement to the holders of Notes would violate any
applicable securities laws or contravene the terms of any
confidentiality agreement contained in such letter or agreement,
(b) the execution of any written agreement that, when fully
performed by the parties thereto, would result in a Change in Control,
or
(c) the tender of any Voting Stock by one or more Acceptable
Control Persons to any Person or Persons which transfer would result in
a Change in Control.
CONTROL PREPAYMENT DATE -- Section 4.4(b).
DEBT -- means, with respect to any Person (without duplication), all of
the following:
(a) all obligations of such Person for moneys borrowed
(including, without limitation, all obligations of such Person
evidenced by any debenture, bond, note, commercial paper or other
similar Security but excluding, in any case, obligations arising from
the endorsement in the ordinary course of business of negotiable
instruments for deposit or collection);
(b) all reimbursement or other obligations of such Person in
respect of letters of credit, letter of credit guaranties, bankers
acceptances, interest rate swaps and other financial products;
(c) all obligations for moneys borrowed secured by any Lien
existing on Property owned by such Person (whether or not such
liabilities have been assumed by such Person or recourse is available
against such Person);
(d) all Capitalized Lease Obligations of such Person;
(e) all obligations (other than trade payables and other
ordinary accounts payable) of such Person in respect of the acquisition
cost of Property or services to the
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extent payable after the time of acquisition or possession by such
Person and not yet repaid where the advance or deferred payment was
arranged principally as a method of financing the acquisition of such
Property or services acquired (including, without limitation, any
conditional sale or other title retention agreement); and
(f) all obligations under Guaranties given by such Person in
respect of obligations of other Persons of the type set forth in clause
(a), clause (b), clause (c), clause (d) or clause (e) of this
definition.
DEFAULT -- means an event or condition the occurrence of which would,
with the lapse of time or the giving of notice or both, become an Event of
Default.
DEFAULT RATE -- Section 4.1.
DOL -- means the Department of Labor and any successor agency.
DOLLARS or $ -- means United States of America dollars.
ENVIRONMENTAL PROTECTION LAWS -- means any federal, state, county,
regional or local law, statute or regulation (including, without limitation,
CERCLA, RCRA and SARA) enacted in connection with or relating to the protection
or regulation of the environment, including, without limitation, those laws,
statutes and regulations regulating the disposal, removal, production, storing,
refining, handling, transferring, processing or transporting of Hazardous
Substances, and any regulations issued or promulgated in connection with such
statutes by any Governmental Authority, and any orders, decrees or judgments
issued by any court of competent jurisdiction in connection with any of the
foregoing.
As used in this definition:
CERCLA -- means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended from time to time
(by SARA or otherwise), and all rules and regulations promulgated in
connection therewith.
RCRA -- means the Resource Conservation and Recovery Act of
1976, as amended from time to time, and all rules and regulations
promulgated in connection therewith.
SARA -- means the Superfund Amendments and Reauthorization Act
of 1986, as amended from time to time, and all rules and regulations
promulgated in connection therewith.
ERISA -- means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
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ERISA AFFILIATE -- means any corporation or trade or business that
(i) is a member of the same controlled group of corporations (within
the meaning of section 414(b) of the IRC) as the Company, or
(ii) is under common control (within the meaning of section 414(c)
of the IRC) with the Company.
EVENT OF DEFAULT -- Section 8.1.
EXCHANGE ACT -- means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated in connection therewith.
EXISTING NOTEHOLDERS -- means each Person listed as a holder of Notes in
Annex 1, so long as such Person holds Notes.
EXISTING NOTE PURCHASE AGREEMENT -- Section 1.1(a).
EXISTING NOTES -- Section 1.1(a).
FAIR MARKET VALUE -- means, at any time with respect to any Property, the
sale value of such Property that would be realized in an arm's-length sale at
such time between an informed and willing buyer, and an informed and willing
seller, under no compulsion to buy or sell, respectively.
FINANCING DOCUMENTS -- means the Notes, the Note Purchase Agreements, the
Warrant Certificates, the Warrant Agreement, the Registration Rights Agreement,
the Observation Rights Agreement and each other document or agreement executed
or delivered in connection with any of the foregoing which other document or
agreement grants or confers rights or benefits to the holders of the Notes or
the Warrants.
GAAP -- means accounting principles generally accepted in the United
States of America, from time to time in effect.
GOVERNMENTAL AUTHORITY -- means
(a) the government of
(i) the United States of America and any state or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts (or that asserts jurisdiction over) all or any part of its
business or affairs, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
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GUARANTY -- means with respect to any Person (for the purposes of this
definition, the "Guarantor") any obligation (except the endorsement in the
ordinary course of business of negotiable instruments for deposit or collection)
of the Guarantor guaranteeing or in effect guaranteeing any indebtedness,
dividend or other obligation of any other Person (the "Primary Obligor") in any
manner, whether directly or indirectly, including (without limitation)
obligations incurred through an agreement, contingent or otherwise, by the
Guarantor:
(a) to purchase such indebtedness or obligation or any Property or
assets constituting security therefor;
(b) to advance or supply funds
(i) for the purpose of payment of such indebtedness or
obligation, or
(ii) to maintain working capital or other balance sheet
condition or any income statement condition of the Primary Obligor
or otherwise to advance or make available funds for the purchase or
payment of such indebtedness or obligation;
(c) to lease Property or to purchase Securities or other Property or
services primarily for the purpose of assuring the owner of such
indebtedness or obligation of the ability of the Primary Obligor to make
payment of the indebtedness or obligation; or
(d) otherwise to assure the owner of the indebtedness or obligation
of the Primary Obligor against loss in respect thereof.
For purposes of computing the amount of any Guaranty, in connection with any
computation of indebtedness or other liability, it shall be assumed that the
indebtedness or other liabilities that are the subject of such Guaranty are
direct obligations of the issuer of such Guaranty.
HAZARDOUS SUBSTANCES -- means any and all pollutants, contaminants, toxic
or hazardous wastes or any other substances that might pose a hazard to health
or safety, the removal of which may be required under applicable Environmental
Protection Laws or the generation, manufacture, refining, production,
processing, treatment, storage, handling, transportation, transfer, use,
disposal, release, discharge, spillage, seepage, or filtration of which is or
shall be restricted, prohibited or penalized by any applicable Environmental
Protection Law.
INCUR/INCURRENCE -- Section 6.1.
INSTITUTIONAL INVESTOR -- means the Existing Noteholders, any affiliate of
any of the Existing Noteholders, any holder or beneficial owner of Notes that is
an "accredited investor" as defined in section 2(15) of the Securities Act and
any "qualified institutional buyer" as defined in 17 C.F.R Section 230.144A, as
amended from time to time.
INVESTMENT -- means any investment, made in cash or by delivery of
Property, by the Company or any Subsidiary:
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(a) in any Person, whether by acquisition of stock, indebtedness or
other obligation or Security, or by loan, Guaranty, advance, capital
contribution or otherwise; or
(b) in any Property.
IRC -- means the Internal Revenue Code of 1986, together with all rules
and regulations promulgated pursuant thereto, as amended from time to time.
IRS -- means the Internal Revenue Service and any successor agency.
JUNIOR SUBORDINATED DEBT -- means, at any time, any unsecured Debt of the
Company or any Subsidiary incurred after November 19, 1993 in accordance with
the terms hereof:
(a) the payment of accrued interest on which Debt shall be permitted
only for so long as no Default or Event of Default shall exist;
(b) the terms of which Debt shall expressly provide that (i) in the
case of the Company, no payment of principal (whether pursuant to a
scheduled prepayment, scheduled installment payment or scheduled sinking
fund payment, pursuant to acceleration or otherwise) shall be due, or
shall be made, prior to the date on which all principal, interest,
Make-Whole Amount, if any, and all other amounts owing under the Note
Purchase Agreements or in respect of the Notes shall have been fully and
finally paid and (ii) in the case of any Subsidiary, no payment of
principal (whether pursuant to a scheduled prepayment, scheduled
installment payment or scheduled sinking fund payment, pursuant to
acceleration or otherwise) shall be due, or shall be made, prior to the
date on which all principal, interest, Make-Whole Amount, if any, and all
other amounts owing under the Note Purchase Agreements or in respect of
the Notes shall have been fully and finally paid, for all of which such
Subsidiary shall be liable under its Subsidiary Guaranty; and
(c) which Debt shall have applicable thereto such other
subordination provisions as shall be in form and substance reasonably
satisfactory to the Required Holders in order to fully subordinate such
Debt and the rights and remedies of the holders thereof to the aforesaid
obligations under the Note Purchase Agreements and under the Notes and to
the rights and remedies of the holders of Notes under the Note Purchase
Agreements and under the Notes.
LIEN -- means any interest in Property securing an obligation owed to, or
a claim by, a Person other than the owner of such Property, whether such
interest is based on the common law, statute or contract, and including, without
limitation, the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes, and the filing of any financing statement under the
Uniform Commercial Code of any jurisdiction, or an agreement to give any of the
foregoing. The term "Lien" includes reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases and other
title exceptions and encumbrances affecting real Property. For the purposes
hereof, the Company and each Subsidiary is deemed to be the owner of any
Property that it shall have acquired or holds subject to a conditional sale
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agreement, Capitalized Lease or other arrangement pursuant to which title to the
Property has been retained by or vested in some other Person for security
purposes, and such retention or vesting is deemed a Lien. The term "Lien" does
not include negative pledge clauses in agreements relating to the borrowing of
money.
MAKE-WHOLE AMOUNT -- means, with respect to any date of determination (a
"Prepayment Date") and any principal amount ("Prepaid Principal") of Notes
required for any reason to be paid prior to the regularly scheduled maturity
thereof on such Prepayment Date, the greater of
(a) Zero Dollars ($0), and
(b) (i) the sum of the present values of the then remaining
scheduled payments of principal and interest that would be payable
in respect of such Prepaid Principal (but for such payment prior to
the regularly scheduled maturity), provided that in making such
calculation the entire amount of the first of such scheduled
payments of interest shall be deemed to equal the amount of interest
accrued on such Prepaid Principal from the Prepayment Date to the
first scheduled interest payment date thereafter, minus
(ii) such Prepaid Principal.
In determining such present values, a discount rate equal to the Make-Whole
Discount Rate with respect to such Prepayment Date and Prepaid Principal divided
by two (2), and a discount period of six (6) months of thirty (30) days each,
shall be used.
As used in this definition:
Make-Whole Discount Rate -- means, with respect to the calculation
of the Make- Whole Amount in respect of any Prepayment Date and the
Prepaid Principal, the sum of (a) two and fifty one-hundredths percent
(2.50%) per annum plus (b) the Treasury Rate determined in respect of such
calculation.
Treasury Rate -- means, with respect to any Prepayment Date and the
Prepaid Principal, (a) the bid yield reported as of 10:00 a.m., New York
City time, on the second (2nd) Business Day prior to the Prepayment Date
(which bid yield shall be rounded to the nearest three (3) decimal
places), on the display page on the Bloomberg Financial Markets System
(Page USD or such other display on the Bloomberg Financial Markets System
as shall replace Page USD) providing the most current bid yields for "On
The Run" United States Treasury securities with maturities corresponding
to the remaining Weighted Average Life to Maturity of the Prepaid
Principal (rounded to the nearest one-twelfth year) or (b) if and only if
such Bloomberg Financial Markets System ceases to exist or fails to report
such yield, the aforesaid bid yield as reported the Telerate Service (page
678 or such other display on the Telerate Service as shall replace page
678), or (c) if both the Bloomberg Financial Markets System and the
Telerate Service cease to exist or fail to report such bid yields, such
aforesaid bid yield as reported on a reasonably comparable electronic
service as may be designated by the Required Holders, or (d) if and only
if such Bloomberg Financial Markets System and Telerate Service cease to
exist or fail to report such aforesaid bid yield and the Required Holders
shall fail to agree upon
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a comparable electronic service (or no other comparable electronic service
exists), the per annum percentage rate (rounded to the nearest three (3)
decimal places) equal to the bond equivalent yield to maturity derived
from the annual yield to maturity of the United States Treasury obligation
listed in the Applicable H.15 as of two (2) Business Days prior to such
Prepayment Date for the then most recently available day in such
Applicable H.15 with a Treasury Constant Maturity (as defined in such
Applicable H.15) equal to the Weighted Average Life to Maturity of such
Prepaid Principal determined as of such Prepayment Date or, if the
Applicable H.15 is not available, then any other source of current
information in respect of interest rates on the securities of the United
States of America that is generally available and, in the judgment of the
Required Holders, provides information reasonably comparable to the
Applicable H.15. If no maturity exactly corresponds to such rounded
Weighted Average Life to Maturity of such Prepaid Principal, bid yields
for the two (2) most closely corresponding published and "On The Run"
maturities next above and below the rounded Weighted Average Life to
Maturity of the Notes shall be calculated pursuant to the immediately
preceding sentence and the Treasury Rate shall be shall be interpolated or
extrapolated from such yields on a straight-line basis. If no United
States Treasury obligation with a Treasury Constant Maturity corresponding
exactly to the Weighted Average Life to Maturity of such Prepaid Principal
is listed, the yields for the two (2) published United States Treasury
obligations with Treasury Constant Maturities most closely corresponding
to such Weighted Average Life to Maturity (one (1) with a longer maturity
and one (1) with a shorter maturity, if available) shall be calculated
pursuant to the second immediately preceding sentence and the Treasury
Rate shall be interpolated or extrapolated from such yields on a
straight-line basis.
Applicable H.15 -- means, as of any date, United States Federal
Reserve Statistical Release H.15(519) or its successor publication then
most recently published and available to the public or, if no such
successor publication is available, then any other source of current
information in respect of interest rates on securities of the United
States of America that is generally available and, in the judgment of the
Required Holders, provides information reasonably comparable to the
H.15(519) report.
Weighted Average Life to Maturity -- means, with respect to any
Prepayment Date and Prepaid Principal, the number of years obtained by
dividing the Remaining Dollar- Years of such Prepaid Principal determined
on such Prepayment Date by such Prepaid Principal.
Remaining Dollar-Years -- means, with respect to any Prepayment Date
and Prepaid Principal, the result obtained by
(a) multiplying, in the case of each required payment of
principal (including payment at maturity) that would be payable in
respect of such Prepaid Principal but for such prepayment,
(i) an amount equal to such required payment of
principal, by
(ii) the number of years (calculated to the nearest
one-twelfth (1/12) that will elapse between such Prepayment
Date and the date such
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required principal payment would be due if such Prepaid
Principal had not be so prepaid, and
(b) calculating the sum of each of the products obtained in
the preceding subsection (a).
MAKE-WHOLE DISCOUNT RATE -- has the meaning set forth in the definition of
"Make-Whole Amount."
MARGIN SECURITY -- means "margin stock" within the meaning of Regulations
G and U, and "margin security" within the meaning of Regulation T, of the Board
of Governors of the Federal Reserve System, 12 C.F.R., Chapter II, as amended
from time to time.
MATERIAL ADVERSE EFFECT -- means, with respect to any event or
circumstances, an effect caused thereby, resulting therefrom or connected
therewith that would be materially adverse as to, or in respect of, the
business, prospects, profits, Properties, operations or condition (financial or
otherwise) of the Company and the Subsidiaries, taken as a whole, or the ability
of the Company to perform its obligations set forth in the Note Purchase
Agreements or the Notes.
MULTIEMPLOYER PLAN -- means any multiemployer plan (as defined in section
3(37) of ERISA) in respect of which the Company or any ERISA Affiliate is an
"employer" (as such term is defined in section 3 of ERISA).
NET INCOME EXCLUDIBLE ITEMS -- for any period of the Company means each of
the following items included in the net earnings (or loss) from continuing
operations of the Company and the Subsidiaries before discontinued operations
and extraordinary items, all as determined on a consolidated basis for such
Persons for such period in accordance with GAAP:
(a) any gain or loss arising from the sale of capital assets;
(b) any gain arising from any write-up of assets;
(c) earnings of any Subsidiary accrued prior to the date it became a
Subsidiary;
(d) earnings of any Person, substantially all the assets of which
have been acquired in any manner, realized by such other Person prior to
the date of such acquisition;
(e) net earnings of any Person (other than a Subsidiary) in which
the Company or any Subsidiary shall have an ownership interest unless such
net earnings shall have actually been received by the Company or such
Subsidiary in the form of cash distributions;
(f) any portion of the net earnings of any Subsidiary that for any
reason is unavailable for payment of dividends to the Company or any other
Subsidiary;
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(g) the earnings of any Person to which assets of the Company shall
have been sold, transferred or disposed of, or into which the Company
shall have merged, prior to the date of such transaction;
(h) any gain arising from the acquisition of any Securities of the
Company or any Subsidiary; and
(i) any portion of the net earnings of the Company that cannot be
freely converted into Dollars.
NET SECURITIES PROCEEDS -- means cash proceeds, net of underwriting
discounts and commissions and other reasonable costs and expenses associated
therewith, from the issuance of any Securities of the Company after the Closing
Date.
1993 WARRANT AGREEMENT -- means the Warrant Agreement dated as of November
19, 1993, among the Company and the Existing Noteholders, as amended, and as
such agreement may be further amended, supplemented or restated from time to
time.
1996 WARRANT AGREEMENT -- means the Warrant Agreement dated as of April
15, 1996, among the Company and the Existing Noteholders, as amended, and as
such agreement may be further amended, supplemented or restated from time to
time.
NOTE PURCHASE AGREEMENTS -- Section 1.2(c).
NOTES -- Section 1.1(c).
OBSERVATION RIGHTS AGREEMENT -- means the Observation Rights Agreement
dated as of November 19, 1993, among the Company, The Northwestern Mutual Life
Insurance Company and John Hancock Mutual Life Insurance Company, as amended,
and as such agreement may be further amended, supplemented or restated from time
to time.
OPERATING LEASE -- means, with respect to any Person, any lease of
Property by such Person, as lessee, other than a Capitalized Lease.
OTHER EXISTING NOTEHOLDERS -- Section 1.2(c).
PBGC -- means the Pension Benefit Guaranty Corporation and any successor
corporation or governmental agency.
PENSION PLAN -- means, at any time, any "employee pension benefit plan"
(as such term is defined in section 3 of ERISA) maintained at such time by the
Company or any ERISA Affiliate for employees or former employees of the Company
or such ERISA Affiliate and which is subject to the provisions of Title IV of
ERISA or subject to the minimum funding requirements of Section 412 of the IRC,
but excluding, in any case, any Multiemployer Plan and any Retirement Plan.
PERSON -- means an individual, partnership, corporation, trust,
unincorporated organization, or a government or agency or political subdivision
thereof.
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PLACEMENT MEMORANDUM -- means the Confidential Private Placement
Memorandum, together with all exhibits and appendices thereto, dated September
1993 and prepared by Donaldson, Lufkin & Jenrette Securities Corporation.
PREFERRED STOCK -- means the class of capital stock of the Company
designated as "Preferred Stock," having a par value $.001 per share, and
enjoying the rights and preferences set forth in, and subject to the
restrictions of, the certificate of incorporation of the Company.
PROPERTY -- means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
PURCHASE MONEY LIEN -- means a Lien (including, without limitation, any
Lien in respect of a Capitalized Lease) held by any Person (whether or not the
seller of such Property) on Property constituting capital assets acquired or
constructed by the Company or any Subsidiary after November 19, 1993, which Lien
secures all or a portion of the related purchase price or construction costs of
such Property, provided that such Lien
(a) is created contemporaneously with, or within sixty (60) days
after, such acquisition or construction, and
(b) is not thereafter extended to any other Property.
QUALIFIED SELLER DEBT -- means, at any time with respect to any Subsidiary
that has delivered to the holders of the Notes at such time its Subsidiary
Guaranty, unsecured Debt of such Subsidiary which (a) has been incurred by such
Subsidiary in connection with any acquisition by such Subsidiary of the
business, Property, or fixed assets of, or capital stock or other evidence of
beneficial ownership of, any other Person, (b) is payable to the Person or
Persons selling such business, Property, fixed assets or capital stock to such
Subsidiary and (c) qualifies as Junior Subordinated Debt.
REGISTRATION RIGHTS AGREEMENT -- means the Registration Rights Agreement
dated November 19, 1993, among the Company, the Existing Noteholders, and the
investors and security holders of the Company set forth on the signature pages
thereto, as amended, and as such agreement may be further amended, supplemented
or restated from time to time.
REIMBURSEMENT UTILIZATION -- Section 6.1(c).
REPLACEMENT JUNIOR SECURITIES -- means Securities of the Company, any
successor, assign or representative of the Company acting for the benefit
thereof in a reorganization, liquidation, arrangement, composition or other
similar bankruptcy or debt adjustment proceeding or in a dissolution proceeding
pursuant to authority, in each such case, granted by the court in such
proceeding or any other Person acting in any such proceeding pursuant to
authority granted by the court in such proceeding, the terms of payment,
prepayment, prefunding, repurchase or redemption of which may not be on a more
accelerated basis, in relation to Senior Debt (or any replacement Securities
issued to holders of Senior Debt) than those of the Subordinated Debt with
respect to which such replacement subordinated Securities are issued in relation
to Senior Debt, which are
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(a) equity Securities (other than preferred stock),
(b) equity Securities consisting of preferred stock the repurchase
payments, redemption payments, dividend payments or other distribution
rights in respect of which have been made subordinate (pursuant to the
terms of such Securities or any applicable court order) to the Senior Debt
and to the obligations held by the holders of Senior Debt (after such
reorganization, liquidation, arrangement, composition, other bankruptcy or
debt adjustment proceeding or dissolution) on terms substantially
identical to the subordination provisions set forth in Section 10 (with
such changes thereto which shall be necessary to adjust such provisions
for the fact that the "Subordinated Debt" shall be preferred stock in
respect of which the Company may have redemption, payment and distribution
obligations and/or in respect of which the holders thereof may have
redemption, payment and/or distribution rights); or
(c) Debt Securities whose payment amounts and other rights have been
made subordinate (pursuant to the terms of such Securities or any
applicable court order) to the Senior Debt and to the obligations held by
the holders of Senior Debt after, and obtained for such Senior Debt (in
whole or part) in respect of, such reorganization, liquidation,
arrangement, composition or other similar bankruptcy or debt adjustment
proceeding or dissolution proceeding on terms substantially identical to
the subordination provisions set forth in Section 10,
provided that Replacement Junior Securities shall not be guaranteed or secured
to an extent beyond the extent that the Subordinated Debt with respect to which
such Replacement Junior Securities are issued is guaranteed or secured.
REQUIRED HOLDERS -- means, at any time, the holders of fifty-one percent
(51%) or more in principal amount of the Notes at the time outstanding
(exclusive of Notes then owned by any one or more of the Company, any
Subsidiary, any Affiliate or any officer or director of any thereof).
RESTRICTED PAYMENT -- means:
(a) any dividend or other distribution, direct or indirect, on
account of any shares of capital stock of the Company or any Subsidiary
(other than on account of capital stock of a Subsidiary owned legally and
beneficially by the Company or a Wholly- Owned Subsidiary) now or
hereafter outstanding, whether in cash or other Property, except a
dividend or other distribution payable solely in shares of common stock of
such Person; and
(b) any redemption, retirement, purchase or other acquisition,
direct or indirect, of any shares of capital stock of the Company or any
Subsidiary (other than on account of capital stock of a Subsidiary owned
legally and beneficially by the Company or a Wholly-Owned Subsidiary) now
or hereafter outstanding, or of any warrants, rights or options to acquire
any shares of such stock.
RETIREMENT PLAN -- means any "employee benefit plan," as defined in
section 3 of ERISA, other than a Pension Plan or a Multiemployer Plan.
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REVOLVING CREDIT FACILITY -- means the Revolving Loans (as such term is
defined in the Wells Fargo Credit Agreement) provided in the Wells Fargo Credit
Agreement pursuant to which the lenders to the Company in respect of the Wells
Fargo Credit Agreement have agreed to make advances to the Company from time to
time.
SEC -- means, at any time, the Securities and Exchange Commission or any
other federal agency at such time administering the Securities Act.
SECURITIES ACT -- means the Securities Act of 1933, as amended, and all
rules and regulations promulgated in connection therewith.
SECURITY -- means "security" as defined by section 2(1) of the Securities
Act.
SENIOR CREDIT DOCUMENTS -- means the Wells Fargo Credit Agreement and all
other documents and instruments in connection therewith, and, for purposes of
avoidance of doubt, all documents and instruments evidencing or relating to any
Debt which shall have extended, renewed, refunded or refinanced (either directly
or successively) the original Wells Fargo Credit Agreement Debt.
SENIOR DEBT -- means all of the payment obligations (whether outstanding
on the Closing Date or Incurred thereafter) of the Company in respect of:
(a) the outstanding principal amount of the Wells Fargo Credit
Agreement Debt and all Reimbursement Utilizations thereunder, provided
that if the aggregate of such principal so outstanding and such
Reimbursement Utilizations shall exceed the result of (A) Forty-Five
Million Dollars ($45,000,000) minus (B) the aggregate of repayments,
prepayments and reductions of the Wells Fargo Credit Agreement Debt, as
set forth in subsection 2.4 of the Wells Fargo Credit Agreement, such
excess shall not constitute Senior Debt;
(b) interest, if any, and premium, if any, on or in respect of the
Debt referred to in clause (a) above;
(c) the fees, if any (including, without limitation, commitment
fees, agency fees and letter of credit fees), payable pursuant to the
Wells Fargo Credit Agreement in respect of the Debt referred to in clause
(a) above;
(d) any other undertaking of the Company to Wells Fargo or any
Successor Lender under the Senior Credit Documents with respect to the
payment of costs of collection, attorneys' fees and any other
out-of-pocket expenses incurred by any holder of Debt (or any agent in
respect thereof) of the type referred to in clause (a) of this definition
in connection with the enforcement of its rights and remedies with respect
to such Debt, any collateral securing the same or any guaranties provided
therefor, provided nothing in this clause (d) shall affect the limitation
set forth in the proviso to clause (a) above;
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(e) any other out-of-pocket fees, costs and expenses of any holder
of Debt (or any agent in respect thereof) under the Wells Fargo Credit
Agreement in respect of the Debt referred to in clause (a) above; and
(f) post-petition interest on the Debt referred to in clause (a)
above accruing subsequent to the commencement of a proceeding under the
Bankruptcy Code (whether or not allowed as a claim in such proceeding).
For purposes of the avoidance of doubt, this definition of Senior Debt shall not
include (aa) trade accounts payable, (bb) any amount in respect of a claim or
right of reimbursement owing from the Company to any holder of Debt (or any
agent thereof) under or in respect of the Wells Fargo Credit Agreement arising
from any right such holder (or such agent) may have to be, directly or
indirectly, indemnified by the Company or arising from any tort or similar cause
of action derived from the Wells Fargo Credit Agreement or any transaction
contemplated thereunder or (cc) any obligation that is itself subordinated in
any respect to any other obligations of the Company that constitutes Senior
Debt.
SENIOR DEFAULT -- Section 10.4.
SENIOR FINANCIAL OFFICER -- means the chief financial officer, the
principal accounting officer, the controller or the treasurer of the Company.
SENIOR NONPAYMENT DEFAULT -- means, at any time, any "event of default"
(after the expiration of any grace period in respect thereof and the giving of
any notice with respect thereto) under, and as defined in, the Wells Fargo
Credit Agreement arising under subsection 8.2, subsection 8.3 (provided that (a)
with respect to any such event of default resulting from the failure of the
Company to comply with subsection 6.1(iii) of the Wells Fargo Credit Agreement,
such failure shall be a Senior Nonpayment Default only if the Company fails to
deliver a Compliance Certificate (as such term is defined in the Wells Fargo
Credit Agreement) (i) in respect of the fiscal quarter of the Company ended June
30, 1997, on or prior to August 12, 1997 and (ii) in respect of the fiscal year
of the Company ended December 31, 1997, on or prior to February 12, 1998 and (b)
any such event of default resulting from the failure of the Company to comply
with subsection 6.17 of the Wells Fargo Credit Agreement shall not be a Senior
Nonpayment Default), subsection 8.4 (to the extent, but only to the extent, that
such default was directly caused by a breach of the representation contained in
subsection 5.4 of the Wells Fargo Credit Agreement), subsection 8.6 through
subsection 8.9 (inclusive), or subsection 8.11 through subsection 8.13
(inclusive) thereof, or any corresponding analogous provisions in existence
after any modification, amendment or refinancing thereof.
SENIOR NONPAYMENT DEFAULT BLOCKAGE PERIOD -- Section 10.4(b).
SENIOR NONPAYMENT DEFAULT NOTICE -- Section 10.4(b).
SENIOR OFFICER -- means the chairman of the board of directors, the chief
executive officer, the chief operating officer, the president or the chief
financial officer of the Company.
SERIES A PREFERRED STOCK -- means the Preferred Stock designated as
"Series A Preferred Stock."
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SERIES B NOTES -- Section 1.1(a).
SIGNIFICANT HOLDER -- means, at any time, any Person holding Notes which,
together with any Notes held by any of such Person's affiliates or subsidiaries,
have an aggregate outstanding principal balance equal to or in excess of ten
percent (10%) of the aggregate outstanding principal balance at such time of all
Notes.
SPECIAL INSURANCE COMPANY COUNSEL -- means Hebb & Gitlin, a Professional
Corporation, which is acting as counsel for The Northwestern Mutual Life
Insurance Company, John Hancock Mutual Life Insurance Company and North Atlantic
Smaller Companies Trust plc (all of which are Existing Noteholders) in
connection with the transactions contemplated by this Agreement.
SUBORDINATED DEBT -- Section 10.1.
SUBSIDIARY -- means, at any time, any corporation more than fifty percent
(50%) of the total combined voting power of all classes of the Voting Stock of
which shall, at the time as of which any determination is being made, be owned
by the Company either directly or indirectly through any one or more
Subsidiaries.
SUBSIDIARY GUARANTY -- means, with respect to any Subsidiary, an
unconditional guaranty of payment of such Subsidiary in respect of the
obligations of the Company under the Notes and the Note Purchase Agreements,
which guaranty shall be in form and substance reasonably satisfactory to the
Required Holders and shall contain subordination provisions that are
substantially identical to the subordination provisions set forth in Section 10
hereof (with only such changes thereto which shall be necessary to adjust such
provisions for the fact that "Senior Debt" shall be the payment obligations
arising under the guaranty issued by such Subsidiary in favor of the holders of
Senior Debt pursuant to the Wells Fargo Credit Agreement and the "Subordinated
Debt" shall be the indebtedness arising out of such Subsidiary Guaranty in favor
of the holders of Notes).
SUBSIDIARY STOCK -- Section 6.7(b).
SUCCESSOR LENDER -- means any original or successor lender to the Company
in respect of the Wells Fargo Credit Agreement Debt.
SURVIVING CORPORATION -- Section 6.8(a).
TERM LOAN FACILITY -- means the Term Loans (as such term is defined in the
Wells Fargo Credit Agreement) provided in the Wells Fargo Credit Agreement
pursuant to which the lenders to the Company in respect of the Wells Fargo
Credit Agreement have agreed to make loans to the Company.
TOTAL DEBT -- means, at any time, the aggregate amount of Debt of the
Company and the Subsidiaries determined after elimination of intercompany items
among such Persons and without duplicating liabilities in respect of any
Guaranties issued by any Subsidiary for Debt of the Company hereunder or under
the Wells Fargo Credit Agreement.
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TRANSFER -- Section 6.7(a).
TRANSFER VALUE -- means, with respect to the Transfer of any Property of
the Company or a Subsidiary, the current book value of such Property immediately
prior to giving effect to such Transfer, provided for purposes of determining
the book value of Property constituting Subsidiary Stock Transferred as provided
in Section 6.7(b), such book value shall be deemed to be the aggregate book
value of all Property of the Subsidiary that shall have issued such Subsidiary
Stock.
TURNED-OVER PROPERTY -- Section 10.2.
UK SUBSIDIARY -- means Cerplex Ltd., a limited liability company formed
under the laws of England and Wales, and any successors and assigns thereof.
UK SUBSIDIARY DEBT -- means Debt of the UK Subsidiary
(i) which is incurred to BT (A) under the Sale and Purchase
Agreement dated as of July 29, 1994 among BT, the UK Subsidiary and the
Company, as hereafter amended, supplemented or otherwise modified from
time to time, (B) under the Contract for the electrical repair and
calibration of certain items of BT equipment dated as of July 29, 1994
among BT, the UK Subsidiary and the Company, as hereafter amended,
supplemented or otherwise modified from time to time, or (C) under or in
relation to any other agreements or documents executed in connection with
the agreements referenced in (A) and (B) above, as hereafter amended,
supplemented or otherwise modified from time to time,
(ii) which is incurred to any bank or other institutional lender
that provides working capital financing to the UK Subsidiary, or
(iii) which is incurred to any Person in the ordinary course of the
UK Subsidiary's business.
Any direct or successive extension, renewal, refunding or refinancing,
including, without limitation, reborrowing or reutilizing of such Debt, shall
continue to be deemed to be UK Subsidiary Debt for purposes of this Agreement.
VOTING STOCK -- means capital stock of any one or more classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect corporate directors (or Persons performing
similar functions).
WARRANT AGREEMENT -- means the collective reference to the 1993 Warrant
Agreement and the 1996 Warrant Agreement.
WARRANT CERTIFICATES -- has the collective meaning assigned to such term
in the Warrant Agreements.
WARRANTS -- has the collective meaning assigned to such term in the
Warrant Agreements.
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WELLS FARGO -- means Wells Fargo Bank, National Association, and any
successors and assigns thereof.
WELLS FARGO ADJUSTED CREDIT LIMIT -- means, at any time, the sum of
(a) accrued and unpaid interest in respect of the Wells Fargo Credit
Agreement Debt, fees payable pursuant to the Wells Fargo Credit Agreement,
and reasonable costs and expenses incurred under the Wells Fargo Credit
Agreement at such time plus
(b) the Wells Fargo Credit Limit determined at such time.
WELLS FARGO CREDIT AGREEMENT -- has the meaning assigned to such term in
the definition of "Wells Fargo Credit Agreement Debt" in this Section 9.1.
WELLS FARGO CREDIT AGREEMENT DEBT -- means the collective reference to
Debt of the Company and its Subsidiaries, in respect of the Revolving Credit
Facility and the Term Loan Facility, to Wells Fargo, the other financial
institutions for which Wells Fargo acts as administrative agent and any
Successor Lenders incurred or arising (a) under the Credit Agreement dated as of
October 12, 1994, between the Company, Wells Fargo and the other financial
institutions listed on the signature pages thereof, as heretofore and hereafter
amended, supplemented or otherwise modified from time to time and (b) under or
in relation to any other agreements or documents executed in connection with,
and as contemplated by, such Credit Agreement, as heretofore and hereafter
amended, supplemented or otherwise modified from time to time (such agreement
and such other agreements and documents being referred to collectively as the
"WELLS FARGO CREDIT AGREEMENT"). Any direct or successive modification,
extension, renewal, refunding or refinancing, including, without limitation, any
reborrowing or reutilizing, of such Debt shall continue to be deemed to be Wells
Fargo Credit Agreement Debt for purposes of this Agreement (whether the lenders
in respect thereof are Wells Fargo, the other financial institutions for which
Wells Fargo acts as administrative agent and/or one or more Successor Lenders).
Any written agreement entered into between the Company or any Subsidiary and one
or more of Wells Fargo, the other financial institutions for which Wells Fargo
acts as administrative agent or any Successor Lender in connection with the
direct or successive extension, renewal, refunding or refinancing of Wells Fargo
Credit Agreement Debt shall be deemed included within the defined term "Wells
Fargo Credit Agreement."
WELLS FARGO CREDIT LIMIT -- means the result of (a) Forty-Five Million
Dollars ($45,000,000) minus (b) the aggregate of repayments, prepayments and
reductions of the Wells Fargo Credit Agreement Debt, as set forth in subsection
2.4 of the Wells Fargo Credit Agreement.
WHOLLY-OWNED SUBSIDIARY -- means, at any time, any Subsidiary one hundred
percent (100%) of all of the equity Securities (except directors' qualifying
shares) and voting Securities of which are owned by any one or more of the
Company and the other Wholly-Owned Subsidiaries at such time.
9.2 GAAP.
Where the character or amount of any asset or liability or item of income
or expense, or any consolidation or other accounting computation is required to
be made for any purpose
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hereunder, it shall, unless otherwise specified, be done in accordance with
GAAP, provided, that if any term defined herein includes or excludes amounts,
items or concepts that would not be included in or excluded from such term if
such term was defined with reference solely to GAAP, such term will be deemed to
include or exclude such amounts, items or concepts as set forth herein.
9.3 DIRECTLY OR INDIRECTLY.
Where any provision herein refers to action to be taken by any Person, or
that such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person, including
actions taken by or on behalf of any partnership in which such Person is a
general partner.
9.4 SECTION HEADINGS AND TABLE OF CONTENTS AND CONSTRUCTION.
(a) SECTION HEADINGS AND TABLE OF CONTENTS, ETC. The titles of the
Sections of this Agreement and the Table of Contents of this Agreement
appear as a matter of convenience only, do not constitute a part hereof
and shall not affect the construction hereof. The words "herein,"
"hereof," "hereunder" and "hereto" refer to this Agreement as a whole and
not to any particular Section or other subdivision. Unless otherwise
specified, references to Sections are to Sections of this Agreement,
references to Annexes are to Annexes to this Agreement and references to
Exhibits are to Exhibits to this Agreement.
(b) CONSTRUCTION. Each covenant contained herein shall be construed
(absent an express contrary provision herein) as being independent of each
other covenant contained herein, and compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with one or more other covenants.
9.5 GOVERNING LAW.
THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW.
10. SUBORDINATION
10.1 NOTES SUBORDINATE TO SENIOR DEBT.
The Company covenants and agrees, and each holder of a Note, by its
acceptance thereof, likewise covenants and agrees, that, to the extent and in
the manner hereinafter set forth in this Section 10, all Subordinated Debt is
hereby expressly made, and shall be, subordinate and subject in right of payment
to the prior payment in full, in cash, of all Senior Debt. The term
"SUBORDINATED DEBT" shall mean all indebtedness now or hereafter existing under
this Agreement and the Notes, together with all interest and Make-Whole Amount
(if any) thereon and all other amounts payable in respect thereof, including
fees, costs and expenses of the holders of the Notes to be reimbursed by the
Company hereunder, interest at the Default Rate and post-petition interest, if
any.
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10.2 PAYMENT OVER OF PROCEEDS UPON DISSOLUTION, ETC.
In the event of
(a) any insolvency or bankruptcy case or proceeding or other similar
case or proceeding under any federal or state bankruptcy or similar law
(including, without limitation, the Bankruptcy Code), or any receivership,
liquidation, arrangement, relief, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or to its
assets, or
(b) any liquidation, dissolution, reorganization, compromise,
arrangement, adjustment, protection, composition, relief or other winding
up of the Company or its debts, whether voluntary or involuntary and
whether or not involving any insolvency or bankruptcy or any case or
proceeding of any kind, or
(c) any assignment for the benefit of creditors or any other
marshalling of assets and liabilities of the Company,
then and in each such event the holders of Senior Debt shall be entitled to
receive payment in full, in cash, of all amounts due or to become due on or in
respect of all Senior Debt, before the Company may make, and before any holder
of Subordinated Debt is entitled to receive or retain, any payment or
distribution of any kind or character (whether in cash, Securities or other
Property) on account of any Subordinated Debt, except as otherwise provided in
this Section 10.2, and to that end the holders of Subordinated Debt agree to
promptly pay over or deliver, or cause to be paid over or delivered, to the
holders of Senior Debt (or any agent thereof) (for the pro rata benefit to each
such holder on the basis of the respective amounts of such Senior Debt held by
such holder) any payment or distribution of any kind or character, whether in
the form of
(i) cash,
(ii) Securities other than Replacement Junior Securities, or
(iii) other Property other than Replacement Junior Securities
(such Securities other than Replacement Junior Securities and such
Property other than Replacement Junior Securities, as described in
clause (ii) and clause (iii), being herein referred to as
"TURNED-OVER PROPERTY").
The holders of Subordinated Debt shall not be obligated to deliver to the
holders of Senior Debt any Replacement Junior Securities or any income,
dividends or distributions in respect thereof. To the extent that the holders of
Subordinated Debt deliver Turned-Over Property to the holders of Senior Debt (or
their agent), there shall be no reduction in the amount of Senior Debt
outstanding solely by virtue of such delivery and the holders of Senior Debt (or
their agent) shall hold such Turned-Over Property as additional security for the
Senior Debt and shall proceed to, in a commercially reasonable manner, dispose
of such Turned-Over Property for a cash consideration and shall apply such cash
consideration (net of the out-of-pocket costs of such disposition) to the Senior
Debt. In disposing of such Turned-Over Property, the holders
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of Senior Debt (or their agent) shall use their (or its) reasonable commercial
judgment as to when to consummate such disposition, provided that the holders of
Senior Debt shall not be required to dispose of Turned-Over Property if they
reasonably determine that they are unable to dispose of it in a commercially
reasonable manner, or if the holders of Subordinated Debt are not willing to
stipulate to the commercial reasonableness of a proposed disposition.
Each holder of Subordinated Debt shall duly and promptly take such action
as is reasonably necessary to file appropriate claims or proofs of claims in any
such proceedings referred to in this Section 10.2 and to execute and deliver
such other instruments and take such other actions as may be reasonably
necessary to prove or realize upon such claims and to have the proceeds of such
claims paid as provided in this Section 10.2, and, in the event any holder of
Subordinated Debt shall not have made any such filing on or prior to the date
thirty (30) days before the expiration of the time for such filing or shall not
have timely executed or delivered any such other instruments and taken such
other actions, the holders of Senior Debt, acting through an agent or otherwise,
are hereby irrevocably authorized and empowered (but shall have no obligation)
to, as the agent and attorney-in-fact for such holder for the specific and
limited purpose set forth in this paragraph, file such proof of claim for or on
behalf of such holder, execute and deliver such other instrument for or on
behalf of such holder and take such other action necessary under applicable law
to collect any amounts due in respect of such claim in such proceeding. Anything
contained in this paragraph notwithstanding, the right to vote any claim or
claims in respect of any Subordinated Debt in connection with any proceedings
referred to in this Section 10.2 is exclusively reserved to the holder of such
Subordinated Debt.
10.3 PRIOR PAYMENT TO SENIOR DEBT UPON ACCELERATION OF NOTES.
In the event that any Subordinated Debt is declared due and payable before
its stated maturity, then and in such event the holders of Senior Debt
outstanding at the time such Subordinated Debt so becomes due and payable shall
be entitled to receive payment in full, in cash, of all amounts due or to become
due on or in respect of such Senior Debt, before the Company may make, and
before any holder of Subordinated Debt is entitled to receive or retain, any
direct or indirect payment or distribution of any kind or character, whether in
cash, Securities or other Property, on account of any Subordinated Debt. All
payments in respect of the Subordinated Debt postponed under this Section 10.3
shall be immediately due and payable upon the termination of such postponement
(together with such additional interest as is provided herein and in the Notes
for late payment of principal and/or interest).
10.4 DEFAULT OR ACCELERATION IN RESPECT OF SENIOR DEBT.
(a) PAYMENT DEFAULT. In the event the Company shall default in the
payment of any principal of, premium, if any, or interest on, or any fees
in respect of, any Senior Debt when the same shall have become due and
payable, whether at maturity, at a date fixed for prepayment or otherwise,
then, unless and until such default shall have been cured or waived in a
writing received by the Company or shall have ceased to exist or all such
payments shall have been made in full in cash, no direct or indirect
payment or distribution of any kind or character (in cash, Securities or
other Property or otherwise) shall be made or agreed to be made on or in
respect of any Subordinated Debt. All payments in respect of the
Subordinated Debt postponed under this clause (a) shall be immediately due
and payable upon the termination of such postponement (together with
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<PAGE> 74
such additional interest as is provided herein and in the Notes for late
payment of principal and/or interest).
(b) NONPAYMENT DEFAULT. In the event and during the continuance of
any Senior Nonpayment Default in respect of any Senior Debt and prior to
the declaration of such Senior Debt to be due and payable prior to its
stated maturity, the holders of such Senior Debt may give to both the
Company and each holder of Subordinated Debt written notice referring to
the Notes and this Agreement and specifying that it is a notice of a
Senior Nonpayment Default (a "SENIOR NONPAYMENT DEFAULT NOTICE") and,
thereafter, no payment or distribution of any kind or character (whether
in cash, Securities or other Property) shall be made on or in respect of
any Subordinated Debt, and no holder of Subordinated Debt shall take or
receive or retain from the Company, directly or indirectly, in cash,
Securities or other Property or by way of set-off or in any other manner,
payment of all or any of the Subordinated Debt during the period (a
"SENIOR NONPAYMENT DEFAULT BLOCKAGE PERIOD") commencing on the date of
receipt by both the Company and each holder of Subordinated Debt of such
notice and ending on the earliest of (i) the date of the repayment in full
in cash of such Senior Debt, (ii) the date on which such Senior Debt shall
have been declared due and payable prior to its stated maturity, (iii) the
date on which such Senior Nonpayment Default shall have been cured or
waived and written notice thereof received by the Company, (iv) the date
on which such holders of such Senior Debt, acting through an agent or
otherwise, shall have delivered to the Company and each holder of
Subordinated Debt a notice referring to the Notes and the immediately
preceding Senior Nonpayment Default Notice and stating that such Senior
Nonpayment Default Notice has been withdrawn, or (v) the one hundred
eightieth (180th) day following the giving of such Senior Nonpayment
Default Notice pursuant to this clause (b). Any number of Senior
Nonpayment Default Notices may be given, provided that (i) only one Senior
Nonpayment Default Notice may be given with respect to any single
occurrence of a Senior Nonpayment Default and (ii) no Senior Nonpayment
Default Notice shall be effective at any time to prevent any payment from
being made by or on behalf of the Company for or on account of any
Subordinated Debt (and any such Senior Nonpayment Default Notice shall be
or become null and void ab initio) if, within the three hundred sixty-five
(365) day period ending immediately prior to the date on which such Senior
Nonpayment Default Notice shall have been delivered to the Company and
each holder of Subordinated Debt, a Senior Nonpayment Default Blockage
Period was in effect for all or part of such period. All payments in
respect of the Subordinated Debt postponed during any Senior Nonpayment
Default Blockage Period shall be immediately due and payable upon the
termination thereof (together with such additional interest at the Default
Rate as is provided herein and in the Notes).
(c) ACCELERATION OF SENIOR DEBT. In the event that the holders of
any Senior Debt shall declare such Senior Debt to be due and payable prior
to its stated maturity, no payment or distribution of any kind or
character (whether in cash, Securities or other Property) shall be made on
or in respect of any Subordinated Debt, and no holder of Subordinated Debt
shall take or receive or retain from the Company or any Subsidiary,
directly or indirectly, in cash, Securities or other Property or by way of
set-off or in any other manner, payment of all or any of the Subordinated
Debt until the earlier of (i) the payment in full, in cash, of such Senior
Debt or (ii) the rescission or termination of such declaration. All
payments in respect of the Subordinated Debt postponed under this
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<PAGE> 75
clause (c) shall be immediately due and payable upon the termination of
such postponement (together with such additional interest as is provided
herein and in the Notes for late payment of principal and/or interest).
(d) REPLACEMENT JUNIOR SECURITIES. Nothing in this Section 10.4
shall prohibit the holders of Subordinated Debt from accepting and
retaining any Securities that would otherwise qualify as Replacement
Junior Securities but for the fact that they were not issued pursuant to
court authority in a reorganization, liquidation, arrangement, composition
or other similar bankruptcy or debt adjustment proceeding or a dissolution
proceeding, provided that such Replacement Junior Securities shall not be
guaranteed or secured to an extent beyond the extent that the Subordinated
Debt is guaranteed or secured.
10.5 PAYMENT PERMITTED.
Nothing contained in this Section 10 or elsewhere in this Agreement or in
any of the Notes shall prevent the Company from making, or any holder of
Subordinated Debt from accepting, at any time except as expressly provided in
Section 10.2, Section 10.3 or Section 10.4, payments of principal of (and
Make-Whole Amount, if any) or interest on the Notes and other payments in
respect thereof in accordance with the terms thereof.
10.6 SUBROGATION TO RIGHTS OF HOLDERS OF SENIOR DEBT.
The holders of Subordinated Debt shall be subrogated to the rights of the
holders of Senior Debt at the time outstanding to receive payments and
distributions of cash, Securities or other Property applicable to the Senior
Debt until all amounts payable for or on account of Subordinated Debt shall be
paid in full; provided, however, that no payment or distribution to any holder
of Senior Debt pursuant to this Section 10 shall entitle any holder of
Subordinated Debt to exercise any rights of subrogation in respect thereof until
all of such Senior Debt of such holder shall have been paid in full in cash. For
purposes of such subrogation, no payments or distributions to the holders of
Senior Debt of any cash, Securities or other Property to which the holders of
the Subordinated Debt would be entitled except for the provisions of this
Section 10, shall, as among the Company, its creditors (other than holders of
Senior Debt) and the holders of the Subordinated Debt, be deemed to be a payment
or distribution by the Company to or on account of Senior Debt.
10.7 PROVISIONS SOLELY TO DEFINE RELATIVE RIGHTS.
The provisions of this Section 10 are and are intended solely for the
purpose of defining the relative rights of the holders of Subordinated Debt on
the one hand and the holders of Senior Debt on the other hand. Nothing contained
in this Section 10 or elsewhere in this Agreement or in the Notes is intended to
or shall
(a) impair, as among the Company and the holders of Subordinated
Debt, the obligation of the Company, which is absolute and unconditional,
to pay to the holders of Subordinated Debt the principal of (and
Make-Whole Amount, if any), interest on, and all other amounts payable
with respect to, the Notes as and when the same shall become due and
payable in accordance with the terms of this Agreement, it being
understood that
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<PAGE> 76
any postponement of such payments pursuant to the express terms of this
Section 10 shall be limited to such express terms and shall not be an
impairment of such obligation,
(b) affect the relative rights against the Company of the holders of
the Subordinated Debt and creditors of the Company (other than the holders
of Senior Debt),
(c) notwithstanding any postponement of payments or "blockage
period" pursuant to this Section 10, prevent the holder of any
Subordinated Debt from exercising any or all rights or remedies otherwise
permitted by applicable law upon a Default or Event of Default under this
Agreement, subject to the rights under the provisions of Section 10.2,
Section 10.3 and Section 10.4 of the holders of Senior Debt to receive
cash, Securities or other Property otherwise payable or deliverable to the
holders of Subordinated Debt or
(d) notwithstanding any postponement of payments or "blockage
period" pursuant to this Section 10, restrict or otherwise impair the
right of the holders of Subordinated Debt to, in accordance with the terms
of this Agreement, declare the Subordinated Debt to be due and payable
prior to its stated maturity upon the occurrence of an Event of Default.
10.8 AGREEMENT TO EFFECTUATE SUBORDINATION.
(a) CONFIRMATION OF SUBORDINATION. Each holder of Subordinated Debt
by its acceptance thereof agrees to take such action as may be reasonably
necessary or appropriate to effectuate, as between the holders of Senior
Debt and such holder of Subordinated Debt, the subordination provided in
this Section 10, including, without limitation, executing a written
confirmation of the subordination provided for in this Section 10,
substantially in the form thereof set forth on Exhibit G and delivering
the same to any holder of Senior Debt requesting the same. In connection
with any such confirmation, the Company shall also sign and deliver a copy
thereof. All expenses of any holder of Subordinated Debt incurred in
connection with the preparation, execution and delivery of any such
confirmation or otherwise complying with this Section 10.8(a) shall be
paid by the Company.
(b) MODIFICATION OF THIS SECTION 10. The provisions of this Section
10 (including, without limitation, this Section 10.8) may not be amended,
modified or waived without the prior written consent of all the holders of
Senior Debt. The provisions set forth in this Section 10 constitute a
continuing agreement and shall (i) be and remain in full force and effect
at any time, and from time to time, during which any Senior Debt shall
remain outstanding, (ii) be binding upon the holders of Subordinated Debt
and the Company and its successors, transferees and assigns, and (iii)
inure to the benefit of, and be enforceable, in accordance with the terms
hereof, directly by, each of the holders of the Senior Debt and their
respective successors, transferees and assigns, against the holders of
Subordinated Debt and the Company.
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<PAGE> 77
10.9 NO WAIVER OF SUBORDINATION PROVISIONS.
(a) FAILURE TO ACT. No right of any holder of any Senior Debt to
enforce its rights under this Agreement shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the
Company or by any act or failure to act, in good faith, by any such
holder, or by any non-compliance by the Company with the terms, provisions
and covenants of this Agreement, regardless of any knowledge thereof any
such holder may have or be otherwise charged with.
(b) SENIOR DEBT MODIFICATIONS. Without in any way limiting the
generality of the foregoing paragraph, the holders of Senior Debt may, at
any time and from time to time, without the consent of or notice to any
holder of Subordinated Debt, without incurring responsibility to any
holder of Subordinated Debt and without impairing or releasing the
subordination provided in this Section 10 or the obligations hereunder of
any holder of Subordinated Debt to the holders of Senior Debt, do any one
or more of the following: (i) change the manner, place or terms of payment
or extend the time of payment of, or renew or alter, all or any of the
Senior Debt, or otherwise amend or supplement in any manner Senior Debt or
any instrument evidencing the same or any agreement under which Senior
Debt is outstanding; (ii) sell, exchange, release, not perfect or
otherwise deal with any Property pledged, assigned or mortgaged to secure,
or otherwise securing, Senior Debt; (iii) as holders of Senior Debt,
exercise or refrain from exercising any rights against the Company and any
other Person, and (iv) apply any sums from time to time received to the
payment of the Senior Debt. The holders of Subordinated Debt waive any
right to require the holders of Senior Debt to marshal any assets in favor
of the holders of Subordinated Debt or against or in payment of any or all
of the Senior Debt. The holders of Subordinated Debt waive any defense or
claim they may have in respect of the rights of the holders of Senior Debt
under this Section 10 arising by reason of any election of remedies by any
holder of Senior Debt which in any manner impairs, affects, reduces,
releases, destroys and/or extinguishes the subrogation rights of the
holders of Subordinated Debt or any other right of such holders to proceed
against the Company under or in connection with this Section 10.
10.10 RELIANCE ON JUDICIAL ORDER OR CERTIFICATE OF LIQUIDATING AGENT.
Upon any payment or distribution of assets of the Company referred to in
this Section 10, the holders of Subordinated Debt shall be entitled to rely upon
any order or decree entered by any court of competent jurisdiction in which any
insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution,
winding up or similar case or proceeding is pending, or a certificate of the
trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee for
the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the holders of Subordinated Debt, for the purpose of
ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Debt and other indebtedness of the Company,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Section 10.
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<PAGE> 78
10.11 PROHIBITED PAYMENTS HELD IN TRUST.
In the event that, notwithstanding the provisions of this Section 10 and
in contravention thereof, the Company shall make, or any holder of Subordinated
Debt shall receive or retain, any payment or distribution of the Company's
assets of any kind or character, whether in cash, Securities or other Property,
then and in such event such payment or distribution shall be received and held
by such holder of Subordinated Debt in trust for the benefit of the holders of
Senior Debt and, promptly upon receipt of a written demand therefor from any one
or more of the holders of Senior Debt, shall be paid over or delivered to the
holders of Senior Debt (for the pro rata benefit to each such holder on the
basis of the respective amounts of such Senior Debt held by such holder) for
application to the payment or prepayment in full of all Senior Debt remaining
unpaid, to the extent necessary to pay all Senior Debt in full in cash, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Debt, provided that, with respect to any such payment or distribution, no
such payment or delivery thereof shall be required under this Section 10.11 and
the holders of Subordinated Debt shall be entitled to retain any such payment
and distribution and apply it to their respective Subordinated Debt, if such
holder shall not have received the aforesaid written demand within ninety (90)
days of receipt of such payment or distribution.
10.12 MISCELLANEOUS.
The holders of Subordinated Debt and the Company confirm their
understanding that this Section 10 is not, and is not to be construed as, a
commitment or agreement by any holder of Senior Debt to continue financing
arrangements with the Company. Any holder of Senior Debt may terminate such
arrangements at any time in accordance with the terms and provisions of the
Senior Credit Documents in respect thereof. If, after payment of any Senior
Debt, the Company becomes liable to the holder thereof on account of any payment
made in respect thereof being returned by such holder or being reversed, set
aside or recovered by the Company or any trustee or assignee for the Company,
the provisions of this Section 10 shall thereupon in all respects become
effective with respect to such subsequent or reinstated Senior Debt without the
necessity of any further act or agreement between the holder thereof, the
Company and the holders of Subordinated Debt. The Company shall promptly inform
each holder of Senior Debt of any Default or Event of Default hereunder.
10.13 ADDITIONAL SENIOR DEBT.
Upon the incurrence by the Company of any additional Senior Debt or upon
the Company's being informed of any new holder of Senior Debt, the Company shall
promptly inform the holders of Subordinated Debt of the names and addresses of
the Person or Persons holding such Senior Debt. Upon the Company's being
informed of the change in the addresses of any holder or holders of Senior Debt,
the Company shall promptly inform the holders of Subordinated Debt of the same.
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<PAGE> 79
11. MISCELLANEOUS
11.1 COMMUNICATIONS.
(a) METHOD; ADDRESS. All communications hereunder or under the Notes
shall be in writing, shall be (y) hand delivered or deposited into the
United States mail (registered or certified mail), postage prepaid and (z)
sent by overnight courier of national or international reputation or by
facsimile transmission, and shall be addressed,
(i) if to the Company,
The Cerplex Group, Inc.
1382 Bell Avenue
Tustin, California 92680
Attention: Chief Executive Officer
Facsimile: (714) 258-0730
(with a copy to:
Brobeck, Phleger & Harrison
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Attention: Frederic A. Randall, Jr., Esq.
Facsimile: (714) 752-7522
provided that the failure to provide any such copy
shall in no way affect the validity or
effectiveness of any communication to the Company
for purposes of this Agreement)
or at such other address as the Company shall have furnished in writing to
all holders of the Notes at the time outstanding, and
(ii) if to any of the holders of the Notes,
(A) if such holders are the Existing Noteholders, at
their respective addresses set forth in Annex 1, and further
including any parties referred to in Annex 1 that are required
to receive notices in addition to such holders of the Notes,
and
(B) if such holders are not the Existing Noteholders, at
their respective addresses set forth in the register for the
registration and transfer of Notes maintained pursuant to
Section 5.1,
or to any such party at such other address as such party may designate by
notice duly given in accordance with this Section 11.1 to the Company
(which other address shall be entered in such register).
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<PAGE> 80
(b) WHEN GIVEN. Any communication so addressed and deposited in the
United States mail, postage prepaid, by registered or certified mail (in
each case, with return receipt requested) shall be deemed to be received
on the third (3rd) succeeding Business Day after the day of such deposit
(not including the date of such deposit). Any communication so addressed
and otherwise delivered shall be deemed to be received when actually
received at the address of the addressee.
11.2 REPRODUCTION OF DOCUMENTS.
The Financing Documents and all documents relating thereto, including,
without limitation,
(a) consents, waivers and modifications that may hereafter be
executed,
(b) documents received by you at the original closing of your
purchase of the Existing Notes and at the closing of the substitution of
the Notes for the Existing Notes (except the Existing Notes, the Notes and
the Warrant Certificates themselves), and
(c) financial statements, certificates and other information
previously or hereafter furnished to you or any other holder of Notes or
Warrants,
may be reproduced by any holder of Notes or Warrants by any photographic,
photostatic, microfilm, micro-card, miniature photographic, digital or other
similar process and each holder of Notes or Warrants may destroy any original
document so reproduced. The Company agrees and stipulates that any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by such holder of Notes
or Warrants in the regular course of business) and that any enlargement,
facsimile or further reproduction of such reproduction shall likewise be
admissible in evidence. Nothing in this Section 11.2 shall prohibit the Company
or any holder of Notes or Warrants from contesting the validity or the accuracy
of any such reproduction.
11.3 SURVIVAL.
All warranties, representations, certifications and covenants made by the
Company in any Financing Document or in any certificate or other instrument
delivered by it or on its behalf thereunder shall be considered to have been
relied upon by you and shall survive the delivery to you of the Notes and the
Warrant Certificates regardless of any investigation made by you or on your
behalf. All statements in any such certificate or other instrument shall
constitute warranties and representations by the Company hereunder.
11.4 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. The provisions hereof are
intended to be for the benefit of all holders, from time to time, of Notes, and
shall be enforceable by any such holder, whether or not an express assignment to
such holder of rights hereunder shall have been made by you or your successor or
assign.
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11.5 AMENDMENT AND WAIVER.
(a) REQUIREMENTS. This Agreement may be amended, and the observance
of any term hereof may be waived, with (and only with) the written consent
of the Company and the Required Holders; provided that no such amendment
or waiver of any of the provisions of Section 1 through Section 4,
inclusive, or any defined term used therein, shall be effective as to any
holder of Notes unless consented to by such holder in writing; and
provided further that no such amendment or waiver shall, without the
written consent of the holders of all Notes (exclusive of Notes held by
the Company, any Subsidiary or any Affiliate) at the time outstanding,
(i) subject to Section 8, change the amount or time of any
prepayment or payment of principal or Make-Whole Amount or the rate
or time of payment of interest,
(ii) change Section 8 or Section 10,
(iii) change the definition of Required Holders or Senior Debt
(or any of the definitions used, directly or indirectly, to define
such definitions), or
(iv) change this Section 11.5.
(b) SOLICITATION OF NOTEHOLDERS.
(i) SOLICITATION. The Company shall not solicit, request or
negotiate for or with respect to any proposed waiver or amendment of
any of the provisions hereof or the Notes unless each holder of the
Notes (irrespective of the amount of Notes then owned by it) shall
be provided by the Company with sufficient information to enable it
to make an informed decision with respect thereto. Executed or true
and correct copies of any waiver or consent effected pursuant to the
provisions of this Section 11.5 shall be delivered by the Company to
each holder of outstanding Notes immediately following the date on
which the same shall have been executed and delivered by all holders
of outstanding Notes required to consent or agree to such waiver or
consent.
(ii) PAYMENT. The Company shall not, directly or indirectly,
pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, or grant any
security, to any holder of Notes as consideration for or as an
inducement to the entering into by any holder of Notes of any waiver
or amendment of any of the terms and provisions hereof unless such
remuneration is concurrently paid, or security is concurrently
granted, on the same terms, ratably to the holders of all Notes then
outstanding.
(iii) SCOPE OF CONSENT. Any consent made pursuant to this
Section 11.5 by a holder of Notes that has transferred or has agreed
to transfer its Notes to the Company, any Subsidiary or any
Affiliate and has provided or has agreed to provide such written
consent as a condition to such transfer shall be void and of no
force and effect except solely as to such holder, and any
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amendments effected or waivers granted or to be effected or granted
that would not have been or would not be so effected or granted but
for such consent (and the consents of all other holders of Notes
that were acquired under the same or similar conditions) shall be
void and of no force and effect, retroactive to the date such
amendment or waiver initially took or takes effect, except solely as
to such holder.
(c) BINDING EFFECT. Except as provided in Section 11.5(b)(iii), any
amendment or waiver consented to as provided in this Section 11.5 shall
apply equally to all holders of Notes and shall be binding upon them and
upon each future holder of any Note and upon the Company whether or not
such Note shall have been marked to indicate such amendment or waiver. No
such amendment or waiver shall extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or
waived or impair any right consequent thereon.
Anything contained herein to the contrary notwithstanding, the
Company shall not agree to any modification or amendment to section 7.5 of
the Wells Fargo Credit Agreement that would prohibit any prepayment
hereunder in respect of a Change in Control or that would effectively
prohibit during the stated term thereof any scheduled payment of principal
as set forth in Section 4.2 hereof.
11.6 PAYMENTS ON NOTES.
(a) MANNER OF PAYMENT. The Company shall pay all amounts payable
with respect to each Note (without any presentment of such Notes and
without any notation of such payment being made thereon) by crediting, by
federal funds bank wire transfer, the account of the holder thereof in any
bank in the United States of America as may be designated in writing by
such holder, or in such other manner as may be reasonably directed or to
such other address in the United States of America as may be reasonably
designated in writing by such holder. Annex 1 shall be deemed to
constitute notice, direction or designation (as appropriate) to the
Company with respect to payments as aforesaid. In the absence of such
written direction, all amounts payable with respect to each Note shall be
paid by check mailed and addressed to the registered holder of such Note
at the address shown in the register maintained by the Company pursuant to
Section 5.1.
(b) PAYMENTS DUE ON HOLIDAYS. If any payment due on, or with respect
to, any Note shall fall due on a day other than a Business Day, then such
payment shall be made on the first Business Day following the day on which
such payment shall have so fallen due, provided that if all or any portion
of such payment shall consist of a payment of interest, for purposes of
calculating such interest, such payment shall be deemed to have been
originally due on such first following (or preceding) Business Day, such
interest shall accrue and be payable to (but not including) the actual
date of payment and the amount of the next succeeding interest payment
shall be adjusted accordingly.
(c) PAYMENTS, WHEN RECEIVED. Any payment to be made to the holders
of Notes hereunder or under the Notes shall be deemed to have been made on
the
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Business Day such payment actually becomes available to such holder at
such holder's bank in the United States of America prior to 11:00 a.m.
(local time of such bank).
11.7 ENTIRE AGREEMENT; SEVERABILITY.
This Agreement constitutes the final written expression of all of the
terms hereof and is a complete and exclusive statement of those terms. In case
any one or more of the provisions contained in this Agreement or in any Note, or
any application thereof, shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein and therein, and any other application thereof, shall not in
any way be affected or impaired thereby.
11.8 DUPLICATE ORIGINALS, EXECUTION IN COUNTERPART.
Two or more duplicate originals hereof may be signed by the parties, each
of which shall be an original but all of which together shall constitute one and
the same instrument. This Agreement may be executed in one or more counterparts
and shall be effective when at least one counterpart shall have been executed by
each party hereto, and each set of counterparts that, collectively, show
execution by each party hereto shall constitute one duplicate original.
[REMAINDER OF PAGE INTENTIONALLY BLANK; NEXT PAGE IS SIGNATURE PAGE.]
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<PAGE> 84
If this Agreement is satisfactory to you, please so indicate by signing
the acceptance at the foot of a counterpart hereof and returning such
counterpart to the Company, whereupon this Agreement shall become binding
between us in accordance with its terms.
Very truly yours,
THE CERPLEX GROUP, INC.
By
----------------------------
Name:
Title:
[SEPARATELY EXECUTED BY EACH OF
THE EXISTING NOTEHOLDERS]
Accepted:
[NAME OF EXISTING NOTEHOLDER]
By
----------------------------
Name:
Title:
[Signature Page to Amended and Restated Note Purchase Agreement
of THE CERPLEX GROUP, INC.]
<PAGE> 85
ANNEX 1
INFORMATION AS TO EXISTING NOTEHOLDERS
<TABLE>
<CAPTION>
================================================================================
NOTEHOLDER NAME THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY
- --------------------------------------------------------------------------------
<S> <C>
Name in which to register The Northwestern Mutual Life Insurance Company
Note(s)
- --------------------------------------------------------------------------------
Note registration number; R-1; $8,250,000
Principal amount
- --------------------------------------------------------------------------------
Payment on account of
Note(s)
Method Federal Funds Wire Transfer
Account information Bankers Trust Company
16 Wall Street
Insurance Unit - 4th Floor
New York, New York 10005
ABA #0210-01033
For the account of: The Northwestern Mutual Life
Insurance Company
Account No.: 00-000-027
- --------------------------------------------------------------------------------
Accompanying information Name of Company: The Cerplex Group, Inc.
Description of
Security: 9.50% Senior Subordinated Notes
due November 19, 2001
PPN: 15678@ AC 1
Confirmation of principal balance and due date
and application (as among principal, Make-Whole
Amount and interest) of the payment being made:
- --------------------------------------------------------------------------------
Address for notices related The Northwestern Mutual Life Insurance Company
to payments 720 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Treasurer's Department/Securities
Operations
- --------------------------------------------------------------------------------
Address for all other notices The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, WI 53202
Attention: Securities Department
- --------------------------------------------------------------------------------
</TABLE>
Annex 1-1
<PAGE> 86
<TABLE>
<CAPTION>
================================================================================
NOTEHOLDER NAME THE NORTHWESTERN MUTUAL LIFE INSURANCE
COMPANY
- --------------------------------------------------------------------------------
<S> <C>
Name and telephone Peter Keehn
number for telephonic Phone: (414) 299-5023
advices pursuant to Fax: (414) 299-7124
Section 4.4.
- --------------------------------------------------------------------------------
Tax identification number 39-0509570
================================================================================
</TABLE>
Annex 1-2
<PAGE> 87
<TABLE>
<CAPTION>
================================================================================
NOTEHOLDER NAME JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<S> <C>
Name in which to register John Hancock Mutual Life Insurance Company
Note(s)
- --------------------------------------------------------------------------------
Note registration number; R-2; $3,000,000
Principal amount
- --------------------------------------------------------------------------------
Payment on account of
Note(s)
Method Federal Funds Wire Transfer
Account information The First National Bank of Boston
ABA No. 011000390
100 Federal Street
Boston, Massachusetts 02110
Attention: Insurance Division
For the account of: John Hancock Mutual Life
Insurance Company
Account No.: 279-80008
On order of: The Cerplex Group, Inc.
- --------------------------------------------------------------------------------
Accompanying information Name of Company: The Cerplex Group, Inc.
Description of
Security: 9.50% Senior Subordinated Notes
due November 19, 2001
PPN: 15678@ AC 1
Confirmation of principal balance and due date
and application (as among principal, Make-Whole
Amount and interest) of the payment being made:
- --------------------------------------------------------------------------------
Address for notices related John Hancock Mutual Life Insurance Company
to payments John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
Attention: Portfolio Management & Investment
Services T-56
- --------------------------------------------------------------------------------
</TABLE>
Annex 1-3
<PAGE> 88
<TABLE>
<CAPTION>
================================================================================
NOTEHOLDER NAME JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<S> <C>
Address for all other notices John Hancock Mutual Life Insurance Company
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
Attention: Bond and Corporate Finance Department
T-57
Fax No.: (617) 572-1606
- --------------------------------------------------------------------------------
Name and telephone D. Dana Donovan
number for telephonic Phone: (617) 572-9626
advices pursuant to Fax: (617) 572-1606
Section 4.4.
- --------------------------------------------------------------------------------
Tax identification number 04-1414660
================================================================================
</TABLE>
Annex 1-4
<PAGE> 89
<TABLE>
<CAPTION>
================================================================================
NOTEHOLDER NAME JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<S> <C>
Name in which to register John Hancock Mutual Life Insurance Company
Note(s)
- --------------------------------------------------------------------------------
Note registration number; R-3; $5,250,000
Principal amount
- --------------------------------------------------------------------------------
Payment on account of
Note(s)
Method Federal Funds Wire Transfer
Account information The First National Bank of Boston
ABA No. 011000390
100 Federal Street
Boston, Massachusetts 02110
Attention: Insurance Division
For the account of: John Hancock Mutual Life
Insurance Company - GBSA Account
Account No.: 535-84164
On order of: The Cerplex Group, Inc.
- --------------------------------------------------------------------------------
Accompanying information Name of Company: The Cerplex Group, Inc.
Description of
Security: 9.50% Senior Subordinated Notes
due November 19, 2001
PPN: 15678@ AC 1
Confirmation of principal balance and due date
and application (as among principal, Make-Whole
Amount and interest) of the payment being made:
- --------------------------------------------------------------------------------
Address for notices related John Hancock Mutual Life Insurance Company
to payments John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
Attention: Portfolio Management & Investment
Services T-56
- --------------------------------------------------------------------------------
</TABLE>
Annex 1-5
<PAGE> 90
<TABLE>
<CAPTION>
================================================================================
NOTEHOLDER NAME JOHN HANCOCK MUTUAL LIFE INSURANCE COMPANY
- --------------------------------------------------------------------------------
<S> <C>
Address for all other notices John Hancock Mutual Life Insurance Company
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
Attention: Bond and Corporate Finance Department
T-57
Fax No.: (617) 572-1606
- --------------------------------------------------------------------------------
Name and telephone D. Dana Donovan
number for telephonic Phone: (617) 572-9626
advices pursuant to Fax: (617) 572-1606
Section 4.4.
- --------------------------------------------------------------------------------
Tax identification number 04-1414660
================================================================================
</TABLE>
Annex 1-6
<PAGE> 91
<TABLE>
<CAPTION>
================================================================================
NOTEHOLDER NAME NORTH ATLANTIC SMALLER COMPANIES TRUST PLC
<S> <C>
- --------------------------------------------------------------------------------
Name in which to register Bank of Scotland London Nominees Limited
Note(s)
- --------------------------------------------------------------------------------
Note registration number; R-4; $750,000
Principal amount
- --------------------------------------------------------------------------------
Payment on account of
Note(s)
Method Federal Funds Wire Transfer
Account information Bank of Scotland
38 Threadneedle St.
London, England EC2P-2EH
Account # 58695 USD01
Attention: Richard Anderson
(telephone no. 011-44-171-601-6799)
(Call Ivor Davis at J.O. Hambro & Co., Ltd. with
any questions: telephone no. 011-44-171-222-2020)
Reference: North Atlantic Smaller Companies
Investment Trust
- --------------------------------------------------------------------------------
Accompanying information Name of Company: The Cerplex Group, Inc.
Description of
Security: 9.50% Senior Subordinated Notes
due November 19, 2001
PPN: 15678@ AC 1
Confirmation of principal balance and due date
and application (as among principal, Make-Whole
Amount and interest) of the payment being made:
- --------------------------------------------------------------------------------
Address for notices related North Atlantic Smaller Companies Trust PLC
to payments c/o J.O. Hambro & Co., Ltd.
10 Park Place
London, England SW1A1LP
Attention: Mr. Christopher Mills
Facsimile: 011-44-171-233-1503
- --------------------------------------------------------------------------------
</TABLE>
Annex 1-7
<PAGE> 92
<TABLE>
<CAPTION>
================================================================================
NOTEHOLDER NAME NORTH ATLANTIC SMALLER COMPANIES TRUST PLC
<S> <C>
- --------------------------------------------------------------------------------
Address for all other notices North Atlantic Smaller Companies Trust PLC
c/o J.O. Hambro & Co., Ltd.
10 Park Place
London, England SW1A1LP
Attention: Mr. Christopher Mills
Facsimile: 011-44-171-233-1503
- --------------------------------------------------------------------------------
Name and telephone Mr. Christopher Mills
number for telephonic Telephone: 011-44-171-222-2020
advices pursuant to
Section 4.4.
- --------------------------------------------------------------------------------
Tax identification number N.A.
================================================================================
</TABLE>
Annex 1-8
<PAGE> 93
ANNEX 2
AMENDMENTS TO EXISTING NOTE PURCHASE AGREEMENT
Amendment No. 1 to Note Purchase Agreement dated as of May 26, 1994.
Amendment No. 2 to Note Purchase Agreement dated as of July 29, 1994.
Amendment Agreement dated as of October 27, 1994.
Waiver and Amendment Agreement dated as of April 15, 1996.
Waiver and Amendment Agreement dated as of October 31, 1996 (as extended by that
certain letter agreement dated November 26, 1996).
Waiver and Amendment Agreement dated December 9, 1996.
Letter Agreement dated March 28, 1997.
Annex 2-1
<PAGE> 94
ANNEX 3
INFORMATION AS TO COMPANY
[TO BE SUPPLIED BY THE COMPANY]
PART 2.4(a) -- PENDING LITIGATION.
PART 2.6(c) -- VIOLATIONS OF AGREEMENTS.
PART 2.7(b) -- DEBT.
PART 2.7(c) -- MATERIAL ADVERSE CHANGE.
PART 2.8(a) -- SUBSIDIARIES.
PART 2.8(b) -- AFFILIATES.
PART 2.13(a) -- ENVIRONMENTAL COMPLIANCE.
PART 2.13(b) -- ENVIRONMENTAL LIABILITY.
PART 2.13(c) -- ENVIRONMENTAL NOTICES.
PART 6.5 -- RESTRICTED PAYMENTS.
PART 6.6(a)(vii) -- EXISTING LIENS.
PART 6.10 -- TRANSACTIONS WITH AFFILIATES.
PART 9.1-ACP -- ACCEPTABLE CONTROL PERSONS.
Annex 3-1
<PAGE> 1
EXHIBIT 4.21
SECOND AMENDMENT TO WARRANT AGREEMENT
THIS SECOND AMENDMENT TO WARRANT AGREEMENT (this "AMENDMENT") is made
as of the 9th day of April, 1997, by and among The Cerplex Group, Inc., a
Delaware corporation (the "COMPANY") and each of the holders of warrants listed
on Schedule A hereto, each of which is herein referred to as a "HOLDER" and
collectively as the "HOLDERS."
RECITALS:
A. The Company and the Holders entered into a Warrant Agreement dated
as of November 19, 1993, as amended by a First Amendment to Warrant Agreement
dated as of April 15, 1996 (as in effect prior to the effectiveness of this
Amendment, the "EXISTING WARRANT AGREEMENT").
B. The Holders are the holders of all of the Warrants (as such term is
defined in the Existing Warrant Agreement) outstanding as of the date hereof.
C. The Company has requested that the Existing Warrant Agreement be
amended, as more particularly provided herein, and the Holders have agreed to
amend the Existing Warrant Agreement as set forth herein.
AGREEMENT:
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS.
As used in this Amendment, the following terms have the respective
meanings specified below:
"AMENDMENT, THIS" -- means this First Amendment to Warrant Agreement.
"COMPANY" -- the introductory sentence.
"EXISTING WARRANT AGREEMENT" -- Recital A.
"HOLDERS" -- the introductory sentence.
SECTION 2. AMENDMENT TO EXISTING WARRANT AGREEMENT; AFFIRMATION.
2.1 AMENDMENT TO THE EXISTING WARRANT AGREEMENT.
Section 4.1(d)(ii) of the Existing Warrant Agreement is hereby amended
by:
(a) deleting the word "and" at the end of clause (D);
1
<PAGE> 2
(b) deleting the period and the end of clause (E) and
substituting "; and" in lieu thereof; and
(c) adding the following clause (F) immediately following
clause (E):
(F) warrants, not exceeding eight hundred seventy-five
thousand (875,000) in the aggregate, and shares of Common
Stock issuable upon the exercise of such warrants, issued on
or prior to April 9, 1997 to any then holder of the Wells
Fargo Credit Agreement Debt (as such term is defined in the
Note Purchase Agreement).
2.2 AFFIRMATION OF OBLIGATIONS.
The Company hereby acknowledges and affirms all of its obligations
under the terms of the Existing Warrant Agreement, as amended hereby.
SECTION 3. MISCELLANEOUS.
3.1 GOVERNING LAW.
This Amendment shall be governed by, and construed and enforced in
accordance with, internal New York law.
3.2 DUPLICATE ORIGINALS.
Two or more duplicate originals of this Amendment may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument. This Amendment may be executed in one or
more counterparts and shall be effective when at least one counterpart shall
have been executed by each party hereto, and each set of counterparts which,
collectively, show execution by each party hereto shall constitute one duplicate
original.
3.3 EFFECT OF THIS AMENDMENT.
Except as specifically provided in this Amendment, no terms or
provisions of the Existing Warrant Agreement have been modified or changed by
this Amendment and the terms and provisions of the Existing Warrant Agreement,
as amended hereby, shall continue in full force and effect. This Amendment and
the amendments contained herein shall have and be in effect on and after the
date hereof.
3.4 SECTION HEADINGS.
The titles of the sections hereof appear as a matter of convenience
only, do not constitute a part of this Amendment and shall not affect the
construction hereof.
[Remainder of Page Intentionally Blank. Next Page is Signature Page.]
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on their behalf by a duly authorized officer or agent thereof, as the
case may be, as of the date first above written.
THE CERPLEX GROUP, INC.
By________________________________
Name:
Title:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By________________________________
Name:
Title:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By________________________________
Name:
Title:
NORTH ATLANTIC SMALLER COMPANIES
INVESTMENT TRUST PLC
By________________________________
Name:
Title:
3
<PAGE> 4
SCHEDULE A
Schedule of Holders
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
John Hancock Mutual Life Insurance Company
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
North Atlantic Smaller Companies Trust PLC
c/o J.O. Hambro & Co., Ltd.
10 Park Place
London, England SW1A1LP
Schedule A-1
<PAGE> 1
EXHIBIT 4.22
SECOND AMENDMENT TO WARRANT AGREEMENT
THIS SECOND AMENDMENT TO WARRANT AGREEMENT (this "AMENDMENT") is made
as of the 9th day of April, 1997, by and among The Cerplex Group, Inc., a
Delaware corporation (the "COMPANY") and each of the holders of warrants listed
on Schedule A hereto, each of which is herein referred to as a "HOLDER" and
collectively as the "HOLDERS."
RECITALS:
A. The Company and the Holders entered into a Warrant Agreement dated
as of April 15, 1996, as amended by a Waiver and Amendment Agreement dated as of
October 31, 1996 (as in effect prior to the effectiveness of this Amendment, the
"EXISTING WARRANT AGREEMENT").
B. The Holders are the holders of all of the Warrants (as such term is
defined in the Existing Warrant Agreement) outstanding as of the date hereof.
C. The Company and the Holders have agreed to amend the Existing
Warrant Agreement as set forth herein.
AGREEMENT:
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINED TERMS.
As used in this Amendment, the following terms have the respective
meanings specified below:
"AMENDMENT, THIS" -- means this Second Amendment to Warrant Agreement.
"COMPANY" -- the introductory sentence.
"EXISTING WARRANT AGREEMENT" -- Recital A.
"HOLDERS" -- the introductory sentence.
SECTION 2. AMENDMENTS TO EXISTING WARRANT AGREEMENT; AFFIRMATION.
2.1 AMENDMENTS TO THE EXISTING WARRANT AGREEMENT.
(a) Section 4.1(d)(ii) of the Existing Warrant Agreement is hereby
amended by:
(i) deleting the word "and" at the end of clause (D);
(ii) deleting the period and the end of clause (E)
and substituting "; and" in lieu thereof; and
<PAGE> 2
(iii) adding the following clause (F) immediately
following clause (E):
(F) warrants, not exceeding eight hundred
seventy-five thousand (875,000) in the aggregate, and
shares of Common Stock issuable upon the exercise of
such warrants, issued on or prior to April 9, 1997 to
any then holder of the Wells Fargo Credit Agreement
Debt (as such term is defined in the Note Purchase
Agreement).
(b) The definition of "Initial Purchase Price" in Section
5.1 of the Existing Warrant Agreement is hereby amended and restated in
its entirety as follows:
INITIAL PURCHASE PRICE -- means Fifty-Nine and
Three Eighths Cents ($0.59375) per share.
Each of the Warrant Certificates (as such term is defined in the
Existing Warrant Agreement) issued under the Existing Warrant Agreement
and currently outstanding, as well as Exhibit A to the Existing Warrant
Agreement, are hereby further amended and modified by changing the
references therein to "initial purchase price" and "Purchase Price"
from "Two Dollars and Fifty Cents ($2.50) per share" to "Fifty-Nine and
Three Eighths Cents ($0.59375) per share." This amendment to each of
the Warrant Certificates currently outstanding shall be effective
without any further action required on the part of the Holders or the
Company and without the need to submit such Warrant Certificates to
Company for any notation of said change thereon or to otherwise
exchange such Warrant Certificates for new Warrant Certificates.
2.2 AFFIRMATION OF OBLIGATIONS.
The Company hereby acknowledges and affirms all of its obligations
under the terms of the Existing Warrant Agreement, as amended hereby.
SECTION 3. MISCELLANEOUS.
3.1 GOVERNING LAW.
This Amendment shall be governed by, and construed and enforced in
accordance with, internal New York law.
3.2 DUPLICATE ORIGINALS.
Two or more duplicate originals of this Amendment may be signed by the
parties, each of which shall be an original but all of which together shall
constitute one and the same instrument. This Amendment may be executed in one or
more counterparts and shall be effective when at least one counterpart shall
have been executed by each party hereto, and each set of counterparts which,
collectively, show execution by each party hereto shall constitute one duplicate
original.
2
<PAGE> 3
3.3 EFFECT OF THIS AMENDMENT.
Except as specifically provided in this Amendment, no terms or
provisions of the Existing Warrant Agreement have been modified or changed by
this Amendment and the terms and provisions of the Existing Warrant Agreement,
as amended hereby, shall continue in full force and effect. This Amendment and
the amendments contained herein shall have and be in effect on and after the
date hereof.
3.4 SECTION HEADINGS.
The titles of the sections hereof appear as a matter of convenience
only, do not constitute a part of this Amendment and shall not affect the
construction hereof.
[Remainder of Page Intentionally Blank. Next Page is Signature Page.]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed on their behalf by a duly authorized officer or agent thereof, as the
case may be, as of the date first above written.
THE CERPLEX GROUP, INC.
By________________________________
Name:
Title:
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY
By________________________________
Name:
Title:
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By________________________________
Name:
Title:
NORTH ATLANTIC SMALLER COMPANIES
INVESTMENT TRUST PLC
By________________________________
Name:
Title:
4
<PAGE> 5
SCHEDULE A
Schedule of Holders
The Northwestern Mutual Life Insurance Company
720 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
John Hancock Mutual Life Insurance Company
John Hancock Place
200 Clarendon Street
Boston, Massachusetts 02117
North Atlantic Smaller Companies Trust PLC
c/o J.O. Hambro & Co., Ltd.
10 Park Place
London, England SW1A1LP
Schedule A-1
<PAGE> 1
EXHIBIT 4.23
EXECUTION COPY
THE CERPLEX GROUP, INC.
----------------------
AMENDED AND RESTATED WARRANT AGREEMENT
----------------------
DATED AS OF APRIL 9, 1997
WARRANTS TO PURCHASE
SHARES OF COMMON STOCK
<PAGE> 2
TABLE OF CONTENTS
(Not a Part of the Agreement)
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. FORM, EXECUTION AND TRANSFER OF WARRANT
CERTIFICATES..................................................... 2
1.1 Form of Warrant Certificates............................... 2
1.2 Execution of Warrant Certificates; Registration Books etc.. 2
1.3 Transfer, Split Up, Combination and Exchange of Warrant
Certificates; Lost or Stolen Warrant Certificates.......... 4
1.4 Subsequent Issuance of Warrant Certificates................ 4
2. EXERCISE OF WARRANTS; PAYMENT OF PURCHASE PRICE................. 5
2.1 Exercise of Warrants....................................... 5
2.2 Issuance of Common Stock................................... 5
2.3 Unexercised Warrants....................................... 6
2.4 Cancellation and Destruction of Warrant Certificates....... 6
2.5 Cancellation of Warrants................................... 6
3. REPRESENTATIONS AND COVENANTS OF THE COMPANY..................... 6
3.1 Representations and Warranties............................. 6
3.2 Reservation of Common Stock................................ 7
3.3 Common Stock to be Duly Authorized and Issued, Fully Paid
and Nonassessable.......................................... 7
3.4 Transfer Taxes............................................. 7
3.5 Common Stock Record Date................................... 8
3.6 Financial and Business Information......................... 8
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES
OF COMMON STOCK ISSUABLE PER WARRANT............................. 10
4.1 Mechanical Adjustments..................................... 10
4.2 Fractional Shares.......................................... 20
4.3 Special Agreements of the Company.......................... 20
5. INTERPRETATION OF THIS AGREEMENT................................. 21
5.1 Terms Defined.............................................. 21
5.2 Directly or Indirectly..................................... 25
5.3 Section Headings and Table of Contents and Construction.... 25
5.4 Governing Law.............................................. 25
6. MISCELLANEOUS.................................................... 25
6.1 Communications............................................. 25
6.2 Reproduction of Documents.................................. 27
6.3 Survival................................................... 27
6.4 Successors and Assigns..................................... 27
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
6.5 Amendment and Waiver..................................... 27
6.6 Right of Action.......................................... 28
6.7 Expenses................................................. 28
6.8 Filings.................................................. 28
6.9 Entire Agreement......................................... 29
6.10 Term..................................................... 29
6.11 Duplicate Originals, Execution in Counterpart............ 29
</TABLE>
Annex 1 -- Information as to Holders
Exhibit A -- Form of Warrant Certificate
Exhibit B -- Determination of Fair Market Share Price
Exhibit C -- Confidentiality
ii
<PAGE> 4
AMENDED AND RESTATED WARRANT AGREEMENT
AMENDED AND RESTATED WARRANT AGREEMENT, dated as of April 9, 1997 (as may
be amended from time to time, this "AGREEMENT"), among THE CERPLEX GROUP, INC.,
a Delaware corporation (together with its successors and assigns, the
"COMPANY"), and each of the Persons identified as a Holder in Annex 1
individually, a "HOLDER" and, collectively, the "HOLDERS").
RECITALS:
A. Certain capitalized terms used in this Agreement have the meanings
assigned to them in Section 5.1 hereof.
B. In accordance with the FIRST AMENDMENT TO CREDIT AGREEMENT AND LIMITED
WAIVER (the "FIRST AMENDMENT"), dated as of April 15, 1996 and entered into by
and among the Company, the financial institutions listed on the signature pages
thereof ("LENDERS") and Wells Fargo Bank, National Association, as
administrative agent for the Lenders ("ADMINISTRATIVE AGENT"), under that
certain Credit Agreement dated as of October 12, 1994 (the "CREDIT AGREEMENT"),
by and among, inter alia, the Company, Lenders and Administrative Agent, which
such Credit Agreement was amended by the First Amendment, and in consideration
of certain waivers and amendments set forth in the First Amendment, the Company
issued in the aggregate one hundred twenty-five thousand (125,000) warrants
(individually, an "ORIGINAL WARRANT" and, collectively, the "ORIGINAL WARRANTS")
of the Company to the Lenders, each Original Warrant representing the right to
purchase, upon the terms and subject to the conditions set forth in this
Agreement, and subject to adjustment as set forth herein, one (1) share of
Common Stock.
C. In accordance with the THIRD AMENDMENT TO CREDIT AGREEMENT (the "THIRD
AMENDMENT"), dated as of April 9, 1997 and entered into by and among the
Company, Lenders and Administrative Agent, and in consideration of certain
amendments set forth in the Third Amendment, the Company has agreed to adjust
the Initial Purchase Price of the Original Warrants.
D. In accordance with the Third Amendment, the Company has also agreed to
issue in the aggregate an additional seven hundred fifty thousand (750,000)
warrants (individually, an "ADDITIONAL WARRANT" and, collectively, the
"ADDITIONAL WARRANTS") of the Company to the Lenders, each Additional Warrant
representing the right to purchase, upon the terms and subject to the conditions
set forth in this Agreement, and subject to adjustment as set forth herein, one
(1) share of Common Stock.
E. In connection with the execution of the Third Amendment and this
Agreement, the Company will issue Warrant Certificates evidencing the Additional
Warrants and, within 5 Business Days thereafter, will exchange each Holder's
Warrant
1
<PAGE> 5
Certificates for a single Warrant Certificate evidencing such Holder's Original
Warrants and such Holder's Additional Warrants.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties to this Agreement hereby agree as follows:
1. FORM, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES
1.1 FORM OF WARRANT CERTIFICATES.
The warrant certificates (individually, a "WARRANT CERTIFICATE" and,
collectively, the "WARRANT CERTIFICATES") evidencing the Warrants, and the forms
of assignment and of election to purchase shares to be attached to such
certificates, shall be substantially in the form set forth in Exhibit A and may
have such letters, numbers or other marks of identification or designation as
may be required to comply with any law or with any rule or regulation of any
governmental authority, stock exchange or self-regulatory organization made
pursuant thereto. Each Warrant Certificate shall be dated as of the date of
issuance thereof by the Company, either upon initial issuance or upon transfer
or exchange, and on its face shall initially entitle the holder thereof to
purchase the number of shares of Common Stock equal to the number of Warrants
represented by such Warrant Certificate at a price per share equal to the
Purchase Price, but the number of such shares and the Purchase Price shall be
subject to adjustment as provided herein.
1.2 EXECUTION OF WARRANT CERTIFICATES; REGISTRATION BOOKS ETC.
(a) EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates
shall be executed on behalf of the Company by its President, one of its
Vice Presidents or any other officer of the Company authorized by the
Board of Directors, which execution shall be attested by the Secretary or
an Assistant Secretary of the Company. In case any officer of the Company
who shall have signed any Warrant Certificate shall cease to be such
officer of the Company before issuance and delivery by the Company of such
Warrant Certificate, such Warrant Certificate nevertheless may be issued
and delivered with the same force and effect as though the individual who
signed such Warrant Certificate had not ceased to be such officer of the
Company, and any Warrant Certificate may be signed on behalf of the
Company by any individual who, at the actual date of the execution of such
Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this
Agreement any such individual was not such an officer.
(b) REGISTRATION BOOKS, ETC. The Company will keep or cause to be
kept at its office maintained at the address of the Company set forth in
Section 6.1 hereof, or at such other office of the Company in the United
States of America of which the Company shall have given notice to each
holder of Warrant
2
<PAGE> 6
Certificates, books for registration and transfer of the Warrant
Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Warrant Certificates, the
registration number and the number of Warrants evidenced on its face by
each of the Warrant Certificates and the date of each of the Warrant
Certificates. Every holder of a Warrant Certificate by accepting the same
consents and agrees with the Company and with every other holder of a
Warrant Certificate that:
(i) the Warrant Certificates are transferable only on the
registry books of the Company if surrendered at the office of the
Company referred to in this Section 1.2(b), duly endorsed or
accompanied by an instrument of transfer (substantially in the form
attached to Exhibit A); and
(ii) the Company may deem and treat the Person in whose name
each Warrant Certificate is registered as the absolute owner thereof
and of the Warrants evidenced thereby (notwithstanding any notations
of ownership or writing on the Warrant Certificates made by anyone
other than the Company) for all purposes whatsoever, and the Company
shall not be affected by any notice to the contrary.
(c) ACQUISITION FOR INVESTMENT. Each Holder represents that it is
acquiring the Warrants for its own account for investment and not with a
view to any resale or distribution thereof, within the meaning of the
Securities Act, but without prejudice to its right at all times to sell or
otherwise dispose of all or any part of the Warrants or the shares of
Common Stock issuable upon the exercise of such Warrant under a
registration statement filed under the Securities Act or in a transaction
exempt from the registration requirements of the Securities Act. Each
Holder agrees that each outstanding Warrant Certificate (and each
certificate representing a share or shares of Common Stock issued upon the
exercise of a Warrant) which it owns shall, unless the Securities
represented by such certificate have been registered or have been sold in
accordance with Rule 144 (or any successor regulation thereto) under the
Securities Act, bear an endorsement reading substantially as follows:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
any state securities law. These securities may not be sold,
transferred, pledged or hypothecated in any transaction unless
first registered under such laws or unless such transaction is
exempt from the registration requirements of such laws. The
securities represented by this certificate are subject to
certain market holdback provisions set forth in that certain
registration rights agreement dated November 19, 1993, as
3
<PAGE> 7
amended, among The Cerplex Group, Inc. and
the other parties thereto.
1.3 TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF WARRANT
CERTIFICATES; LOST OR STOLEN WARRANT CERTIFICATES.
(a) TRANSFER, SPLIT UP, ETC. Any Warrant Certificate, with or
without other Warrant Certificates, may be transferred, split up, combined
or exchanged for another Warrant Certificate or Warrant Certificates,
entitling the registered holder or transferee thereof to purchase a like
number of shares of Common Stock as the Warrant Certificate or Warrant
Certificates surrendered then entitled such registered holder to purchase.
Any registered holder desiring to transfer, split up, combine or exchange
any Warrant Certificate shall make such request in writing delivered to
the Company, and shall surrender the Warrant Certificate or Warrant
Certificates to be transferred, split up, combined or exchanged at the
office of the Company referred to in Section 1.2(b) hereof, whereupon the
Company shall deliver promptly to the Person entitled thereto a Warrant
Certificate or Warrant Certificates, as the case may be, as so requested.
Each holder of Warrants after any such transfer or exchange shall, by its
acceptance of the Warrants and Warrant Certificates being so transferred,
be deemed to have agreed to the terms and provisions of confidentiality
set forth on Exhibit C.
(b) LOSS, THEFT, ETC. Upon receipt of written notice from the holder
of any Warrant Certificate of the loss, theft, destruction or mutilation
of such Warrant Certificate and, in the case of any such loss, theft or
destruction, upon receipt of such holder's unsecured indemnity agreement,
or, in the case of any such mutilation, upon surrender and cancellation of
such Warrant Certificate, the Company will make and deliver a new Warrant
Certificate, of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant Certificate.
1.4 SUBSEQUENT ISSUANCE OF WARRANT CERTIFICATES.
Subsequent to their original issuance, no Warrant Certificates shall be
issued except:
(a) Warrant Certificates issued upon any transfer, combination,
split up or exchange of Warrants pursuant to Section 1.3(a) hereof;
(b) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 1.3(b)
hereof; and
(c) Warrant Certificates issued pursuant to Section 2.3 hereof upon
the partial exercise of any Warrant Certificate to evidence the
unexercised portion of such Warrant Certificate.
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2. EXERCISE OF WARRANTS; PAYMENT OF PURCHASE PRICE
2.1 EXERCISE OF WARRANTS.
(a) PURCHASE PRICE PAYMENT UPON EXERCISE. At any time on or after
the Effective Date and prior to 5:00 p.m. (Los Angeles, California time)
on the Termination Date, the holder of any Warrant Certificate may
exercise the Warrants evidenced thereby in whole or in part, by surrender
of such Warrant Certificate, with an election to purchase (a form of which
is attached as part of the form of Warrant Certificate attached as Exhibit
A) attached thereto duly executed, to the Company at its office referred
to in Section 1.2(b) hereof, together with payment of the Purchase Price,
payable as set forth below in this Section 2. 1, for each share of Common
Stock as to which the Warrants are exercised. The Purchase Price shall be
(i) payable in cash, by certified or official bank check payable to the
order of the Company or by wire transfer of immediately available funds to
the account of the Company or (ii) satisfied by the delivery of Warrant
Certificates to the Company for cancellation in accordance with the
formula set forth in Section 2.1 (b).
(b) NET EXERCISE PRICE. In lieu of any holder of a Warrant
Certificate exercising the Warrants (or any portion thereof) evidenced by
such Warrant Certificate for cash, as contemplated by Section 2.1 (a),
such holder may, in connection with such exercise, elect to receive shares
of Common Stock equal to the product of (i) the number of shares of Common
Stock issuable upon such exercise of such Warrant Certificate (or, if only
a portion of such Warrant Certificate is being exercised, issuable upon
the exercise of such portion) multiplied by (ii) a fraction, the numerator
of which is the Market Price per share of Common Stock at the time of such
exercise minus the Purchase Price per share of Common Stock at the time of
such exercise, and the denominator of which is the Market Price per share
of Common Stock at the time of such exercise.
2.2 ISSUANCE OF COMMON STOCK.
Upon timely receipt on or after the Effective Date of a Warrant
Certificate, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for each of the shares to be purchased in the
manner provided in Section 2.1 hereof and an amount equal to any applicable
transfer tax (if not payable by the Company as provided in Section 3.4 hereof),
the Company shall thereupon promptly cause certificates for the number of whole
shares of Common Stock then being purchased to be delivered to or upon the order
of the registered holder of such Warrant Certificate, registered in such name or
names as may be designated by such holder, and, promptly after such receipt
deliver the cash, if any, to be paid in lieu of fractional shares pursuant to
Section 4.2 hereof to or upon the order of the registered holder of such Warrant
Certificate.
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2.3 UNEXERCISED WARRANTS.
In case the registered holder of any Warrant Certificate shall exercise
less than all the Warrants evidenced thereby, a new Warrant Certificate
evidencing Warrants equal in number to the number of Warrants remaining
unexercised shall be issued by the Company to the registered holder of such
Warrant Certificate or to its duly authorized assigns.
2.4 CANCELLATION AND DESTRUCTION OF WARRANT CERTIFICATES.
All Warrant Certificates surrendered to the Company for the purpose of
exercise, exchange, substitution or transfer shall be cancelled by it, and no
Warrant Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall cancel
and retire any other Warrant Certificates purchased or acquired by the Company
otherwise than upon the exercise thereof.
2.5 CANCELLATION OF WARRANTS.
[INTENTIONALLY OMITTED]
3. REPRESENTATIONS AND COVENANTS OF THE COMPANY
3.1 REPRESENTATIONS AND WARRANTIES.
(a) CORPORATE AUTHORITY. The Company has the corporate power and
authority to:
(i) authorize, execute, deliver and enter into this Agreement and
the Warrant Certificates;
(ii) issue and sell the Warrants;
(iii) perform its obligations under this Agreement and the Warrants;
(iv) authorize, execute, deliver, issue and sell the shares of the
Common Stock issuable upon exercise of the Warrants.
(b) ENFORCEABILITY OF OBLIGATIONS. This Agreement and the Warrant
Certificates have been duly authorized, executed and delivered by the Company.
This Agreement, the Warrant Certificates and the Warrants constitute the legal,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms, except:
(c) as such enforceability may be limited by bankruptcy,
insolvency or other similar laws affecting the enforceability of
creditors' rights generally; and
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(d) as such enforceability may be subject to the availability
of equitable remedies.
The holders of the Warrants are entitled to the benefits of this
Agreement.
3.2 RESERVATION OF COMMON STOCK.
The Company represents and warrants that it has reserved for issuance a
sufficient number of shares of Common Stock to permit the exercise of all the
Warrants, and all other rights, options or warrants exercisable into Common
Stock. The Company covenants and agrees that it will at all times cause to be
reserved and kept available out of its authorized and unissued shares of Common
Stock such number of shares of Common Stock as will be sufficient to permit the
exercise in full of all Warrants outstanding hereunder.
3.3 COMMON STOCK TO BE DULY AUTHORIZED AND ISSUED, FULLY PAID AND
NONASSESSABLE.
The Company covenants and agrees that it will take all such action as may
be necessary to ensure that all shares of Common Stock delivered upon the
exercise of any Warrants, at the time of delivery of the certificates for such
shares, shall be duly and validly authorized and issued and fully paid and
nonassessable, free of any preemptive rights and free of any pledge, security
interest, lien or other encumbrance.
3.4 TRANSFER TAXES.
The Company covenants and agrees that it will pay when due and payable any
and all federal and state transfer taxes and charges that may be payable in
respect of
(a) the execution and delivery of this Agreement;
(b) the initial issuance and delivery of each Warrant Certificate
hereunder;
(c) the issuance and delivery of each Warrant Certificate issued in
exchange for any other Warrant Certificate pursuant to Section 1.3 or
Section 2.3 hereof; and
(d) the issuance and delivery of each share of Common Stock issued
upon the exercise of any Warrant.
The Company shall not, however, be required to
(i) pay any transfer tax that may be payable in respect of the
transfer or delivery of Warrant Certificates or the issuance or delivery
of certificates for shares of Common Stock in a name other than that of
the registered holder of the
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Warrant Certificate evidencing any Warrant surrendered for exercise (any
such tax being payable by the holder of such Warrant Certificate at the
time of surrender) or
(ii) issue or deliver any such certificates referred to in the
foregoing clause (i) for shares of Common Stock upon the exercise of any
Warrant until any such tax referred to in the foregoing clause (i) shall
have been paid.
3.5 COMMON STOCK RECORD DATE.
Each Person in whose name any certificate for shares of Common Stock is
issued upon the exercise of Warrants shall for all purposes be deemed to have
become the holder of record of the Common Stock represented thereby on, and such
certificate shall be dated, the date upon which the Warrant Certificate
evidencing such Warrants was duly surrendered with an election to purchase
attached thereto duly executed and payment of the aggregate Purchase Price (and
any applicable transfer taxes, if payable by such Person) was made. Prior to the
exercise of the Warrants evidenced thereby, the holder of a Warrant Certificate
shall not be entitled to any rights of a shareholder in the Company with respect
to shares for which the Warrants shall be exercisable, including, without
limitation, any right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein or in any other
applicable agreement between the Company and such holder.
3.6 FINANCIAL AND BUSINESS INFORMATION.
The Company shall deliver to each holder of Warrants:
(a) QUARTERLY STATEMENTS -- as soon as practicable after the end of
each quarterly fiscal period in each fiscal year of the Company (other
than the last quarterly fiscal period of each such fiscal year), and in
any event within forty-five (45) days thereafter, duplicate copies of
(i) a consolidated balance sheet of the Company and the
Subsidiaries as at the end of such quarter, and
(ii) consolidated statements of income and cash flows of the
Company and the Subsidiaries for such quarter and (in the case of
the second and third quarters) for the portion of the fiscal year
ending with such quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the immediately preceding fiscal year, all in reasonable detail,
prepared in accordance with GAAP applicable to quarterly financial statements
generally (provided that such financial statements need not contain footnotes),
and certified as complete and correct, subject to changes resulting from
year-end adjustments, by a Senior Financial Officer;
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(b) ANNUAL STATEMENTS -- as soon as practicable after the end of
each fiscal year of the Company, and in any event within ninety (90) days
thereafter, duplicate copies of
(i) consolidated and consolidating balance sheets of the
Company and the Subsidiaries, as at the end of such year, and
(ii) consolidated and consolidating statements of income,
shareholders' equity and cash flows of the Company and the
Subsidiaries for such year,
setting forth in each case in comparative form the figures for the
immediately preceding fiscal year, all in reasonable detail, prepared in
accordance with GAAP, and accompanied by
(A) in the case of such consolidated statements, a report
thereon of independent certified public accountants of recognized
national standing, which report shall express an opinion in the form
of the standard auditor's report under generally accepted auditing
standards which shall state that such financial statements present
fairly, in all material respects, the financial position of the
companies being reported upon and their results of operations and
cash flows and have been prepared in conformity with GAAP, and that
the examination of such accountants in connection with such
financial statements has been made in accordance with generally
accepted auditing standards, and that such audit provides a
reasonable basis for such opinion in the circumstances,
(B) a statement from such independent certified public
accountants that such consolidating statements were prepared using
the same work papers as were used in the preparation of such
consolidated statements, and
(C) a certification by a Senior Financial Officer that such
consolidated and consolidating statements are complete and correct;
(c) SEC AND OTHER REPORTS -- promptly upon their becoming available,
a copy of each financial statement, report (including, without limitation,
each Quarterly Report on Form 10-Q, each Annual Report on Form 10-K and
each Current Report on Form 8-K), notice or proxy statement sent by the
Company or any Subsidiary to shareholders generally and of each regular or
periodic report and any registration statement, prospectus or written
communication (other than transmittal letters), and each amendment
thereto, in respect thereof filed by the Company or any Subsidiary with,
or received by, such Person in connection therewith from, the National
Association of Securities Dealers, any securities exchange or the SEC; and
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(d) REQUESTED INFORMATION -- with reasonable promptness, such other
data and information as from time to time may be reasonably requested,
including, without limitation, information required by 17 C.F.R.
Section 230.144A, as amended from time to time.
Each of the Holders hereby agrees to the terms of confidentiality set
forth on Exhibit C.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK ISSUABLE
PER WARRANT
4.1 MECHANICAL ADJUSTMENTS.
The number of shares of Common Stock purchasable upon the exercise of each
Warrant, and the Purchase Price, shall be subject to adjustment as follows:
(a) DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In the event that the
Company shall
(i) pay a dividend in shares of Common Stock or make a
distribution in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a
greater number of shares or combine its outstanding shares of Common
Stock into a smaller number of shares,
then the Purchase Price in effect at the time of the record date for such
dividend or of the effective date of such subdivision or combination shall
be adjusted to the price determined by multiplying the Purchase Price in
effect immediately prior to such event by the quotient of:
(A) the total number of shares of Adjusted Outstanding Common
Stock immediately prior to such event;
divided by
(B) the total number of Adjusted Outstanding Common Stock
immediately after such event.
An adjustment made pursuant to this Section 4.1(a) shall become effective
on the effective date of such event.
(b) RIGHTS, OPTIONS, WARRANTS AND CONVERTIBLE OR EXCHANGEABLE
SECURITIES. In the event that the Company shall issue any rights, options,
warrants or convertible or exchangeable Securities to all holders of its
shares of Common Stock, without charge to such holders, entitling such
holders to subscribe for or
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<PAGE> 14
purchase shares of Common Stock at a price per share (or having a
conversion or exchange price per share, in the case of a Security
convertible or exchangeable into shares of Common Stock) that is (or to
amend or modify any provision of any thereof such that the conversion,
exchange or exercise price becomes) lower at the record date in respect of
which such rights, warrants, options or Securities were issued or amended
than the Reference Price on such record date, then the Purchase Price in
effect immediately after such record date shall be determined by
multiplying the Purchase Price in effect immediately prior to such record
date by the quotient of:
(i) the sum of
(A) the number of shares of Adjusted Outstanding Common
Stock as of such record date, plus
(B) the quotient of
(ii) the Aggregate Consideration Receivable in
respect of such rights, options, warrants or convertible
or exchangeable Securities, divided by
(ii) the Reference Price on such record date;
divided by
(ii) the sum of
(A) the number of shares of Adjusted Outstanding Common
Stock as of such record date, plus
(B) the number of additional shares of Common Stock
initially issuable pursuant to such rights, options or
warrants or into which such convertible or exchangeable
Securities are initially convertible or exchangeable.
Such adjustment shall be made whenever such rights, options, or warrants
or convertible or exchangeable Securities are issued or amended, and shall
become effective on the date of issuance or amendment of such rights,
options, warrants or convertible or exchangeable Securities.
(c) DISTRIBUTIONS OF PROPERTY. In the event that the Company shall
distribute to holders of shares of Common Stock (including, without
limitation, any such distribution made in connection with a consolidation
or merger in which the Company is the continuing corporation) shares of
stock (other than Common Stock) or evidences of its indebtedness or assets
(excluding (x) cash dividends paid out of retained earnings after November
19, 1998, (y) Regular Cash Dividends
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paid after the date hereof and on or prior to November 19, 1998 and (z)
dividends payable solely in additional shares of the Common Stock) or
rights, options or warrants or convertible or exchangeable Securities
(excluding those referred to in Section 4.1(b) and Section 4.1(d) hereof),
then in each case the Purchase Price in effect immediately after the
record date in respect of which such stock, indebtedness, assets, rights,
options, warrants or Securities were issued shall be determined by
multiplying the Purchase Price in effect immediately prior to such record
date by the quotient of:
(i) the result of
(A) the Reference Price on such record date, minus
(B) the quotient of
(i) the then fair value (as determined in good
faith and on a reasonable basis by the Board of
Directors, whose determination, if so made, shall be
conclusive) of the shares of stock or assets or
evidences of indebtedness so distributed or of such
rights, options or warrants, or of such convertible or
exchangeable Securities, divided by
(ii) the number of shares of Adjusted Outstanding
Common Stock as of the record date;
divided by
(ii) the Reference Price on such record date.
Such adjustment shall be made whenever any such distribution is made, and
shall become effective on the date of such distribution.
(d) ISSUANCES OF COMMON STOCK AND OTHER SECURITIES.
(i) In the event that the Company shall issue or sell shares
of Common Stock, or rights, options, warrants or convertible or
exchangeable Securities containing the right to subscribe for or
purchase shares of Common Stock (excluding Excluded Securities, as
defined in Section 4.1 (d)(ii) hereof) at a price per share of
Common Stock lower than the Reference Price in effect on the date
(the "ADJUSTMENT DATE") of such issuance or sale, then the Purchase
Price in effect immediately after the Adjustment Date shall be
determined by multiplying the Purchase Price in effect immediately
prior to such Adjustment Date by the quotient of:
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(A) the sum of
(i) the number of shares of Adjusted Outstanding
Common Stock outstanding immediately prior to such
issuance or sale, plus
(ii) the quotient of (1) the Aggregate
Consideration Receivable in respect of such rights,
options, warrants or convertible or exchangeable
Securities, divided by (2) the Reference Price on the
Adjustment Date;
divided by
(B) the sum of
(i) the number of shares of Adjusted Outstanding
Common Stock outstanding immediately prior to such
issuance or sale, plus
(ii) the number of additional shares of Common
Stock so issued or sold (or initially issuable pursuant
to such rights, options or warrants or into which such
convertible or exchangeable Securities are initially
convertible or exchangeable).
For purposes of this clause (i), "ADJUSTMENT DATE" may, in connection with
certain consolidations and mergers, have the meaning provided for in
Section 4.1 (e).
(ii) "EXCLUDED SECURITIES" shall mean and include:
(A) shares of Common Stock, rights, options, warrants or
convertible or exchangeable Securities issued in any of the
transactions described in Section 4.1(a), Section 4.1(b),
Section 4.1(c) or Section 4.1 (e) hereof and with respect to
which an adjustment to the Purchase Price has been made in
accordance with any of such Sections ;
(B) shares of Common Stock issuable upon exercise of the
Warrants;
(C) shares of Common Stock issuable upon exercise of
rights, options or warrants or conversion or exchange of
convertible or exchangeable Securities issued or sold under
circumstances which caused an adjustment pursuant to this
Section 4.1(d);
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(D) options, and shares of Common Stock issuable upon
exercise of such options, issued to individuals pursuant to
the SOP or shares of Common Stock issuable pursuant to any
restricted stock plan approved by the Board of Directors and
implemented by the Company in the future, provided that any
such options issued after the date hereof pursuant to the SOP
and any shares of Common Stock issuable upon the exercise
thereof and any shares of Common Stock issued pursuant to any
such restricted stock plan after the date hereof which, in the
aggregate, exceed, at the time of the issuance of thereof, ten
percent (10%) of the Fully Diluted Outstanding Common Stock,
determined at such time, shall not constitute Excluded
Securities;
(E) shares of Common Stock and/or rights, options,
warrants or convertible or exchangeable Securities (and the
shares of Common Stock issuable upon the exercise of such
rights, options, warrants or convertible or exchangeable
Securities), provided that (1) such shares of Common Stock
and/or rights, options, warrants or convertible or
exchangeable Securities are issued in connection with one or
more private placements of equity Securities of the Company
effected on or prior to July 15, 1996, (2) the total aggregate
consideration paid in cash in respect of such shares of Common
Stock and/or rights, options, warrants or convertible or
exchangeable Securities is not more than $8,000,000, (3) all
such shares of Common Stock together with all shares of Common
Stock issuable upon the exercise of any of such rights,
options, warrants or convertible or exchangeable Securities
shall not, in the aggregate, exceed 12% of Fully Diluted
Outstanding Common Stock, determined as of April 16, 1996, and
(4) the sale of such shares of Common Stock and/or rights,
options, warrants or convertible or exchangeable Securities is
done on an arm's-length basis and the setting of the exercise,
strike or conversion prices in respect of such rights,
options, warrants or convertible or exchangeable Securities is
done on an arm's-length basis; and
(F) warrants (including Warrants), and shares of Common
Stock issued or issuable upon exercise of warrants or
Warrants, issued on or prior to April 9, 1997 to any then
holder of the Company's senior or subordinated indebtedness.
(iii) In the case of rights, options, warrants or convertible
or exchangeable Securities, the "price per share of Common Stock"
referred to in Section 4.1(d)(i) hereof shall be equal to the
quotient of
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(A) the Aggregate Consideration Receivable in respect of
such rights, options, warrants or convertible or exchangeable
Securities, divided by
(B) the total number of shares of Common Stock covered
by such rights, options, warrants or convertible or
exchangeable Securities.
(iv) "AGGREGATE CONSIDERATION RECEIVABLE" shall mean, in the
case of a sale of shares of Common Stock, the aggregate gross amount
paid (without deduction for fees and expenses, underwriting
discounts or investment banking fees associated therewith) in
connection therewith and, in the case of an issuance or sale of
rights, options, warrants or convertible or exchangeable Securities,
the sum of
(A) the aggregate gross amount paid for such rights,
options, warrants or convertible or exchangeable Securities,
plus
(B) the aggregate consideration or premiums stated in
such rights, options, warrants or convertible or exchangeable
Securities to be payable for the shares of Common Stock
covered thereby.
(v) In the event that the Company shall issue and sell shares
of Common Stock, or rights, options, warrants or convertible or
exchangeable Securities containing the right to subscribe for or
purchase shares of Common Stock, for a consideration consisting, in
whole or in part, of Property other than cash, then in determining
the "price per share of Common Stock" referred to in Section 4.1
(d)(i) and Section 4.1 (d)(iii) hereof and the "Aggregate
Consideration Receivable" referred to in Section 4.1(d)(i), Section
4.1(d)(iii) and Section 4.1 (d)(iv) hereof, the Board of Directors
shall determine, in good faith and on a reasonable basis, the fair
value of such Property, and such determination, if so made, shall be
binding upon all holders of Warrants.
(e) CONSOLIDATION; MERGER; SALE OF THE COMPANY. In the event that
there shall be:
(i) any consolidation of the Company with, or merger of the
Company with or into, another corporation (other than a merger in
which the Company is the surviving corporation and that does not
result in any reclassification or change of shares of Common Stock
outstanding immediately prior to such merger);
(ii) any sale or conveyance to another corporation of the
Property of the Company substantially as an entirety; or
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(iii) any reclassification of the Common Stock that results in
the issuance of other Securities of the Company;
then lawful provision shall be made as a part of the terms of such
transaction or otherwise so that the holders of Warrants shall thereafter
have the right to purchase the number and kind of shares of stock, other
Securities, cash, Property and rights receivable upon such consolidation,
merger, sale, conveyance or reclassification by a holder of such number of
shares of Common Stock as the holder of a Warrant would have had the right
to acquire upon the exercise of such Warrant immediately prior to such
consolidation, merger, sale or conveyance, at the Purchase Price then in
effect, provided that nothing in this clause (e) shall entitle any holder
of Warrants to acquire or have the right to purchase any of the foregoing
in connection with any sale or conveyance referred to in clause (ii) above
if, with respect to such sale or conveyance, no holder of Common Stock
would have the right to acquire or purchase any of the foregoing and none
of the foregoing were in fact distributed to holders of Common Stock and
provided further that nothing in the foregoing proviso in this clause (e)
shall restrict the rights of the holders of Warrants under Section 4.1
(c). To the extent that
(A) the Company shall issue any shares of Common Stock or
rights, options, warrants or convertible or exchangeable Securities
containing the right to subscribe for or purchase shares of Common
Stock (other than Excluded Securities) in connection with any
consolidation or merger of the Company and
(B) such issuance of such shares, rights, options, warrants or
convertible or exchangeable Securities would otherwise cause an
adjustment under Section 4.1(d),
the Adjustment Date in respect of such adjustment, notwithstanding the
definition of such term, shall be the business day immediately preceding
the date of the public announcement by the Company of such merger or
consolidation or, if such merger or consolidation shall have been
generally known to the public prior to such announcement date, the date on
which the Required Warrantholders and the Company shall mutually agree
upon in good faith and in accordance with the essential intent and
principles of this Section 4 of fairly protecting the exercise rights of
the holders of Warrants and, if no such date can be so mutually agreed
upon, the Company shall appoint (at its expense) a firm of independent
certified public accountants of recognized national standing, which may
not be the regular auditors of the Company and which are reasonably
acceptable to the Required Warrantholders, which shall give their opinion
as to the appropriate date for such adjustment (after giving effect to the
aforesaid intent and principles of this Section 4); upon receipt of such
opinion, the Company will promptly mail a copy of such opinion to the
holders of Warrants and make the adjustments required under this Section 4
as of the date stipulated therein.
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(f) DE MINIMIS CHANGES IN PURCHASE PRICE. No adjustment in the
Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Purchase Price;
provided that any adjustments that, at the time of the calculation
thereof, are less than one percent (1%) of the Purchase Price at such time
and by reason of this Section 4.1 (f) are not required to be made at such
time shall be carried forward and added to any subsequent adjustment or
adjustments for purposes of determining whether such subsequent adjustment
or adjustments, as so supplemented, exceed the one percent (1%) amount set
forth in this Section 4.1 (f) and, if any such subsequent adjustment, as
so supplemented or otherwise, should exceed such one percent (1%) amount,
all adjustments deferred prior thereto and not previously made shall then
be made. In any case, all such adjustments being carried forward pursuant
to this Section 4.1 (f) shall be given effect upon the exercise of any
Warrants by any holder thereof for purposes of determining the Purchase
Price thereof. All calculations shall be made to the nearest
ten-thousandth of a Dollar ($0.0001).
(g) ADJUSTMENT OF NUMBER OF SHARES ISSUABLE PURSUANT TO WARRANTS.
Upon each adjustment of the Purchase Price as a result of the calculations
made in this Section 4.1, each Warrant outstanding immediately prior to
the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of shares of Common
Stock (calculated to the nearest one thousandth) obtained by multiplying
the number of shares of Common Stock covered by such Warrant immediately
prior to such adjustment by the quotient of:
(i) the Purchase Price in effect immediately prior to such
adjustment,
divided by
(ii) the Purchase Price in effect immediately after such
adjustment.
All Warrants originally issued by the Company hereunder shall, subsequent
to any adjustment made to the Purchase Price hereunder, evidence the right
to purchase, at the adjusted Purchase Price, the number of shares of
Common Stock determined to be purchasable from time to time hereunder upon
exercise of such Warrants, all subject to further adjustment as provided
herein. Each such adjustment shall be valid and binding upon the Company
and the holders of Warrants irrespective of whether the Warrant
Certificates theretofore and thereafter issued express the Purchase Price
per share of Common Stock and the number of shares of Common Stock that
were expressed upon the initial Warrant Certificates issued hereunder.
(h) MISCELLANEOUS.
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(i) Adjustments shall be made pursuant to this Section 4.1
successively whenever any of the events referred to in Section 4.1
(a) through Section 4.1(e), inclusive, hereof shall occur.
(ii) Shares of Common Stock owned by or held for the account
of the Company, including shares acquired by the Company during any
time any Warrants are outstanding, shall not, for purposes of the
adjustments set forth in this Section 4.1, be deemed outstanding.
(i) EXPIRATION OF RIGHTS, OPTIONS, ETC. Upon the expiration of any
rights, options, warrants or conversion or exchange privileges referred to
above in this Section 4.1 without the exercise thereof, the Purchase Price
and the number of shares of Common Stock purchasable upon the exercise of
each Warrant shall be readjusted and shall thereafter be such as such
Purchase Price and such number of shares of Common Stock would have been
had they been originally adjusted (or had the original adjustment not been
required, as the case may be) as if:
(i) the only shares of Common Stock so issued were the shares
of Common Stock, if any, actually issued or sold upon the exercise
of such rights, options, warrants or conversion or exchange
privileges; and
(ii) such shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Company upon such
exercise plus the aggregate consideration, if any, actually received
by the Company for the issuance, sale or grant of all of such
rights, options, warrants or conversion or exchange privileges
whether or not exercised;
provided that no such readjustment shall have the effect of increasing the
Purchase Price by an amount in excess of the amount of the reduction initially
made in respect of the issuance, sale, or grant of such rights, options,
warrants or conversion or exchange privileges.
(j) OTHER SECURITIES. In the event that at any time, as a result of
an adjustment made pursuant to this Section 4.1, each holder of Warrants
shall become entitled to purchase any Securities of the Company other than
shares of Common Stock, the number or amount of such other Securities so
purchasable and the Purchase Price of such Securities shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions contained in Section 4.1 (a) through
Section 4.1 (e), inclusive, hereof, and all other relevant provisions of
this Section 4. 1, and the definitions used in this Section 4. 1, that are
applicable to shares of Common Stock shall be applicable to such other
Securities.
(k) NOTICE OF ADJUSTMENT. Whenever the number of shares of Common
Stock issuable upon the exercise of Warrants is adjusted or the Purchase
Price in
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<PAGE> 22
respect thereof is adjusted, as herein provided, the Company shall
promptly give to each holder of Warrants notice of such adjustment or
adjustments and shall promptly deliver to each holder of Warrants a
certificate of the Company's chief financial officer setting forth:
(i) the number of shares of Common Stock issuable upon the
exercise of each Warrant and the Purchase Price of such shares after
such adjustment;
(ii) a brief statement of the facts requiring such adjustment;
and
(iii) the computation by which such adjustment was made.
So long as any Warrant is outstanding and an adjustment in respect of the
number of shares issuable upon the exercise of Warrants or the Purchase
Price in respect thereof shall have occurred in any fiscal year of the
Company, within ninety (90) days of the end of such fiscal year of the
Company, the Company shall deliver to each holder of Warrants a
certificate of independent certified public accountants of recognized
national standing selected by the Company (which may be the regular
auditors of the Company) setting forth
(A) the number of shares of Common Stock issuable upon the
exercise of each Warrant and the Purchase Price of such shares as of
the end of such fiscal year,
(B) a brief statement of the facts requiring each such
adjustment required to be made in such fiscal year and
(C) the computation by which each such adjustment was made.
(l) NOTICE OF CERTAIN EVENTS. Whenever the Company shall authorize
any Notice Event, the Company shall, not less than thirty (30) days prior
to the record date with respect to such event, give to each holder of
Warrants, notice of such event setting forth any change in the number of
shares of Common Stock the Company estimates will be issuable upon the
exercise of such holder's Warrants, the estimated Purchase Price of such
shares after any adjustment required to be made hereunder and a brief
statement of the facts requiring such adjustment and the computation by
which the Company expects such adjustment will be made.
"NOTICE EVENT" shall mean any of the following:
(i) any event that would require an adjustment pursuant to
this Section 4.1;
(ii) any distribution of cash or other Property in respect of
Common Stock (including, without limitation, a cash dividend payable
out of retained earnings);
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<PAGE> 23
(iii) any consolidation, merger or sale, transfer or other
disposition of all or substantially all of the Property of the
Company, provided that, if as a result of the circumstances
concerning such consolidation, merger, sale, transfer or other
disposition, it shall be impossible for the Company to give the
thirty (30) days' prior notice referred to above, the Company shall
give such notice as far in advance of the record date in respect of
such consolidation, merger, sale, transfer or other disposition as
reasonably feasible and, in any case, no later than two (2) business
days prior to such record date; and
(iv) the liquidation, dissolution or winding up of the
Company.
The Company shall, not less than thirty (30) days prior to the issuance of
any Preferred Stock, give to each holder of Warrants notice of such
issuance setting forth any change in the number of shares of Common Stock
the Company estimates will be issuable upon the exercise of such holder's
Warrants, the estimated Purchase Price of such shares after any adjustment
required to be made hereunder and a brief statement of the facts requiring
such adjustment and the computation by which the Company expects such
adjustment will be made.
4.2 FRACTIONAL SHARES.
The Company shall not be required to issue fractional shares of Common
Stock upon the exercise of any Warrant. Upon the exercise of any Warrant, there
shall be paid to the holder thereof, in lieu of any fractional share of Common
Stock resulting therefrom, an amount of cash equal to the product of:
(a) the fractional amount of such share; multiplied by
(b) the Market Price with respect to the Common Stock determined as
of the date of exercise of such Warrant.
4.3 SPECIAL AGREEMENTS OF THE COMPANY.
The Company covenants and agrees that:
(a) The Company shall not, by amendment to the Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of Securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Company, but shall at all times in good faith assist in the carrying
out of all the provisions of this Section 4 and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights
of the holders of the Warrant Certificates against dilution or other
impairment.
20
<PAGE> 24
(b) Before taking any action that would result in an adjustment to
the then current Purchase Price to a price that would be below the then
current par value of Common Stock issuable upon exercise of any Warrant,
the Company will take or cause to be taken any and all necessary corporate
or other action that may be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common
Stock upon payment of such Purchase Price as so adjusted.
5. INTERPRETATION OF THIS AGREEMENT
5.1 TERMS DEFINED.
ADJUSTED OUTSTANDING COMMON STOCK -- means, at any time, the number
of shares of Common Stock outstanding at such time (excluding all shares
constituting "treasury stock" and all shares held or beneficially owned by
a Subsidiary) together with the number of shares of additional Common
Stock that would be outstanding at such time assuming:
(a) the conversion immediately prior to such time of all then
Outstanding Securities that are convertible into shares of Common
Stock or that are issuable upon exercise of any warrants, options
and other rights, whether or not the conditions for such conversion
or exercise then exist, provided that no such Securities shall be
included in this clause (a) unless such Securities were issued and
outstanding on the date hereof or are derived through transfers
and/or exchanges from Securities that were issued and outstanding on
the date hereof; and
(b) the exercise immediately prior to such time of all then
outstanding warrants, options and similar rights to acquire shares
of Common Stock (including, without limitation, the Warrants),
whether or not the conditions for such exercise then exist, provided
that no such warrants, options and similar rights shall be included
in this clause (b) unless they were issued and outstanding on the
date hereof or are derived through transfers and/or exchanges from
Securities that were issued and outstanding on the date hereof.
ADJUSTMENT DATE -- Section 4.1(d)(i) hereof.
AGGREGATE CONSIDERATION RECEIVABLE -- Section 4.1 (d)(iv) hereof.
AGREEMENT -- introductory paragraph hereof.
APPRAISER -- means and includes one or more nationally recognized
investment banking firms or appraisers that shall be experienced in
evaluating companies in the same or similar lines of business as the
Company and the Subsidiaries.
21
<PAGE> 25
BOARD OF DIRECTORS -- means, at any time, the board of directors of
the Company or any committee thereof that, in the instance, shall have the
lawful power to exercise the power and authority of such board of
directors.
CERTIFICATE OF INCORPORATION -- means the restated certificate of
incorporation of the Company, as may be amended by the Company from time
to time after the Effective Date.
COMMON STOCK - means:
(a) on the date hereof, the Company's $0.001 par value capital
stock designated as "Common Stock"; and
(b) on any other date, any capital stock into which such
"Common Stock shall have been changed or any capital stock resulting
from any reclassification of such "Common Stock", and all other
capital stock of any class or classes (however designated) of the
Company the holders of which have the right, without limitation as
to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends
and distributions of any shares thereof entitled to preference.
COMPANY -- introductory paragraph hereof.
EFFECTIVE DATE -- means the date of the first issuance of any
Warrants pursuant to this Agreement.
EXCLUDED SECURITIES -- Section 4.1 (d)(ii) hereof.
FAIR MARKET SHARE PRICE - means, at any time, the sale value of a
single share of Common Stock, as determined by an Appraiser in accordance
with the provisions of Exhibit B attached hereto.
FULLY DILUTED OUTSTANDING COMMON STOCK -- means, at any time, the
number of shares of Common Stock outstanding at such time (excluding all
shares constituting "treasury stock" and all shares held or beneficially
owned by a Subsidiary) together with the number of shares of additional
Common Stock that would be outstanding at such time assuming:
(a) the conversion immediately prior to such time of all
Securities convertible into shares of Common Stock outstanding at
such time or issuable upon exercise of any warrants, options and
other rights outstanding at such time, whether or not the conditions
for such conversion or exercise then exist; and
22
<PAGE> 26
(b) the exercise immediately prior to such time of all then
outstanding warrants, options and similar rights to acquire shares
of Common Stock (including, without limitation, the Warrants),
whether or not the conditions for such exercise then exist.
HOLDER - introductory paragraph hereof.
INITIAL PURCHASE PRICE -- means Fifty-Nine and Three Eighths Cents
($0.59375) per share.
MARKET PRICE -- means, with respect to any date and any class of
Common Stock, the per share price of such class equal to the product of
(a) ninety-five percent (95%) times (b) the average of the daily Closing
Prices of Common Stock for fifteen (15) consecutive trading days
commencing twenty (20) trading days before-such date, provided that, if
the Closing Prices referred to in clause (b) are not then available for
such class of Common Stock in order to make the determination in said
clause (b), "MARKET PRICE" shall mean the Fair Market Share Price.
As used in this definition,
Closing Price -- means, with respect to any date and any class
of Common Stock, the per share price of such class determined as
follows:
(a) the last sale price, regular way, on such date or,
if no such sale takes place on such date, the average of the
closing bid and asked prices on such date, in each case as
officially reported on the principal national securities
exchange on which such class of Common Stock is then listed or
admitted to trading; or
(b) if such class of Common Stock is not then listed or
admitted to trading on any national securities exchange, but
is designated as a national market system security by the
National Association of Securities Dealers, the last trading
price of such class of Common Stock on such date, or if there
shall have been no trading on such date or if such class of
Common Stock is not so designated, the average of the reported
closing bid and asked prices on such date as shown by the
NASDAQ.
NASDAQ -- means the National Association of Securities Dealers
Automated Quotation System.
NOTICE EVENT -- Section 4.1(1) hereof.
23
<PAGE> 27
PERSON -- means an individual, partnership, corporation, limited
liability or other company or partnership, trust, unincorporated
organization, or a government or agency or political subdivision thereof.
PREFERRED STOCK -- means the class of capital stock of the Company
designated as "Preferred Stock," having a par value $.001 per share, and
enjoying the rights and preferences set forth in, and subject to the
restrictions of, the Certificate of Incorporation as in effect on November
19, 1993.
PROPERTY -- means any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
PURCHASE PRICE -- means, prior to any adjustment pursuant to Section
4.1 hereof, the Initial Purchase Price and thereafter, the Initial
Purchase Price as adjusted and readjusted from time to time.
REFERENCE PRICE -- means, in respect of any date, the Market Price
of one share of Common Stock as of such date.
REGULAR CASH DIVIDENDS -- means cash dividends paid by the Company
out of its retained earnings, provided that any such cash dividends paid
during any fiscal year of the Company shall be deemed to constitute
Regular Cash Dividends to the extent, and only to the extent, that
immediately after giving effect to the payment of such cash dividends the
aggregate amount of all cash dividends paid by the Company out of its
retained earnings during such fiscal year does not exceed five percent
(5%) of the product of (a) the Market Price determined as of the record
date in respect of such payment multiplied by (b) the aggregate number of
shares of Common Stock outstanding as of such record date (after assuming
that all then outstanding Warrants had been exercised).
REQUIRED WARRANTHOLDERS -- means, at any time, any holder or holders
(other than the Company, any Subsidiary or any Affiliate) then holding
more than fifty percent (50%) of the Warrants (excluding any Warrants
directly or indirectly held by the Company or any Subsidiary or Affiliate)
then outstanding.
SEC -- means, at any time, the Securities and Exchange Commission or
any other federal agency at such time administering the Securities Act.
SECURITIES ACT -- means the Securities Act of 1933, as amended.
SECURITY -- means "security" as defined in section 2(1 ) of the
Securities Act.
SENIOR FINANCIAL OFFICER -- means the chief financial officer, the
principal accounting officer, the controller or the treasurer of the
Company.
24
<PAGE> 28
SOP -- means the Company's 1990 Stock Option Plan (as amended, and
as may be amended from time to time, to and including November 19, 1993).
SUBSIDIARY -- means, at any time, any corporation more than fifty
percent (50%) of the total combined voting power of all classes of the
voting capital stock of which shall, at the time as of which any
determination is being made, be owned by the Company either directly or
indirectly through any one or more Subsidiaries.
TERMINATION DATE -- means May 19, 2002.
WARRANTS -- means the Original Warrants and the Additional Warrants.
WARRANT CERTIFICATE -- Section 1.1 hereof.
5.2 DIRECTLY OR INDIRECTLY.
Where any provision herein refers to action to be taken by any Person, or
that such Person is prohibited from taking, such provision shall be applicable
whether such action is taken directly or indirectly by such Person, including
actions taken by or on behalf of any partnership in which such Person is a
general partner.
5.3 SECTION HEADINGS AND TABLE OF CONTENTS AND CONSTRUCTION.
(a) SECTION HEADINGS AND TABLE OF CONTENTS, ETC. The titles of the
Sections and the Table of Contents appear as a matter of convenience only,
do not constitute a part hereof and shall not affect the construction
hereof. The words "herein," "hereof," "hereunder" and "hereto" refer to
this Agreement as a whole and not to any particular Section or other
subdivision. Unless otherwise specified, references to Sections are to
Sections of this Agreement, references to Annexes are to Annexes to this
Agreement and references to Exhibits are to Exhibits to this Agreement.
(b) CONSTRUCTION. Each covenant contained herein shall be construed
(absent an express contrary provision herein) as being independent of each
other covenant contained herein, and compliance with any one covenant
shall not (absent such an express contrary provision) be deemed to excuse
compliance with one or more other covenants.
5.4 GOVERNING LAW.
THIS AGREEMENT AND THE WARRANT CERTIFICATES SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW.
6. MISCELLANEOUS
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<PAGE> 29
6.1 COMMUNICATIONS.
(a) METHOD; ADDRESS. All communications hereunder or under the
Warrants shall be in writing, shall be hand delivered, deposited into the
United States mail (registered or certified mail), postage prepaid, or
sent by overnight courier of national or international reputation, and
shall be addressed,
(i) if to the Company,
The Cerplex Group, Inc.
1382 Bell Avenue
Tustin, California 92680
Attention: Chief Executive Officer
Facsimile: (714) 258-0730
(with a copy to:
Brobeck, Phleger & Harrison LLP
4675 MacArthur Court, Suite 1000
Newport Beach, California 92660
Attention: Frederic A. Randall, Jr., Esq.
Facsimile: (714) 752-7535
provided that the failure to provide any such copy shall
in no way affect the validity or effectiveness of any
communication to the Company for purposes of this
Agreement)
or at such other address as the Company shall have furnished in writing to
all holders of the Warrants at the time outstanding; and
(ii) if to any of the holders of the Warrants:
(A) if such holders are the Holders, at their respective
addresses set forth on Annex 1, and further including any parties
referred to on such Annex 1 that are required to receive notices in
addition to such holders of the Warrants; and
(B) if such holders are not the Holders, at their respective
addresses set forth in the register for the registration and
transfer of Warrants maintained pursuant to Section 1.2(b) hereof;
or to any such party at such other address as such party may designate by
notice duly given in accordance with this Section 6.1 to the Company
(which other address shall be entered in such register).
26
<PAGE> 30
(b) WHEN GIVEN. Any communication so addressed and deposited in the
United States mail, postage prepaid, by registered or certified mail (in
each case, with return receipt requested) shall be deemed to be received
on the third (3rd) succeeding business day after the day of such deposit
(not including the date of such deposit). Any notice so addressed and
otherwise delivered shall be deemed to be received when actually received
at the address of the addressee.
6.2 REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by each Holder at the closing of the issuance
of Warrants (except the Warrant Certificates themselves) and (c) financial
statements, certificates and other information previously or hereafter furnished
to any Holder or any other holder of Warrants, may be reproduced by any holder
of Warrants by any photographic, photostatic, microfilm, micro-card, miniature
photographic, digital or other similar process and each holder of Warrants may
destroy any original document so reproduced. The Company agrees and stipulates
that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding (whether or not the original
is in existence and whether or not such reproduction was made by such holder of
Warrants in the regular course of business) and that any enlargement, facsimile
or further reproduction of such reproduction shall likewise be admissible in
evidence. Nothing in this Section 6.2 shall prohibit the Company or any holder
of Warrants from contesting the accuracy of any such reproduction.
6.3 SURVIVAL.
All warranties, representations, certifications and covenants made by the
Company herein or in any certificate or other instrument delivered by it or on
its behalf hereunder shall be considered to have been relied upon by the Holders
and shall survive the delivery to the Holders of the Warrants regardless of any
investigation made by the Holders or on their behalf. All statements in any such
certificate or other instrument shall constitute warranties and representations
by the Company hereunder.
6.4 SUCCESSORS AND ASSIGNS.
This Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto. The provisions hereof are
intended to be for the benefit of all holders, from time to time, of Warrants,
and shall be enforceable by any such holder, whether or not an express
assignment to such holder of rights hereunder shall have been made by any
successor or assign of any Holder.
6.5 AMENDMENT AND WAIVER.
This Agreement may be amended, and the observance of any term of this
Agreement may be waived, with and only with the written consent of the Company
and
27
<PAGE> 31
the Required Warrantholders, provided that no change in, or waiver of
performance under, Section 1, Section 2, Section 4 or this Section 6.5 (or any
definition used in connection with any of such sections) shall be effected
without the written consent of all holders of Warrants.
6.6 RIGHT OF ACTION.
All rights of action in respect of the Warrants are vested in the
respective registered holders of the Warrant Certificates or, in lieu thereof,
the beneficial owner thereof (to the extent such beneficial owner is a party to
this Agreement or disclosed to the Company in writing), and any registered
holder or beneficial owner (to the extent such beneficial owner is a party to
this Agreement or disclosed to the Company in writing) of any Warrant
Certificate, without the consent of the holder of any other Warrant Certificate,
may, in its own behalf and for its own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, its right to exercise the Warrants evidenced by
such Warrant Certificate in the manner provided in such Warrant Certificate and
in this Agreement.
6.7 EXPENSES.
The Company will promptly (and in any event within thirty (30) days of
receiving any statement or invoice therefor) pay all fees, expenses and costs
relating hereto, including, but not limited to:
(a) the cost of reproducing this Agreement and the Warrants;
(b) the fees and disbursements of the special counsel to the
Holders;
(c) the cost of delivering to the home office or custodian bank of
each Holder, insured to such party's satisfaction, the Warrant
Certificates acquired by such party on the Effective Date; and
(d) all fees, expenses, costs and disbursements (including, without
limitation, the reasonable fees and the disbursements of the attorneys,
accountants and other expert, legal and financial advisers of each holder
of Warrant Certificates) relating to (i) the consideration, evaluation,
analysis, assessment, negotiation, preparation and/or execution of any
amendments, waivers or consents pursuant to the provisions hereof, whether
in the ordinary course of performance hereof or in connection with any
controversy or potential controversy hereunder or resulting from any
work-out, restructuring or other similar proceedings relating to such
performance and whether or not any such amendments, waivers or consents
are executed or otherwise consummated and/or (ii) the enforcement of the
rights of such holder hereunder.
6.8 FILINGS.
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<PAGE> 32
The Company shall, at its own expense, promptly execute and deliver, or
cause to be executed and delivered, to any holder of Warrants all applications,
certificates, instruments, registration statements, and all other documents and
papers that such holder of Warrants may reasonably request in connection with
the obtaining of any consent, approval, registration, qualification, or
authorization of any federal, state or local government (or any agency or
commission thereof) necessary or appropriate in connection with, or for the
effective exercise of, any Warrants then held by such holder.
6.9 ENTIRE AGREEMENT.
This Agreement constitutes the final written expression of all of the
terms hereof and is a complete and exclusive statement of those terms.
6.10 TERM.
All unexercised Warrants will be void and not exercisable after 5:00 p.m.
(Los Angeles, California time) on the Termination Date and the Warrant
Certificates in respect thereof shall after such time be deemed cancelled for
all purposes of this Agreement. Shares of Common Stock issuable upon the
exercise of a Warrant shall be issued after the Termination Date if such Warrant
is exercised, as provided in Section 2.1, on or prior to 5:00 p.m. (Los Angeles,
California time) on the Termination Date.
6.11 DUPLICATE ORIGINALS, EXECUTION IN COUNTERPART.
Two or more duplicate originals hereof may be signed by the parties, each
of which shall be an original but all of which together shall constitute one and
the same instrument. This Agreement may be executed in one or more counterparts
and shall be effective when at least one counterpart shall have been executed by
each party hereto, and each set of counterparts which, collectively, show
execution by each party hereto shall constitute one duplicate original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK; NEXT PAGE IS SIGNATURE PAGE.]
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<PAGE> 33
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed and delivered by one of its duly authorized officers or
representatives.
THE CERPLEX GROUP, INC.
By
-------------------------------
Name: Robert W. Heigh
Title:
WELLS FARGO BANK, NATIONAL
ASSOCIATION, INDIVIDUALLY AND AS
ADMINISTRATIVE AGENT
By
-------------------------------
Name: Michael Ho
Title: Vice President
BHF-BANK AKTIENGESELLSCHAFT,
AS A LENDER
By
-------------------------------
Name: Dana L. McDougall
Title: Vice President
By
-------------------------------
Name: Paul Travers
Title: Vice President
CITIBANK, N.A.
By
-------------------------------
Name: Bradley I. Deitz
Title: Vice President
S-1 Amended and Restated Warrant Agreement
<PAGE> 34
ANNEX 1
INFORMATION AS TO HOLDERS
<TABLE>
<CAPTION>
=================================================================================
HOLDER NAME WELLS FARGO BANK, NATIONAL ASSOCIATION
- ---------------------------------------------------------------------------------
<S> <C>
Name in which to register Wells Fargo Bank, National Association
Warrant Certificate(s)
- ---------------------------------------------------------------------------------
Warrant Certificate WR-[8];
registration numbers;
Number of Warrants 218,750 Warrants
- ---------------------------------------------------------------------------------
Address for notices Wells Fargo Bank, National Association
Attention:
Facsimile:
=================================================================================
</TABLE>
Annex 1-1
<PAGE> 35
<TABLE>
<CAPTION>
======================================================================
HOLDER NAME BHF-BANK AKTIENGESELLSCHAFT
- ----------------------------------------------------------------------
<S> <C>
Name in which to register BHF-Bank Aktiengesellschaft
Note(s)
- ----------------------------------------------------------------------
Warrant Certificate WR-[9]
registration numbers;
Number of Warrants 218,750 Warrants
- ----------------------------------------------------------------------
Address for notices BHF-Bank Aktiengesellschaft
Attention:
Facsimile:
======================================================================
</TABLE>
Annex 1-2
<PAGE> 36
<TABLE>
<CAPTION>
======================================================================
HOLDER NAME CITIBANK, N.A.
- ----------------------------------------------------------------------
<S> <C>
Name in which to register Citibank, N.A.
Note(s)
- ----------------------------------------------------------------------
Warrant Certificate WR-[10]
registration number; 437,500 Warrants
Number of Warrants
- ----------------------------------------------------------------------
Address for notices Citibank, N.A.
Attention:
Facsimile:
======================================================================
</TABLE>
Annex 1-3
<PAGE> 37
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. THESE
SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN ANY
TRANSACTION UNLESS FIRST REGISTERED UNDER SUCH LAWS OR UNLESS SUCH TRANSACTION
IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS.
THE HOLDER OF THIS WARRANT CERTIFICATE IS A BANK FOR PURPOSES OF THAT CERTAIN
REGISTRATION RIGHTS AGREEMENT, DATED NOVEMBER 19, 1993, AS AMENDED, AMONG THE
CERPLEX GROUP, INC. AND THE OTHER PARTIES THERETO.
WARRANT CERTIFICATE
THE CERPLEX GROUP, INC.
No. WR-________ ___________ Warrants
Date: _____________ PPN: ___________________
This WARRANT CERTIFICATE certifies that ______________________, or
registered assigns; is the registered holder of ____________________
(___________) Warrants. Each Warrant entitles the owner thereof to purchase, at
any time on or after the Effective Date (as such term is defined in the Warrant
Agreement referred to below) and prior to 5:00 p.m. (Los Angeles, California
time) on the Termination Date (as such term is defined in the Warrant Agreement
referred to below), one fully paid and nonassessable share of Common Stock (as
such term is defined in the Warrant Agreement referred to below) of THE CERPLEX
GROUP, INC., a Delaware corporation (the "COMPANY"), at an initial purchase
price of Fifty-Nine and Three Eighths Cents ($0.59375) per share of Common Stock
(the "PURCHASE PRICE") upon (i) presentation and surrender of this Warrant
Certificate with a form of election to purchase duly executed and (ii)
satisfaction of the Purchase Price in the manner set forth in the Warrant
Agreement. The number of shares of Common Stock that may be purchased upon
exercise of each Warrant, and the Purchase Price, are the number and the
Purchase Price as of the date hereof and are subject to adjustment under certain
circumstances as provided in the Warrant Agreement referred to below.
The Warrants are issued pursuant to the Warrant Agreement, dated as of
April 15, 1996, as amended and restated as of April 9, 1997 (as further amended
from time to time, the "WARRANT AGREEMENT"), among the Company and certain
initial holders named therein, and are subject to all of the terms, provisions
and conditions thereof, which
Exhibit A-1
<PAGE> 38
Warrant Agreement is hereby incorporated herein by reference and made a part
hereof and to which Warrant Agreement reference is hereby made for a full
description of the rights, obligations, duties and immunities of the Company and
the holders of the Warrant Certificates. Capitalized terms used, but not
defined, herein have the meanings assigned to then, in the Warrant Agreement.
This Warrant Certificate shall be exercisable, at the election of the
holder, either as an entirety or in part from time to time. If this Warrant
Certificate shall be exercised in part, the holder shall be entitled to receive,
upon surrender hereof, another Warrant Certificate or Warrant Certificates for
the number of Warrants not exercised. This Warrant Certificate, with or without
other Warrant Certificates, upon surrender at the office of the Company referred
to in Section 1.2(b) of the Warrant Agreement, may be exchanged for another
Warrant Certificate or Warrant Certificates of like tenor evidencing Warrants
entitling the holder to purchase a like aggregate number of shares of Common
Stock as the Warrants evidenced by the Warrant Certificate or Warrant
Certificates surrendered shall have entitled such holder to purchase.
Except as expressly set forth in the Warrant Agreement, no holder of this
Warrant Certificate shall be entitled to any right to vote or receive dividends
or be deemed for any purpose the holder of shares of Common Stock or of any
other Securities of the Company that may at any time be issued upon the exercise
hereof, nor shall anything contained in the Warrant Agreement or herein be
construed to confer upon the holder hereof, as such, any of the rights of a
holder of a share of Common Stock in the Company or any right to vote upon any
matter submitted to holders of shares of Common Stock at any meeting thereof, or
to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of Securities, change of
par value, consolidation, merger, conveyance, or otherwise) or, except as
provided in the Warrant Agreement, to receive notice of meetings, or to receive
dividends or subscription rights, or otherwise, until the Warrant or Warrants
evidenced by this Warrant Certificate shall have been exercised as provided in
the Warrant Agreement.
Other than with respect to the original issuance of the Warrants pursuant
to the Warrant Agreement, if the Warrant Certificate of the immediate transferor
of the holder of this Warrant Certificate bore the second paragraph of the
legend set forth above, this Warrant Certificate shall also bear such second
paragraph.
THIS WARRANT CERTIFICATE AND THE WARRANT AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, INTERNAL NEW YORK LAW.
Exhibit A-2
<PAGE> 39
WITNESS the signature of a proper officer of the Company as of the date
first above written.
THE CERPLEX GROUP, INC.,
By ____________________________
Name:
Title:
ATTEST:
- ----------------------------
[Assistant] Secretary
Exhibit A-3
<PAGE> 40
[FORM OF ASSIGNMENT]
(TO BE EXECUTED BY THE REGISTERED HOLDER IF
SUCH HOLDER DESIRES TO TRANSFER THE WARRANT CERTIFICATE)
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto
_______________________________________________________________________________
(Please print name and address of transferee.)
the accompanying Warrant Certificate, together with all right, title and
interest therein, and does hereby irrevocably constitute and appoint:
_______________________________________________________________________________
attorney in fact, to transfer the accompanying Warrant Certificate on the books
of the Company, with full power of substitution.
Dated: _______________, _______.
________________________________
By _____________________________
NOTICE
The signature to the foregoing Assignment must correspond to the name as
written upon the face of the accompanying Warrant Certificate or any prior
assignment thereof in every particular, without alteration or enlargement or any
change whatsoever.
Exhibit A-4
<PAGE> 41
[FORM OF ELECTION TO PURCHASE]
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES
TO EXERCISE ANY WARRANTS REPRESENTED BY THE WARRANT CERTIFICATE)
To THE CERPLEX GROUP, INC.:
The undersigned hereby irrevocably elects to exercise ___________________
Warrants represented by the accompanying Warrant Certificate to purchase the
shares of Common Stock issuable upon the exercise of such Warrants and requests
that certificates for such shares be issued in the name of:
_______________________________________________________________________________
(Please print name and address.)
_______________________________________________________________________________
(Please insert social security or other identifying number.)
If such number of Warrants shall not be all the Warrants evidenced by the
accompanying Warrant Certificate, a new Warrant Certificate for the balance
remaining of such Warrants shall be registered in the name of and delivered to:
_______________________________________________________________________________
(Please print name and address.)
_______________________________________________________________________________
(Please insert social security or other identifying number.)
Dated: ________________, ____.
_____________________________
By __________________________
NOTICE
The signature to the foregoing Election to Purchase must correspond to the
name as written upon the face of the accompanying Warrant Certificate or any
prior assignment thereof in every particular, without alteration or enlargement
or any change whatsoever.
Exhibit A-5
<PAGE> 42
EXHIBIT B
DETERMINATION OF FAIR MARKET SHARE PRICE.
(a) Within two (2) days of the happening of any event requiring a
determination of the Fair Market Share Price, the Company shall give written
notice thereof to each holder of Warrants (which notice shall contain a
description of such event).
(b) Within ten (10) days of the happening of each event requiring a
determination of the Fair Market Share Price, each of the Required
Warrantholders (as a group) and the Company shall designate an Appraiser for
purposes of determining the Fair Market Share Price and shall notify the other
party or parties of such designation (provided that, if the Company and such
holders so agree, they may jointly designate a single Appraiser, in which event
the determination of the Fair Market Share Price of the single Appraiser so
jointly designated shall be binding upon both the Company and the holders of
Warrants for the purposes of the determination of the Fair Market Share Price
hereunder). Each Appraiser will take such evidence, make such investigations and
examine such documents as it shall in its discretion determine to be necessary
and advisable to make a determination with respect to the Fair Market Share
Price. A detailed report from each Appraiser setting forth such Appraiser's
determination with respect to the Fair Market Share Price shall be delivered to
the Company and to each of the holders of Warrants as soon as possible following
such determination and, in any event, not later than thirty (30) days following
the happening of the event requiring determination of the Fair Market Share
Price.
(c) If either:
(i) the Company or such holders shall fail, neglect or refuse to
designate an Appraiser within the time period set forth in clause (b)
above; or
(ii) either of the two Appraisers so designated shall fail to
deliver its detailed report within the time period set forth in said
clause (b);
then, in each such case, the determination of the Fair Market Share Price of the
single Appraiser actually designated or the single Appraiser actually delivering
its detailed report, as the case may be, shall be binding upon both the Company
and the holders of Warrants for the purposes of the determination of the Fair
Market Share Price hereunder.
(d) If the determinations of the Fair Market Share Price by both such
Appraisers do not differ by more than fifteen percent (15%) of the lower of the
two determinations, then the Fair Market Share Price shall be the arithmetic
average of those two determinations.
Exhibit B-1
<PAGE> 43
(e) If the determinations of the Fair Market Share Price by both such
Appraisers differ by more than fifteen percent (15%) of the lower of the two
determinations, then the parties shall promptly direct the two Appraisers to
consult with one another for the purpose of jointly designating a third
Appraiser, which designation shall be made not later than ten (10) days
following the delivery of the determinations pursuant to clause (b) above. The
third Appraiser shall review the first two appraisals and shall make an
independent determination with respect to the Fair Market Share Price.
(i) In the event that the third Appraiser's determination is equal
to or greater than the greater determination made by the first two
Appraisers, the Fair Market Share Price shall equal the higher of the
determinations of the first two Appraisers.
(ii) In the event that the third Appraiser's determination is equal
to or less than the lesser determination made by the first two Appraisers,
the Fair Market Share Price shall equal the lesser of the determinations
of the first two Appraisers.
(iii) In the event that the third Appraiser's determination is
between those of the first two Appraisers, the Fair Market Share Price
shall equal the arithmetic average of the determinations of all three
Appraisers.
A detailed report from the third Appraiser setting forth such Appraiser's
determination with respect to the Fair Market Share Price shall be delivered to
the Company and to each of the holders of Warrants as soon as possible following
such determination and, in any event, not later than thirty (30) days following
the earlier of (A) the delivery of the reports referred to in clause (b) above,
and (B) the first date upon which such reports are due to be delivered pursuant
to clause (b) above.
(f) The Company agrees to cooperate with each Appraiser to the full extent
necessary to permit determination of the Fair Market Share Price.
(g) All fees and expenses incurred in connection with the foregoing
determination of the Fair Market Share Price (including any and all fees and
expenses of each Appraiser) shall be borne by the Company. Any determination
made in accordance with this definition shall be effective for a period of
ninety (90) days immediately following such determination, unless there has been
a material development in the business of the Company and the Subsidiaries, in
which case there shall be a redetermination in accordance with the provisions of
this Exhibit.
Exhibit B-2
<PAGE> 44
EXHIBIT C
CONFIDENTIALITY
With respect to all data and information that has been or in the future is
furnished to or obtained by any holder of Warrant Certificates in connection
with this Agreement (excluding, in any case, any such data and information that
was or is available to the public or was not or is not treated as confidential
by any one or more of the Company, the Subsidiaries or the Affiliates), such
holder will hold such data and information in confidence in accordance with the
customary practices and standards of confidentiality generally employed by such
holder in respect of similar data and information obtained in connection with
other comparable investment transactions of such holder. Notwithstanding the
foregoing, any such holder may disclose any data and information furnished to or
obtained by it in connection with this Agreement:
(a) the disclosure of which is, in such holder's sole good faith
business and/or legal judgment, reasonably required in connection with
regulatory requirements (including, without limitation, the requirements
of the National Association of Insurance Commissioners but excluding, in
any case, delivery of periodic financial statements and information to the
National Association of Insurance Commissioners, the Securities Valuation
Office thereof or any other agency thereof in connection with the rating,
evaluation or other regulatory treatment of the Warrants or the Notes) or
other legal requirements related to such holder's affairs, including,
without limitation, the disclosure of such data and information in
connection with or in response to (i) compliance with any law, ordinance
or governmental order, regulation, rule, policy, subpoena, investigation
or request, or (ii) any order, decree, judgment, subpoena, notice of
discovery or similar ruling, or pleading issued, filed, served or
purported on its face to be issued, filed or served (A) by or under
authority of any court, tribunal, arbitration board or any governmental
agency, commission, authority, board or similar entity or (B) in
connection with any proceeding (including, without limitation, any
proceeding to enforce the obligations of the Company under this
Agreement), cause or matter pending (or on its face purported to be
pending) before any court, tribunal, arbitration board or any governmental
agency, commission, authority, board or similar entity;
(b) to any one or more of the employees, officers, directors,
agents, attorneys, accountants, professional consultants or trustees of
such holder (or of any subsidiary or affiliate of such holder) who would
have access to such data and information in the normal course of the
performance of such Person's duties for such holder (or for such
subsidiary or affiliate);
(c) to Moody's Investors Service, Inc., Standard & Poor's
Corporation or any other nationally recognized financial rating service
that is reviewing the credit rating of any holder of Warrant Certificates
or is rating or reviewing the
Exhibit C-1
<PAGE> 45
rating of the Warrants or the Common Stock issuable upon the exercise
thereof; and
(d) to any prospective purchaser, securities broker or dealer or
investment banker in connection with the resale or proposed resale, in
accordance with the terms hereof, of all or any portion of the Warrants or
Common Stock issuable upon the exercise thereof by such holder.
In connection with any disclosure by any holder of Warrant Certificates under
clause (a) above, such holder will use reasonable efforts to notify the Company
of any such pending disclosure, provided that (x) such holder shall in no case
be liable to the Company for its failure to effect such notification, (y) the
failure to effect such notification shall not affect the ability of such holder
to make the disclosures contemplated under said clause (a) and (z) this sentence
shall not apply to the delivery of periodic financial statements and information
to the National Association of Insurance Commissioners, the Securities Valuation
Office thereof or any other agency thereof in connection with the rating,
evaluation or other regulatory treatment of the Warrants or the Notes. In
connection with any disclosure by any holder of Warrant Certificates under
clause (d) above, such holder will use reasonable efforts to cause any
prospective purchaser, securities broker or dealer or investment banker referred
to in said clause (d) to enter into a written confidentiality agreement with the
Company containing terms of confidentiality substantially similar to the terms
of confidentiality set forth in this Exhibit prior to effecting such disclosure,
provided that (yy) such holder shall in no case be liable to the Company if such
prospective purchaser, securities broker or dealer or investment banker shall
for any reason not enter into any such confidentiality agreement with the
Company and (zz) the failure of such prospective purchaser, securities broker or
dealer or investment banker to enter into any such confidentiality agreement
with the Company shall not affect the ability of such holder to make the
disclosures contemplated under said clause (d). No holder of Warrant
Certificates will be liable for the breach of the provisions of this Exhibit or
of any provision in any aforesaid confidentiality agreement by any other holder
of Warrant Certificates or by any Person to which any confidential data or
information shall be delivered in accordance with the provisions of this Exhibit
C.
Exhibit C-2
<PAGE> 1
EXHIBIT 10.31
EXECUTION COPY
THE CERPLEX GROUP, INC.
EXTENSION AND FORBEARANCE AGREEMENT
This EXTENSION AND FORBEARANCE AGREEMENT (this "Agreement") is
dated as of March 31, 1997 and entered into by and among THE CERPLEX GROUP,
INC., a Delaware corporation ("COMPANY"), the FINANCIAL INSTITUTIONS LISTED ON
THE SIGNATURE PAGES HEREOF ("LENDERS") and WELLS FARGO BANK NATIONAL
ASSOCIATION, as administrative agent for Lenders ("ADMINISTRATIVE AGENT"), and,
for purposes of Section 4 hereof, CERTECH Technology, Inc., Cerplex Mass.,
Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary, Inc.,
Peripheral Computer Support, Inc., Modcomp/Cerplex L.P., Modcomp Joint Venture,
Inc., Modular Computer Services, Inc., Modular Computer Systems GmbH and
Modcomp France S.A. (collectively, "GUARANTORS"), and is made with reference
to that certain Credit Agreement dated as of October 12, 1994, as amended by
that certain First Amendment to Credit Agreement and Limited Waiver dated as of
April 15, 1996 and that certain Second Amendment to Credit Agreement and
Limited Waiver dated as of November 30, 1996 (the "CREDIT AGREEMENT"), by and
among Company, Lenders Administrative Agent and Guarantors. Capitalized terms
used herein without definition shall have the same meanings herein as set forth
in the Credit Agreement.
RECITALS
WHEREAS, the Commitment Termination Date with respect to the
Loans outstanding under the Credit Agreement is March 31, 1997; and
WHEREAS, Company and Lenders have entered into negotiations to
restructure certain of the Loans outstanding under the Credit Agreement; and
WHEREAS, Company and Lenders desire to enter into this
Agreement in order to provide time to determine whether or not the parties are
able to reach an agreement with respect to the terms of such a restructure;
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
SECTION 1. EXTENSION
Lenders hereby agree to extend the Commitment Termination Date
under the Credit Agreement to and including the earlier of (i) the date on
which any agreement by the parties to the Note Purchase Agreement waiving all
defaults under the Note Purchase Agreement expires or is terminated and (ii)
April 9, 1997 (the period from the date hereof to
1
<PAGE> 2
the earlier of the dates referred to in clause (i) and (ii) being referred to
herein as the "EXTENSION PERIOD"). During the Extension Period, the Credit
Agreement shall remain in full force and effect in accordance with its terms
except that no Loans shall be extended to Company.
The agreement of Lenders set forth herein is not, and should
not be construed to be, a commitment to further extend the Commitment
Termination Date or to restructure any of the obligations under the Credit
Agreement. Company hereby acknowledges that any restructuring is subject to
the negotiation, execution and delivery of definitive agreements, in each case
satisfactory to all Lenders, Administrative Agent and their respective counsel.
Company hereby further acknowledges that no Lender may enter into any agreement
relating to a restructuring of Company's obligations under the Credit Agreement
and the other Loan Documents unless it obtains all necessary approvals required
under its internal credit approval policies and procedures. No statements made
by any representative of any Lender of Administrative Agent shall be construed
as a commitment of, and no such statement shall bind, any Lender or
Administrative Agent. Only a fully approved, signed and delivered agreement
shall constitute or be deemed to constitute a binding agreement. Moreover, no
agreement relating to any restructuring issue shall create a binding obligation
until an agreement is reached on all such issues and reduced to a fully
approved, executed and delivered written contract.
Company has informed Administrative Agent that as of March 31,
1997 Company will be in default under subsection 7.6 of the Credit Agreement
(the "EXISTING DEFAULTS"). Subject to the terms and conditions set forth
herein and in reliance on the representations and warranties of Company herein
contained, Lenders hereby agree to forbear from the exercise of remedies that
are or may be available under the Credit Agreement and the other Loan Documents
by reason of the occurrence and continuation of such Defaults during the
Extension Period.
The agreement of Lenders set forth herein shall not in any
manner limit or impair any rights or remedies that Lenders may have (i) at the
expiration of the Extension Period or (ii) with respect to any Defaults or
Events of Default (other than the Existing Defaults) during the Extension
Period.
SECTION 2. CONDITIONS TO EFFECTIVENESS
This Agreement shall become effective as of the date hereof
only upon the satisfaction of all of the following conditions precedent:
A. Company shall deliver to Lenders (or to Administrative Agent
for Lenders with sufficient originally executed copies, where appropriate, for
each Lender and its counsel) the following:
(i) Resolutions of its Board of Directors approving and
authorizing the execution, delivery, and performance of this
Agreement, certified as of the date
2
<PAGE> 3
hereof by its corporate secretary or an assistant secretary as being
in full force and effect without modification or amendment;
(ii) Signature and incumbency certificates of its officers
executing this Agreement dated as of the date hereof; and
(iii) Duly executed Allonges extending the maturity date of
the Notes.
B. Company and all Lenders shall have delivered (including by
facsimile transmission) originally executed copies of this Agreement to
Administrative Agent.
C. Lenders and their respective counsel shall have received
originally executed copies of one or more favorable written opinions of
Brobeck, Phleger & Harrison, counsel for Company, dated March 31, 1997, in form
and substance reasonably satisfactory to Administrative Agent and its counsel
as to such matters as Administrative Agent acting on behalf of Lenders may
reasonably request.
D. Administrative Agent, on behalf of Lenders, shall have
received duly executed copies of an agreement, in form and substance
satisfactory to Lenders, waiving all defaults under the Note Purchase Agreement
until April 9, 1997.
SECTION 3. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement,
Company represents and warrants to each Lender that the following statements
are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. Company has all requisite
corporate power and authority to enter into this Agreement.
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Agreement have been duly authorized by all necessary corporate action on
the part of Company.
C. NO CONFLICT. The execution and delivery by Company of this
Agreement do not and will not (i) violate any provision of any law or any
governmental rule or regulation applicable to Company or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of Company
or any of its Subsidiaries or any order, judgment or decree of any court or
other agency of government binding on Company or any of its Subsidiaries, (ii)
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under any Contractual Obligation of Company or any of
its Subsidiaries, (iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Company or any of its Subsidiaries
(other than any Liens created under any of the Loan Documents in favor of
Administrative Agent on behalf of Lenders), or (iv) require any approval of
stockholders or any approval or consent of any Person under any Contractual
Obligation of Company or any of its Subsidiaries.
3
<PAGE> 4
D. GOVERNMENTAL CONSENTS. The execution and delivery by Company
of this Agreement do not and will not require any registration with, consent or
approval of, or notice to, or other action to, with or by, any federal, state
or other governmental authority or regulatory body.
E. BINDING OBLIGATION. This Agreement has been duly executed and
delivered by Company and is the legally valid and binding obligations of
Company, enforceable against Company in accordance with their respective terms,
except as may be limited by bankruptcy, insolvency, reorganization, moratorium
or similar laws relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability.
SECTION 4. ACKNOWLEDGEMENT AND CONSENT
Company is a party to the Company Collateral Documents, in
each case as amended through the date hereof, pursuant to which Company has
created Liens in favor of Administrative Agent on certain Collateral to secure
the Obligations. Guarantors are a party to the Guaranty and the Subsidiary
Collateral Documents, in each case as amended through the date hereof, pursuant
to which each Guarantor has (i) guarantied the Obligations and (ii) created
Liens in favor of Administrative Agent on certain Collateral to secure the
obligations of such Grantor under the Guaranty. Company and Guarantors are
collectively referred to herein as the "CREDIT SUPPORT PARTIES", and the
Guaranty, the Company Collateral Documents and the Subsidiary Collateral
Documents are collective referred to herein as the "CREDIT SUPPORT DOCUMENTS".
Each Credit Support Party hereby confirms that each Credit
Support Document to which it is a party or otherwise bound and all Collateral
encumbered thereby will continue to guaranty or secure, as the case may be, to
the fullest extent possible the payment and performance of all "Obligations,"
"Guarantied Obligations" and "Secured Obligations," as the case may be (in each
case as such terms are defined in the applicable Credit Support Document),
including, without limitation, the payment and performance of all such
"Obligations," "Guarantied Obligations" or "Secured Obligations," as the case
may be, in respect of the Obligations of Company now or hereafter existing
under or in respect of the Credit Agreement and the Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of
the Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable.
SECTION 5. MISCELLANEOUS
A. HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute
a part of this Agreement for any other purpose or be given any substantive
effect.
4
<PAGE> 5
B. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
C. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and
attached to a single counterpart so that all signature pages are physically
attached to the same document.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
THE CERPLEX GROUP, INC.
By: _________________________________________
Title: ______________________________________
CERTECH TECHNOLOGY, INC. (for purposes
of Section 4 only) as a Credit Support Party
By: _________________________________________
Title: ______________________________________
CERPLEX MASS., INC., (for purposes of
Section 4 only) as a Credit Support Party
By: _________________________________________
Title: ______________________________________
CERPLEX LIMITED (for purposes of
Section 4 only) as a Credit Support Party
By: _________________________________________
Title: ______________________________________
APEX COMPUTER COMPANY (for purposes of
Section 4 only) as a Credit Support Party
By: _________________________________________
Title: ______________________________________
6
<PAGE> 7
CERPLEX SUBSIDIARY, INC. (for purposes of
Section 4 only) as a Credit Support Party
By: _________________________________________
Title: ______________________________________
PERIPHERAL COMPUTER SUPPORT, INC.
(for purposes of Section 4 only)
as a Credit Support Party
By: _________________________________________
Title: ______________________________________
MODCOMP/CERPLEX L.P. (for purposes of
Section 4 only) as a Credit Support Party
By: Cerplex Subsidiary, Inc.,
as general partner
By: _________________________________________
Title: ______________________________________
MODCOMP JOINT VENTURE, INC. (for purposes
of Section 4 only) as a Credit Support
Party
By: _________________________________________
Title: ______________________________________
MODULAR COMPUTER SERVICES, INC.(for purposes
of Section 4 only) as a Credit Support Party
By: _________________________________________
Title: ______________________________________
7
<PAGE> 8
MODULAR COMPUTER SYSTEM GMBH (for purposes of
Section 4 only) as a Credit Support Party
By: _________________________________________
Title: ______________________________________
MODCOMP FRANCE S.A. (for purposes of
Section 4 only) as a Credit Support Party
By: _________________________________________
Title: ______________________________________
WELLS FARGO BANK, NATIONAL ASSOCIATION,
Individually and as Administrative Agent
By: _________________________________________
Title: ______________________________________
SUMITOMO BANK OF CALIFORNIA, as a Lender
By: _________________________________________
Title: ______________________________________
BHF-BANK AKTIENGESELLSCHAFT, as a Lender
By: _________________________________________
Title: ______________________________________
8
<PAGE> 9
COMMERCIAL BANK CALIFORNIA, as a Lender
By: _________________________________________
Title: ______________________________________
9
<PAGE> 1
EXHIBIT 10.32
EXECUTION COPY
THE CERPLEX GROUP, INC.
SECOND AMENDMENT
TO CREDIT AGREEMENT AND LIMITED WAIVER
This SECOND AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER
(this "AMENDMENT") is dated as of November 30, 1996 and entered into by and
among THE CERPLEX GROUP, INC., a Delaware corporation ("COMPANY"), the FINANCIAL
INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF ("LENDERS") and WELLS FARGO
BANK, NATIONAL BANK, as administrative agent for Lenders ("ADMINISTRATIVE
AGENT"), and, for purposes of Section 5 hereof, CERTECH Technology, Inc.,
Cerplex Mass., Inc., Cerplex Limited, Apex Computer Company, Cerplex Subsidiary,
Inc., Peripheral Computer Support, Inc., Modcomp/Cerplex L.P., Modcomp Joint
Venture, Inc., Modular Computer Services, Inc., Modular Computer Systems GmbH
and Modcomp France S.A. (collectively, "GUARANTORS"), and is made with reference
to that certain Credit Agreement dated as of October 12, 1994, as amended by
that certain First Amendment to Credit Agreement and Limited Waiver dated as of
April 15, 1996, (the "CREDIT AGREEMENT"), by and among Company, Lenders,
Administrative Agent and Guarantors. Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Credit
Agreement.
RECITALS
WHEREAS, Company and Lenders executed a Limited Waiver dated as
of October 31, 1996 pursuant to which Lenders waived compliance with a number of
provisions of the Credit Agreement through November 30, 1996; and
WHEREAS, Company and Lenders now wish to amend the Credit
Agreement in certain respects;
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
1
<PAGE> 2
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
SECTION 1.1 AMENDMENTS TO SECTION 1: DEFINITIONS.
A. Subsection 1.1 of the Credit Agreement is hereby amended by
deleting the definitions of "BORROWING BASE", "BORROWING BASE CERTIFICATE",
"CONSOLIDATED NET INCOME FROM NORTH AMERICAN AND MODCOMP OPERATIONS",
"CONSOLIDATED EBITDA", "CONSOLIDATED FIXED CHARGES", "CONSOLIDATED RENTAL
PAYMENTS", "CONSOLIDATED TOTAL FUNDED DEBT", "ELIGIBLE ACCOUNTS RECEIVABLE", and
"SCHEDULED COMMITMENT REDUCTIONS" contained therein.
B. Subsection 1.1 of the Credit Agreement is hereby further
amended by adding the following definitions in the appropriate alphabetical
order:
"'CONSOLIDATED NET INCOME FROM NORTH AMERICAN AND CORPORATE
OPERATIONS' means the sum of (i) the net income (or loss) of
Company and its Domestic Subsidiaries on a consolidated basis
for such period taken as a single accounting period determined
in conformity with GAAP and (ii) Corporate Overhead; provided
that there shall be excluded (a) the income (or loss) of any
Person (other than a Domestic Subsidiary of Company) in which
any other Person (other than Company or any of its Domestic
Subsidiaries) has a joint interest, except to the extent of the
amount of dividends or other distributions actually paid to
Company or any of its Domestic Subsidiaries by such Person
during such period, (b) the income (or loss) of any Person
accrued prior to the date it becomes a Domestic Subsidiary of
Company or is merged into or consolidated with Company or any
of its Domestic Subsidiaries or that Person's assets are
acquired by Company or any of its Domestic Subsidiaries, (c)
the income of any Domestic Subsidiary of Company to the extent
that the declaration or payment of dividends or similar
distributions by that Subsidiary of that income is not at the
time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary and
(d) (to the extent not included in clauses (a) through (c)
above) any net extraordinary gains or net non-cash
extraordinary losses."
"'CONSOLIDATED TOTAL LIABILITIES' means, as at any date of
determination, the total liabilities of Company and its
Subsidiaries on a consolidated basis in conformity with GAAP."
"'SECOND AMENDMENT EFFECTIVE DATE' means November 30, 1996."
C. Subsection 1.1 of the Credit Agreement is hereby further
amended by deleting the reference to subsection 2.4B(iii)(f) contained in the
definition of "NET
2
<PAGE> 3
PROCEEDS AMOUNT" contained therein and substituting a reference to "subsection
2.4B(iii)(k) therefor.
SECTION 1.2 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND
LOANS.
A. Subsection 2.4A of the Credit Agreement is hereby amended to
read in its entirety as follows:
"A. SCHEDULED REDUCTIONS OF COMMITMENTS. The Commitments shall
be permanently reduced on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
SCHEDULED REDUCTION COMMITMENTS AFTER
DATE OF COMMITMENTS SCHEDULED REDUCTION
---- ------------------- -------------------
<S> <C> <C>
September 30, 1996 $1,000,000 $47,000,000
December 31, 1996 2,000,000 45,000,000
March 28, 1997 2,000,000 43,000,000
</TABLE>
; provided that the scheduled reductions of the Commitments set forth
above shall be reduced in connection with any voluntary or mandatory
reductions of the Commitments in accordance with subsection 2.4B(iv)."
B. Subsection 2.4B(iii)(a) of the Credit Agreement is hereby
amended to read in its entirety as follows:
"(a) Prepayments and Reductions From Net Asset Sale
Proceeds. No later than the first Business Day following the
date of receipt by Company or any of its Subsidiaries of any
Net Asset Sale Proceeds in respect of any Asset Sale (other
than any Asset Sale described in clauses (d) through (i)),
Company shall prepay the Loans and/or the Commitments shall be
permanently reduced in an aggregate amount equal to 66-2/3% of
such Net Asset Sale Proceeds."
C. Subsection 2.4B(iii) of the Credit Agreement is hereby amended
by (i) renumbering subsection 2.4B(iii)(e) as 2.4B(iii)(j), subsection
2.4B(iii)(f) as 2.4B(iii)(k), and subsection 2.4B(iii)(g) as 2.4B(iii)(l) and
(ii) adding new subsections 2.4B(iii)(e), 2.4B(iii)(f), 2.4B(iii)(g),
2.4B(iii)(h) and 2.4B(iii)(i) thereto as follows:
"(e) Prepayments from the Sale of Modcomp. On the
date of receipt by Company or any of its Subsidiaries of any
Net Asset Sale Proceeds from any Asset Sale relating to
Modcomp or its Subsidiaries, Company shall prepay the Loans
and/or the Commitments shall be permanently reduced, in an
aggregate amount equal to the correlative
3
<PAGE> 4
amounts set forth below for the period during which Company
receives such Net Asset Sale Proceeds:
<TABLE>
<CAPTION>
LENDER SHARE
PERIOD OF PROCEEDS
------------
<S> <C>
Second Amendment Effective Date
through December 31, 1996 50%
January 1, 1997 through
January 31, 1997 55%
February 1, 1997 through
February 28, 1997 60%
March 1, 1997 through
March 31, 1997 65%
</TABLE>
"(f) Prepayments from the Sale of On Command Video
Stock. On the date of receipt by Company or any of its
Subsidiaries of any Net Asset Sale Proceeds from (i) the sale
of the stock of On Command Video or (ii) the sale of its claim
in the bankruptcy of Spectravision, Company shall prepay the
Loans, and/or the Commitments shall be permanently reduced,
(i) in an aggregate amount equal to 50% of such Net Asset Sale
Proceeds if the date of receipt of such Net Asset Sale
Proceeds is on or before December 31, 1996 or (ii) in an
aggregate amount equal to 65% of such Net Asset Sale Proceeds
if the date of receipt of such Net Asset Sale Proceeds is
after December 31, 1996.
"(g) Prepayments from the Sale of End-of-Life
Inventory. On the date of receipt by Company or any of its
Subsidiaries of any Net Asset Sale Proceeds from the sale of
any end-of-life Inventory of Company or its Subsidiaries,
Company shall prepay the Loans, and/or the Commitments shall
be permanently reduced, (i) in an aggregate amount equal to
50% of such Net Asset Sale Proceeds if the date of receipt of
such Net Asset Sale Proceeds is on or before January 31, 1997
or (ii) in an aggregate amount equal to 65% of such Net Asset
Sale Proceeds if the date of receipt of such Net Asset Sale
Proceeds is after January 31, 1997.
"(h) Prepayments from the Sale of Texas Operations.
On the Second Amendment Effective Date, Company shall prepay
the Loans, and/or the Commitments shall be permanently
reduced, in an amount equal to the greater of (i) $175,000 and
(ii) 50% of the Net Asset Sale Proceeds received by Company or
any of its Subsidiaries from the sale of the Inventory and
equipment of Company's Texas operations.
"(i) Prepayments from Royalties. On or before
December 10, 1996, Company shall prepay the Loans, and/or the
Commitments shall
4
<PAGE> 5
be permanently reduced, in an amount equal to the royalties
payable by Cerplex SAS to Company and accrued through
September 30, 1996. On the tenth day after the end of each
fiscal quarter of Company, Company shall prepay the Loans,
and/or the Commitment shall be permanently reduced, in an
amount equal to the royalties payable by Cerplex SAS to
Company and accrued during such fiscal quarter."
SECTION 1.3 AMENDMENTS TO SECTION 6: COMPANY'S AFFIRMATIVE COVENANTS.
A. Subsection 6.1(xxi) of the Credit Agreement is hereby amended
to read in its entirety as follows:
(xxi) Monthly Financials: as soon as available and in any
event prior to December 10, 1996 with respect to the month ended October 31,
1996 and within 30 days after the end of each month thereafter, commencing with
the month ended November 30, 1996, the consolidated balance sheet of Company and
its Subsidiaries as at the end of such month, the related consolidated
statements of income, stockholders' equity and cash flows of Company and its
Subsidiaries for such month, and an income statement for such month showing the
results of operations for each division of Company and its Subsidiaries, all in
reasonable detail and certified by the chief financial officer of Company that
they fairly present the financial condition of Company and its Subsidiaries as
at the dates indicated and the results of their operations and their cash flows
for the periods indicated, subject to changes resulting from audit and normal
year-end adjustments; and"
B. Subsection 6.11 of the Credit Agreement is hereby amended by
amending the second sentence thereof to read in its entirety as follows:
"Company shall use its best efforts to obtain and deliver to
Administrative Agent landlord waivers, in form and substance
satisfactory to Administrative Agent, with respect to any real
property leases or subleases entered into or acquired by
Company or any of its Subsidiaries after the date hereof;
provided, however, Company shall not be required to obtain
landlord waivers with respect to (i) property, other than
property that constitutes the principal place of business of
Company or any of its Subsidiaries, that is (a) located in a
jurisdiction the laws of which do not create a statutory lien
in favor of a landlord on the personal property of a tenant
and (b) subject to a lease that does not create a contractual
lien in favor of the landlord on the personal property of the
tenant, and (ii) any property that Company and Requisite
Lenders agree is not significant in terms of its size, its
significance to the operations of Company and its Subsidiaries
or the value of the Collateral located on such property."
C. Section 6 of the Credit Agreement is hereby amended by adding
the following as new subsection 6.16 thereof:
5
<PAGE> 6
"6.16 NEW LEADERSHIP
Company shall (i) hire a new chief executive officer
or (ii) retain a management consultant to serve as interim
chief executive officer no later than the earlier of March 31,
1997 or no later than 30 days following the occurrence of any
Event of Default after November 30, 1996."
SECTION 1.4 AMENDMENTS TO SECTION 7: COMPANY'S NEGATIVE COVENANTS.
A. Subsection 7.1(iv) of the Credit Agreement is hereby amended to
read in its entirety as follows:
"[intentionally omitted]"
B. Subsection 7.6 of the Credit Agreement is hereby amended to
read in its entirety as follows:
"7.6 FINANCIAL COVENANTS.
"A. LIQUIDITY RATIO. Company shall not permit the ratio of (i)
Consolidated Current Assets as of the last day of any fiscal quarter of
Company to (ii) Consolidated Current Liabilities as of such day to be
less than 0.78:1.00.
"B. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Company shall not
permit Consolidated Tangible Net Worth at any time to be less than
$3,150,000.
"C. MINIMUM PROFITABILITY. Company shall not permit
Consolidated Net Income for the fiscal quarter of Company ending
December 31, 1996 to be less than ($6,000,000).
"D. MINIMUM PROFITABILITY FROM NORTH AMERICAN AND CORPORATE
OPERATIONS. Company shall not permit Consolidated Net Income From North
American and Corporate Operations for the fiscal quarter of Company
ending December 31, 1996 to be less than ($8,200,000).
"E. MAXIMUM RATIO OF TOTAL LIABILITIES TO TANGIBLE NET WORTH.
Company shall not permit the ratio of (i) Consolidated Total
Liabilities as of the last day of any fiscal quarter of Company to (ii)
Consolidated Tangible Net Worth as of such day to be greater than
32.25:1.00.
"F. MINIMUM RATIO OF ACCOUNTS RECEIVABLE TO LOANS. Company
shall not permit the ratio of (i) the sum of (a) the aggregate amount
of all Accounts Receivable of Company and its Subsidiaries as of the
last day of any fiscal quarter of Company and (b) the book value as
defined by GAAP of all Inventory of
6
<PAGE> 7
Company and its Subsidiaries as of such day to (ii) the aggregate
principal amount of all outstanding Loans as of such day to be less the
0.88:1.00."
SECTION 1.5 AMENDMENTS TO SECTION 10: MISCELLANEOUS
A. Subsection 10.6 of the Credit Agreement is hereby amended by
(i) deleting the word "or" immediately prior to clause (xiv) thereof and adding
the following immediately after the phrase "subsection 10.6" contained therein:
"; or (xv) changes in any manner the provisions contained in
subsection 7.7 with respect to any proposed acquisition by purchase or otherwise
of all or substantially all the business, property or fixed assets of, or stock
or other evidence of beneficial ownership of, any Person or any division or line
of business of any Person"
SECTION 1.6 AMENDMENTS TO EXHIBITS AND SCHEDULES.
A. Exhibit V of the Credit Agreement is hereby deleted and Exhibit
I hereto substituted therefor.
B. Exhibit XVII of the Credit Agreement is hereby deleted.
SECTION 2. LIMITED WAIVER
Subject to the terms and conditions set forth herein and in
reliance on the representations and warranties of Company herein contained,
Lenders hereby waive compliance with the provisions of:
(a) subsection 6.11 of the Credit Agreement with respect to the
real property leases and subleases of Company and its Subsidiaries set forth on
Schedule 1 hereto for the period from and including November 30, 1996 to and
including January 31, 1997;
(b) subsection 8.2(i) of the Credit Agreement with respect to
the failure of Company to pay the promissory note payable to Lucent Technology,
Inc. for the period from and including November 30, 1996 to and including March
31, 1997;
(c) subsection 8.2(ii) of the Credit Agreement with respect to
the failure of Company to comply with Sections 6.3 and 6.4 of the Note Purchase
Agreement for the period from and including November 30, 1996 to and including
December 9, 1996; and
(d) subsection 8.5 of the Credit Agreement with respect to the
failure of Company to comply with subsection 6.11 of the Credit Agreement for
the period from and including November 30, 1996 to and including January 31,
1997.
7
<PAGE> 8
SECTION 3. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of November 30, 1996
only upon the satisfaction of all of the following conditions precedent (the
date of satisfaction of such conditions being referred to herein as the "SECOND
AMENDMENT DATE"):
A. Company shall deliver to Lenders (or to Administrative Agent
for Lenders with sufficient originally executed copies, where appropriate, for
each Lender and its counsel) the following:
1. Certified copies of its Certificate of Incorporation,
together with a good standing certificate from the Secretary of State
of the State of Delaware, each dated a recent date prior to the Second
Amendment Date;
2. Copies of its Bylaws, certified as of November 30,
1996 by its corporate secretary or an assistant secretary;
3. Resolutions of its Board of Directors approving and
authorizing the execution, delivery, and performance of this Amendment,
certified as of November 30, 1996 by its corporate secretary or an
assistant secretary as being in full force and effect without
modification or amendment;
4. Signature and incumbency certificates of its officers
executing this Amendment dated as of November 30, 1996; and
5. Executed copies of this Amendment.
B. Lenders and their respective counsel shall have received
originally executed copies of one or more favorable written opinions of Brobeck,
Phleger & Harrison, counsel for Company, in form and substance reasonably
satisfactory to Administrative Agent and its counsel, dated as of the Second
Amendment Date and setting forth substantially the matters in the opinions
designated in Exhibit II to this Amendment and as to such other matters as
Administrative Agent acting on behalf of Lenders may reasonably request.
C. On or before the Second Amendment Date, Administrative Agent,
on behalf of Lenders, shall have received an amount equal to the greater of (i)
$175,000 and (ii) 50% of the Net Asset Sale Proceeds from the sale of the
Inventory and equipment of Company's Texas operations pursuant to Section
2.4B(iii)(h) of the Credit Agreement.
D. On or before the Second Amendment Date, Administrative Agent,
on behalf of Lenders, shall have received duly executed copies of a letter
amending that certain Waiver and Amendment Agreement dated as of October 31,
1996 by and between Company and the parties to the Note Purchase Agreement, in
form and substance
8
<PAGE> 9
satisfactory to Lenders to extend the waiver of Sections 6.3 and 6.4 of the Note
Purchase Agreement contained therein until December 9, 1996.
E. On or before the Second Amendment Date, all corporate and other
proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Administrative Agent, acting on behalf of Lenders, and its counsel
shall be satisfactory in form and substance to Administrative Agent and such
counsel, and Administrative Agent and such counsel shall have received all such
counterpart originals or certified copies of such documents as Administrative
Agent may reasonably request.
SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to
amend the Credit Agreement in the manner provided herein, Company represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. Company has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of Company, as the case
may be.
C. NO CONFLICT. The execution and delivery by Company of this
Amendment and the performance of the Amended Agreement do not and will not (i)
violate any provision of any law or any governmental rule or regulation
applicable to Company or any of its Subsidiaries, the Certificate or Articles of
Incorporation or Bylaws of Company or any of its Subsidiaries or any order,
judgment or decree of any court or other agency of government binding on Company
or any of its Subsidiaries, (ii) conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or
require the creation or imposition of any Lien upon any of the properties or
assets of Company or any of its Subsidiaries (other than any Liens created under
any of the Loan Documents in favor of Administrative Agent on behalf of
Lenders), or (iv) require any approval of stockholders or any approval or
consent of any Person under any Contractual Obligation of Company or any of its
Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by Company
of this Amendment and the performance by Company of the Amended Agreement do not
and will not require any registration with, consent or approval of, or notice
to, or other action to, with or by, any federal, state or other governmental
authority or regulatory body.
9
<PAGE> 10
E. BINDING OBLIGATION. This Amendment and the Amended Agreement
have been duly executed and delivered by Company and are the legally valid and
binding obligations of Company, enforceable against Company in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. Except as set forth on Schedule 4F attached hereto, the
representations and warranties contained in Section 5 of the Credit Agreement
are and will be true, correct and complete in all material respects on and as of
November 30, 1996 to the same extent as though made on and as of that date,
except to the extent such representations and warranties specifically relate to
an earlier date, in which case they were true, correct and complete in all
material respects on and as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or
will result from the consummation of the transactions contemplated by this
Amendment that would constitute an Event of Default or a Potential Event of
Default.
SECTION 5. ACKNOWLEDGEMENT AND CONSENT
Company is a party to the Company Collateral Documents, in each
case as amended through the Second Amendment Date, pursuant to which Company has
created Liens in favor of Administrative Agent on certain Collateral to secure
the Obligations. Guarantors are a party to the Guaranty and the Subsidiary
Collateral Documents, in each case as amended through the Second Amendment Date,
pursuant to which each Guarantor has (i) guarantied the Obligations and (ii)
created Liens in favor of Administrative Agent on certain Collateral to secure
the obligations of such Guarantor under the Guaranty. Company and Guarantors are
collectively referred to herein as the "CREDIT SUPPORT PARTIES", and the
Guaranty, the Company Collateral Documents and the Subsidiary Collateral
Documents are collectively referred to herein as the "CREDIT SUPPORT DOCUMENTS".
Each Credit Support Party hereby acknowledges that it has
reviewed the terms and provisions of the Credit Agreement and this Amendment and
consents to the amendment of the Credit Agreement effected pursuant to this
Amendment. Each Credit Support Party hereby confirms that each Credit Support
Document to which it is a party or otherwise bound and all Collateral encumbered
thereby will continue to guaranty or secure, as the case may be, to the fullest
extent possible the payment and performance of all "Obligations," "Guarantied
Obligations" and "Secured Obligations," as the case may be (in each case as such
terms are defined in the applicable Credit Support Document), including, without
limitation, the payment and performance of all such "Obligations," "Guarantied
Obligations" or "Secured Obligations," as the case may be, in respect of the
Obligations of Company now or hereafter existing under or in respect of the
Amended Agreement and the Notes defined therein.
10
<PAGE> 11
Each Credit Support Party acknowledges and agrees that any of
the Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties contained in the
Amended Agreement and the Credit Support Documents to which it is a party or
otherwise bound are true, correct and complete in all material respects on and
as of November 30, 1996 to the same extent as though made on and as of that
date, except to the extent such representations and warranties specifically
relate to an earlier date, in which case they were true, correct and complete in
all material respects on and as of such earlier date.
Each Credit Support Party (other than Company) acknowledges and
agrees that (i) notwithstanding the conditions to effectiveness set forth in
this Amendment, such Credit Support Party is not required by the terms of the
Credit Agreement or any other Loan Document to consent to the amendments to the
Credit Agreement effected pursuant to this Amendment and (ii) nothing in the
Credit Agreement, this Amendment or any other Loan Document shall be deemed to
require the consent of such Credit Support Party to any future amendments to the
Credit Agreement.
SECTION 6. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
1. On and after November 30, 1996, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement
shall mean and be a reference to the Amended Agreement.
2. Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
3. Without limiting the generality of the provisions of
subsection 10.6 of the Credit Agreement, the waiver set forth above
shall be limited precisely as written and relates solely to the
noncompliance by Company with the provisions of subsections 2.4B(iii),
6.11, 8.2(i), 8.2(ii) and 8.5 of the Credit Agreement in the manner and
to the extent described above. Nothing in this Waiver shall be deemed
to:
(i) constitute a waiver of compliance by Company with respect
to (i) subsections 2.4B(iii), 6.11, 8.2(i), 8.2(ii) or 8.5 of the
Credit Agreement in any
11
<PAGE> 12
other instance or (ii) any other term, provision or condition of the
Credit Agreement or any other instrument or agreement referred to
therein; or
(ii) prejudice any right or remedy that Administrative Agent
or any Lender may now have (except to the extent such right or remedy
was based upon existing defaults that will not exist after giving
effect to this Waiver) or may have in the future under or in connection
with the Credit Agreement or any other instrument or agreement referred
to therein.
B. FEES AND EXPENSES. Company acknowledges that all costs, fees
and expenses as described in subsection 10.2 of the Credit Agreement incurred by
Administrative Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of
Company.
C. HEADINGS. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument; signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are physically attached to the same document.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
THE CERPLEX GROUP, INC.
By:
----------------------------------------
Title:
-------------------------------------
CERTECH TECHNOLOGY, INC. (for purposes
of Section 5 only) as a Credit Support Party
By:
----------------------------------------
Title:
-------------------------------------
CERPLEX MASS., INC. (for purposes of
Section 5 only) as a Credit Support Party
By:
----------------------------------------
Title:
-------------------------------------
CERPLEX LIMITED (for purposes of Section 5
only) as a Credit Support Party
By:
----------------------------------------
Title:
-------------------------------------
APEX COMPUTER COMPANY (for purposes
of Section 5 only) as a Credit Support Party
By:
----------------------------------------
Title:
-------------------------------------
Second Amendment to Credit Agreement
S-1
<PAGE> 14
CERPLEX SUBSIDIARY, INC. (for purposes of
Section 5 only) as a Credit Support Party
By:
----------------------------------------
Title:
-------------------------------------
PERIPHERAL COMPUTER SUPPORT, INC.
(for purposes of Section 5 only) as a Credit
Support Party
By:
----------------------------------------
Title:
-------------------------------------
MODCOMP/CERPLEX L.P. (for purposes of
Section 5 only) as a Credit Support Party
By:
----------------------------------------
Title:
-------------------------------------
MODCOMP JOINT VENTURE, INC. (for
purposes of Section 5 only) as a Credit Support
Party
By:
----------------------------------------
Title:
-------------------------------------
MODULAR COMPUTER SERVICES, INC.
(for purposes of Section 5 only) as a Credit
Support Party
By:
----------------------------------------
Title:
-------------------------------------
Second Amendment to Credit Agreement
S-2
<PAGE> 15
MODULAR COMPUTER SYSTEMS GMBH
(for purposes of Section 5 only)
as a Credit Support Party
By:
----------------------------------------
Title:
-------------------------------------
MODCOMP FRANCE S.A. (for purposes of
Section 5 only) as a Credit Support Party
By:
----------------------------------------
Title:
-------------------------------------
WELLS FARGO BANK, NATIONAL
ASSOCIATION, INDIVIDUALLY AND AS
ADMINISTRATIVE AGENT
By:
----------------------------------------
Title:
-------------------------------------
SUMITOMO BANK OF CALIFORNIA, AS A
LENDER
By:
----------------------------------------
Title:
-------------------------------------
BHF-BANK AKTIENGESELLSCHAFT, AS A
LENDER
By:
----------------------------------------
Title:
-------------------------------------
By:
----------------------------------------
Title:
-------------------------------------
Second Amendment to Credit Agreement
S-3
<PAGE> 16
COMERICA BANK- CALIFORNIA, AS A
LENDER
By:
----------------------------------------
Title:
-------------------------------------
Second Amendment to Credit Agreement
S-4
<PAGE> 1
EXHIBIT 10.33
THE CERPLEX GROUP, INC.
THIRD AMENDMENT
TO CREDIT AGREEMENT
This THIRD AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is
dated as of April 9, 1997 and entered into by and among THE CERPLEX GROUP, INC.,
a Delaware corporation ("COMPANY"), the FINANCIAL INSTITUTIONS LISTED ON THE
SIGNATURE PAGES HEREOF ("LENDERS") and WELLS FARGO BANK, NATIONAL BANK, as
administrative agent for Lenders ("ADMINISTRATIVE AGENT"), and, for purposes of
Section 7 hereof, CERTECH Technology, Inc., Cerplex Mass., Inc., Cerplex
Limited, Apex Computer Company, Cerplex Subsidiary, Inc., Peripheral Computer
Support, Inc., Modcomp/Cerplex L.P., Modcomp Joint Venture, Inc., Modular
Computer Services, Inc., Modular Computer Systems GmbH and Modcomp France S.A.
(collectively, "GUARANTORS"), and is made with reference to that certain Credit
Agreement dated as of October 12, 1994, as amended by that certain First
Amendment to Credit Agreement and Limited Waiver dated as of April 15, 1996 and
that certain Second Amendment to Credit Agreement and Limited Waiver dated as of
November 30, 1996 (the "CREDIT AGREEMENT"), by and among Company, Lenders,
Administrative Agent and Guarantors. Capitalized terms used herein without
definition shall have the same meanings herein as set forth in the Credit
Agreement.
RECITALS
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
SECTION 1.1 AMENDMENTS TO SECTION 1: DEFINITIONS.
A. Subsection 1.1 of the Credit Agreement is hereby amended by amending
the definition of "ACCEPTABLE CONTROL PERSON," "BUSINESS DAY," "COMMITMENT
TERMINATION DATE," "COMPANY COLLATERAL DOCUMENTS," "CONSOLIDATED CURRENT
LIABILITIES," "CONSOLIDATED TANGIBLE NET WORTH," "LETTER OF CREDIT," "LOAN
DOCUMENTS," "NET PROCEEDS AMOUNT," "NET SECURITIES PROCEEDS," "NOTES,"
"OBLIGATIONS" and "REQUISITE LENDERS" contained therein to read in their
entirety as follows:
1
<PAGE> 2
"`ACCEPTABLE CONTROL PERSON' means any entity identified in
Schedule 1.1 annexed hereto, any individual identified in Schedule 1.1 annexed
hereto, any spouse, issue or adopted children or other relative of any such
individual and any trust for the exclusive benefit of any such individual or his
or her spouse, issue or adopted children or other relatives; provided, in the
case of any such trust, that the existing beneficiaries or trustee(s) and/or
grantor(s) of such trust have the power to act with respect to the trust's
assets without court approval."
"`BUSINESS DAY' means any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the State of California or is
a day on which banking institutions located in such state are authorized or
required by law or other governmental action to close."
"`COMMITMENT TERMINATION DATE' means May 1, 1998."
"`COMPANY COLLATERAL DOCUMENTS' means the Company Pledge
Agreement, the Company Security Agreement and the Charge."
"`CONSOLIDATED CURRENT LIABILITIES' means, as at any date of
determination, the total liabilities of Company and its Subsidiaries on a
consolidated basis which may properly be classified as current liabilities in
conformity with GAAP, including, without limitation, the aggregate principal
amount of all outstanding Revolving Loans as of such date."
"`CONSOLIDATED TANGIBLE NET WORTH' means, as at any date of
determination, the sum of the capital stock and additional paid-in capital plus
retained earnings (or minus accumulated deficit) of Company and its Subsidiaries
plus all Subordinated Indebtedness less (i) the aggregate amount of all treasury
stock, (ii) Consolidated Intangible Assets, and (iii) the aggregate amount of
all obligations owing to Company or any of its Subsidiaries from any
stockholder, employee or Affiliate of Company or any of its Subsidiaries, all of
the foregoing as determined on a consolidated basis for Company and its
Subsidiaries in conformity with GAAP."
"`LETTER OF CREDIT' means any letter of credit issued for the
account of Company pursuant to this Agreement prior to the Third Amendment
Effective Date."
"`LOAN DOCUMENTS' means this Agreement, the Notes, the Guaranty
and the Collateral Documents."
"`NET PROCEEDS AMOUNT' has the meaning assigned to that term in
subsection 2.4A(iii)(i)."
"`NET SECURITIES PROCEEDS' has the meaning assigned to that
term in subsection 2.4A(iii)(b)."
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"`NOTES' means one or more of the Term Notes, Revolving Notes
or any combination thereof."
"`OBLIGATIONS' means all obligations of every nature of Company
or any other Loan Party from time to time owed to Administrative Agent, Lenders
or any of them under any of the Loan Documents, whether for principal, interest,
fees, expenses, indemnification or otherwise."
"`REQUISITE LENDERS' means two or more Lenders having or
holding 51% or more of the sum of (i) the aggregate Term Loan Exposure of all
Lenders plus (ii) the aggregate Revolving Loan Exposure of all Lenders."
B. Subsection 1.1 of the Credit Agreement is hereby amended by adding
the following definitions in appropriate alphabetical order:
"`APPLIED AMOUNT' has the meaning assigned to that term in
subsection 2.4A(iv)(b)."
"`BORROWING BASE' means an amount equal to 75% of Eligible
Accounts."
"`BORROWING BASE CERTIFICATE' means a certificate substantially
in the form of Exhibit XVII annexed hereto delivered to Administrative Agent and
Lenders by Company pursuant to subsection 6.1(xxii), with appropriate
insertions, and all related reports and supporting documentation as reasonably
requested by Lenders."
"`CONSOLIDATED ACCOUNTS RECEIVABLE' means, as at any date of
determination, all Accounts Receivable of Company and its Subsidiaries as of
such date as determined in accordance with GAAP."
"`CONSOLIDATED INVENTORY' means, as at any date of
determination, the value (calculated as the lower of cost or market) of all
Inventory of Company and its Subsidiaries as of such date as determined in
accordance with GAAP."
"`ELIGIBLE ACCOUNTS RECEIVABLE' means, as at any date of
determination, all Accounts Receivable of Company and any of its Subsidiaries
(other than PCS) other than any Account Receivable:
(i) which does not represent a bona fide sale or lease
and delivery of goods of or rendition of services by Company in the
ordinary course of Company's business, or which is not for a liquidated
amount payable by the account debtor thereon on the terms set forth in
the invoice therefor;
(ii) which is (a) not owed by an account debtor whose
principal place of business and chief executive office is located in
the United States of
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America, (b) not payable in the United States of America or (c) not
payable in Dollars;
(iii) which represents a progress billing;
(iv) which represents a sale on a bill-and-hold,
guaranteed sale, sale and return, sale on approval, consignment,
repurchase or return basis;
(v) which is evidenced by a promissory note or other
instrument or by chattel paper;
(vi) which is due no more than 30 days from the
transaction date and with respect to which more than 60 days have
elapsed since the original due date therefor or, if earlier, 180 days
have elapsed since the date of the original invoice therefor;
(vii) which is due more than 30 days from the
transaction date and with respect to which more than 30 days have
elapsed since the original due date therefor or, if earlier, 180 days
have elapsed since the date of the original invoice therefor;
(viii) which is not evidenced by an invoice rendered
to the account debtor;
(ix) owed by an account debtor which is a director,
officer, employee, Affiliate or stockholder of Company or any of its
Subsidiaries;
(x) if the aggregate dollar amount of all Accounts
Receivable owed by the account debtor thereon exceeds 25% of the
aggregate amount of all Accounts Receivable at such time, but only to
the extent of such excess;
(xi) which is owed by an account debtor which, at the
time of any determination of Eligible Accounts Receivable, owes any
amount with respect to any Account Receivable that has been outstanding
more than 60 days since the original due date therefor or 180 days
since the date of the original invoice therefor, other than amounts
which in total do not exceed (a) 50% of the aggregate of all Accounts
Receivable owing by any such account debt set forth on Schedule 1.2
annexed hereto or (b) 20% of the aggregate of all Accounts Receivable
owing by any other such account debtor;
(xii) which is owed by the government of the United
States of America, any department, agency, public corporation, or
state, municipality, or other political subdivision thereof;
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(xiii) as to which either the perfection,
enforceability, or validity of the security interest in such Account
Receivable, or Administrative Agent's right or ability to obtain direct
payment to Administrative Agent of the proceeds of such Account
Receivable, is governed by any federal, state, or local statutory
requirements other than those of the Uniform Commercial Code;
(xiv) with respect to which, in whole or in part, a
check, promissory note, draft, trade acceptance or other instrument for
the payment of money has been received, presented for payment and
returned uncollected for any reason;
(xv) which is owed by an account debtor to which
Company is indebted in any way unless the account debtor has entered
into an agreement acceptable to Administrative Agent in its
commercially reasonable judgment to waive setoff rights; or if the
account debtor thereon has disputed liability, asserted a right of
setoff or made any claim with respect to such Account Receivable; but
in each such case only to the extent of such indebtedness, setoff,
dispute or claim;
(xvi) as to which any one or more of the following
events has occurred with respect to the account debtor on such Account
Receivable: death or judicial declaration of incompetency of an account
debtor who is an individual; the filing by or against the account
debtor of a request or petition in a proceeding that is then pending
for liquidation, reorganization, arrangement, adjustment of debts,
adjudication as a bankrupt, winding-up, or other relief under the
bankruptcy, insolvency, or similar laws of the United States of
America, any state or territory thereof, or any foreign jurisdiction,
now or hereafter in effect; the making of any general assignment by the
account debtor for the benefit of creditors in a proceeding that is
then pending; the appointment of a receiver or trustee for the account
debtor or for any of the assets of the account debtor, including the
appointment of or taking possession by a "custodian," as defined in the
Bankruptcy Code in a proceeding that is then pending; the institution
by or against the account debtor of any other type of insolvency
proceeding (under the bankruptcy laws of the United States of America
or otherwise) or of any formal or informal proceeding for the
dissolution or liquidation of, settlement of claims against, or winding
up of affairs of, the account debtor in a proceeding that is then
pending; the nonpayment generally by the account debtor of its debts as
they become due; or the cessation of the business of the account debtor
as a going concern;
(xvii) if Administrative Agent believes in its
commercially reasonable judgment that the prospect of collection of
such Account Receivable is impaired or that the Account Receivable may
not be paid by reason of the account debtor's financial inability to
pay;
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(xviii) on which Administrative Agent does not have a
first priority lien; and
(xix) which represents a rebilling of an account
debtor for a discount or other adjustment inappropriately applied to an
Account Receivable by such account debtor."
"`PCS' means Peripheral Computer Support, Inc."
"`REVOLVING LOAN COMMITMENT' means the commitment of a Lender
to make Revolving Loans to Company pursuant to subsection 2.1A(ii), and
"REVOLVING LOAN COMMITMENTS" means such commitments of all Lenders in the
aggregate."
"`REVOLVING LOAN EXPOSURE' means, with respect to any Lender as
of any date of determination (i) prior to the termination of the Revolving Loan
Commitments, that Lender's Revolving Loan Commitment and (ii) after the
termination of the Revolving Loan Commitments, the aggregate outstanding
principal amount of the Revolving Loans of that Lender."
"`REVOLVING LOANS' means the Loans made by Lenders to Company
pursuant to subsection 2.1A(ii)."
"`REVOLVING NOTES' means (i) the promissory notes of Company
issued pursuant to subsection 2.1D(ii) on the Third Amendment Date and (ii) any
promissory notes issued by Company pursuant to the last sentence of subsection
10.1B(i) in connection with assignments of the Revolving Loan Commitments and
Revolving Loans of any Lenders, in each case substantially in the form of
Exhibit IV- B annexed hereto, as they may be amended, supplemented or otherwise
modified from time to time."
"`TERM LOAN COMMITMENT' means the commitment of a Lender to
make a Term Loan to Company pursuant to subsection 2.1A(i), and "TERM LOAN
COMMITMENTS" means such commitments of all Lenders in the aggregate."
"`TERM LOAN EXPOSURE' means, with respect to any Lender as of
any date of determination (i) prior to the funding of the Term Loans, that
Lender's Term Loan Commitment and (ii) after the funding of the Term Loans, the
outstanding principal amount of the Term Loan of that Lender."
"`TERM LOAN MATURITY DATE' means May 1, 1998."
"`TERM LOANS' means the Loans made by Lenders to Company
pursuant to subsection 2.1A(i)."
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"`TERM NOTES' means (i) the promissory notes of Company issued
pursuant to subsection 2.1D(i) on the Third Amendment Effective Date and (ii)
any promissory notes issued by Company pursuant to the last sentence of
subsection 10.1B(i) in connection with assignments of the Term Loan Commitments
and Term Loans of any Lenders, in each case substantially in the form of Exhibit
IV-A annexed hereto, as they may be amended, supplemented or otherwise modified
from time to time."
"`THIRD AMENDMENT EFFECTIVE DATE' means April 9, 1997."
"`TOTAL BANK INDEBTEDNESS' means, as at any date of
determination, all Indebtedness of Company and its Subsidiaries owed to Lenders
determined on a consolidated basis."
C. Subsection 1.1 of the Credit Agreement is hereby amended to delete
the definitions of "ADJUSTED EURODOLLAR RATE," "AFFECTED LENDER," "AFFECTED
LOANS," "CASH FLOW FROM CORPORATE OVERHEAD," "CASH FLOW FROM NORTH AMERICAN
OPERATIONS," "COLLATERAL ACCOUNT AGREEMENT," "COMMERCIAL LETTER OF CREDIT,"
"CORPORATE OVERHEAD," "EURODOLLAR RATE LOANS," "INTEREST PAYMENT DATE,"
"INTEREST PERIOD," "ISSUING LENDER," "LETTER OF CREDIT USAGE," "LOAN EXPOSURE,"
"NOTICE OF ISSUANCE OF LETTER OF CREDIT," "PAST DUE ACCOUNTS RECEIVABLE,"
"STANDBY LETTER OF CREDIT" and "TOTAL UTILIZATION OF COMMITMENTS" contained
therein.
SECTION 1.2 AMENDMENTS TO SECTION 2: AMOUNTS AND TERMS OF COMMITMENTS AND
LOANS.
A. Subsection 2.1A of the Credit Agreement is hereby amended to read in
its entirety as follows:
"A. COMMITMENTS. Subject to the terms and conditions of this
Agreement and in reliance upon the representations and warranties of
Company herein set forth, each Lender hereby severally agrees to make
the Loans described in subsections 2.1A(i) and 2.1A(ii).
(i) Term Loans. Each Lender severally agrees to
convert Loans outstanding on the Third Amendment Effective Date
and the amount of all unreimbursed drawings under letters of
credit issued hereunder prior to the Third Amendment Effective
Date in an aggregate amount not exceeding its Pro Rata Share of
the aggregate amount of the Term Loan Commitments to be used
for the purposes identified in subsection 2.5A. The amount of
each Lender's Term Loan Commitment is set forth opposite its
name on Schedule 2.1 annexed hereto and the aggregate amount of
the Term Loan Commitments is $38,869,975.02; provided that the
Term Loan Commitments of Lenders shall be adjusted to give
effect to any assignments of the Term Loan Commitments
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pursuant to subsection 10.1B. Amounts borrowed under this
subsection 2.1A(i) and subsequently repaid or prepaid may not
be reborrowed.
(ii) Revolving Loans. Each Lender severally agrees,
subject to the limitations set forth below with respect to the
maximum amount of Loans permitted to be outstanding from time
to time, to lend to Company from time to time during the period
from the Third Amendment Effective Date to but excluding the
Commitment Termination Date an aggregate amount not exceeding
its Pro Rata Share of the aggregate amount of the Commitments
to be used for the purposes identified in subsection 2.5A. On
the Third Amendment Effective Date, outstanding Loans in the
aggregate principal amount of $6,000,000 shall be deemed to be
Revolving Loans. The original amount of each Lender's
Commitment as of the Third Amendment Effective Date is set
forth opposite its name on Schedule 2.1 annexed hereto and the
aggregate original amount of the Commitments is $6,000,000;
provided that the Commitments of Lenders shall be adjusted to
give effect to any assignments of the Commitments pursuant to
subsection 10.1B; and provided, further that the amount of the
Commitments shall be reduced from time to time by the amount of
any reductions thereto made pursuant to subsections 2.4A. Each
Lender's Commitment shall expire on the Commitment Termination
Date and all Loans and all other amounts owed hereunder with
respect to the Loans and the Commitments shall be paid in full
no later than that date. Amounts borrowed under this subsection
2.1A(ii) may be repaid and reborrowed to but excluding the
Commitment Termination Date.
Anything contained in this Agreement to the contrary
notwithstanding, the Revolving Loans and the Revolving Loan Commitments
shall be subject to the limitation that (i) during the period from the
Third Amendment Effective Date to and excluding the date of the
consummation of the sale of PCS, in no event shall the Total
Utilization of Revolving Loan Commitments at any time exceed the
Revolving Loan Commitments then in effect and (ii) thereafter in no
event shall the Total Utilization of Revolving Loan Commitments at any
time exceed the lesser of (a) the Revolving Loan Commitments then in
effect and (b) the Borrowing Base then in effect."
B. Subsection 2.1B of the Credit Agreement is hereby amended to read in
its entirety as follows:
"B. BORROWING MECHANICS. Loans made on any Funding Date shall
be in an aggregate minimum amount of $25,000 and integral multiples of
$25,000 in excess of that amount. Whenever Company desires that Lenders
make Loans it shall give Administrative Agent telephonic notice of any
proposed
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borrowing under this subsection 2.1B and shall deliver to
Administrative Agent by telefacsimile or courier service a Notice of
Borrowing no later than 10:00 A.M. (Los Angeles time) at least one
Business Day in advance of the proposed Funding Date. The Notice of
Borrowing shall specify (i) the proposed Funding Date (which shall be a
Business Day) and (ii) the amount of Loans requested. Any Notice of
Borrowing delivered to Administrative Agent by telefacsimile shall be
confirmed by delivery by United States mail of an originally executed
Notice of Borrowing to Administrative Agent postmarked the date
telephonic notice of such proposed borrowing is given.
Neither Administrative Agent nor any Lender shall incur any
liability to Company in acting upon any telephonic notice referred to
above that Administrative Agent believes in good faith to have been
given by a duly authorized officer or other person authorized to borrow
on behalf of Company or for otherwise acting in good faith under this
subsection 2.1B, and upon funding of Loans by Lenders in accordance
with this Agreement pursuant to any such telephonic notice Company
shall have effected Loans hereunder.
Company shall notify Administrative Agent prior to the funding
of any Loans in the event that any of the matters to which Company is
required to certify in the applicable Notice of Borrowing is no longer
true and correct as of the applicable Funding Date, and the acceptance
by Company of the proceeds of any Loans shall constitute a
re-certification by Company, as of the applicable Funding Date, as to
the matters to which Company is required to certify in the applicable
Notice of Borrowing."
C. Subsection 2.1C of the Credit Agreement is hereby amended by
amending the fourth sentence thereof to read in its entirety as follows:
"Upon satisfaction or waiver of the conditions precedent
specified in subsections 4.1 (in the case of Loans made on the Closing
Date) and 4.2 (in the case of all Loans), Administrative Agent shall
make the proceeds of such Loans available to Company on the applicable
Funding Date by causing an amount of same day funds in Dollars equal to
the proceeds of all such Loans received by Administrative Agent from
Lenders to be credited to the account of Company at the Funding and
Payment Office."
D. Subsection 2.1D of the Credit Agreement is hereby amended to read in
its entirety as follows:
"Company shall execute and deliver to each Lender (or to
Administrative Agent for that Lender) on the Third Amendment Effective
Date (i) a Term Note, substantially in the form of Exhibit IV-A annexed
hereto, to evidence that Lender's Term Loan, in the principal amount of
that Lender's Term Loan and with other appropriate insertions and (ii)
a Revolving
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Note, substantially in the form of Exhibit IV-B annexed hereto, to
evidence that Lender's Revolving Loans, in the principal amount of that
Lender's Revolving Loan Commitment and with other appropriate
insertions."
E. Subsection 2.2A of the Credit Agreement is hereby amended to read in
its entirety as follows:
"A. RATE OF INTEREST. Subject to the provisions of subsections
2.6 and 2.7, (i) each Revolving Loan shall bear interest on the unpaid
principal amount thereof from the date made through maturity (whether
by acceleration or otherwise) at the sum of the Base Rate plus 2.25%
per annum and (ii) each Term Loan shall bear interest on the unpaid
principal amount thereof from the date made through maturity (whether
by acceleration or otherwise) at the sum of the Base Rate plus 3.125%
per annum."
F. Subsection 2.2C of the Credit Agreement is hereby amended to read in
its entirety as follows:
"C. INTEREST PAYMENTS. Subject to the provisions of subsection
2.2E, interest on each Loan shall be payable in arrears on and to the
last day of each month, upon any prepayment of that Loan (to the extent
accrued on the amount being prepaid) and at maturity (including final
maturity)."
G. Subsection 2.2D of the Credit Agreement is hereby amended to read in
its entirety as follows:
"[intentionally omitted]"
H. Subsection 2.3A of the Credit Agreement is hereby amended to read in
its entirety as follows:
"A. COMMITMENT FEES. Company agrees to pay to Administrative
Agent, for distribution to each Lender in proportion to that Lender's
Pro Rata Share, commitment fees from and including the Third Amendment
Effective Date equal to the average of the daily excess of the
Revolving Loan Commitments over the aggregate principal amount of
Revolving Loans outstanding multiplied by 1.0% per annum. All such
commitment fees are to be calculated on the basis of a 360-day year and
the actual number of days elapsed and to be payable quarterly in
arrears on each March 31, June 30, September 30 and December 31 of each
year, commencing on the first such date to occur after the Third
Amendment Effective Date, and on the Commitment Termination Date."
I. Subsection 2.3 of the Credit Agreement is hereby amended by adding
the following as subsection C thereof:
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"C. RESTRUCTURE FEE. Company agrees to pay to Administrative
Agent, for distribution to each Lender in proportion to that Lender's
Pro Rata Share, a restructure fee in the amount of $250,000, payable in
quarterly installments of $62,500 each on April 11, June 30, September
30 and December 31 of each year, with the first such payment due on
April 11, 1997."
J. Subsection 2.4 of the Credit Agreement is hereby amended to read in
its entirety as follows:
"2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN COMMITMENTS; GENERAL
PROVISIONS REGARDING PAYMENTS.
"A. PREPAYMENTS AND UNSCHEDULED REDUCTIONS IN COMMITMENTS.
(i) Voluntary Prepayments. Company may, upon not less
than one Business Day's prior notice, at any time and from time
to time prepay, without penalty, any Loans on any Business Day
in whole or in part in an aggregate minimum amount of $100,000
and integral multiples of $100,000 in excess of that amount.
Company shall give Administrative Agent telephonic notice of
any proposed prepayment under this subsection 2.4A(i) and shall
confirm such notice by telefacsimile or courier service no
later than 10:00 A.M. (Los Angeles time) on the date required.
Any notice of proposed prepayment delivered to Administrative
Agent by telefacsimile shall be confirmed by delivery by United
States mail of an originally executed notice of prepayment
postmarked the date telephonic notice of such proposed
prepayment is given. Notice of prepayment having been given as
aforesaid, the principal amount of the Loans specified in such
notice shall become due and payable on the prepayment date
specified therein. Any such voluntary prepayment shall be
applied as specified in subsection 2.4A(iv).
(ii) Voluntary Reductions of Revolving Loan
Commitments. Company may, upon not less than five Business
Days' prior notice, at any time and from time to time,
terminate in whole or permanently reduce in part, without
premium or penalty, the Revolving Loan Commitments in an amount
up to the amount by which the Revolving Loan Commitments exceed
the aggregate principal amount of Revolving Loans outstanding
at the time of such proposed termination or reduction; provided
that any such partial reduction of the Revolving Loan
Commitments shall be in an aggregate minimum amount of $500,000
and integral multiples of $500,000 in excess of that amount.
Company shall give Administrative Agent telephonic notice of
any proposed Revolving Loan Commitment reduction under this
subsection 2.4A(ii) and shall confirm such notice by
telefacsimile or courier service
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no later than 10:00 A.M. (Los Angeles time) on the date
required. Any notice of proposed Revolving Loan Commitment
reduction delivered to Administrative Agent by telefacsimile
shall be confirmed by delivery by United States mail of an
originally executed notice of Revolving Loan Commitment
reduction postmarked the date telephonic notice of such
proposed Revolving Loan Commitment reduction is given.
Company's notice to Administrative Agent shall designate the
date (which shall be a Business Day) of such termination or
reduction and the amount of any partial reduction, and such
termination or reduction of the Revolving Loan Commitments
shall be effective on the date specified in Company's notice
and shall reduce the Revolving Loan Commitment of each Lender
proportionately to its Pro Rata Share.
(iii) Mandatory Prepayments and Mandatory Reductions
of Revolving Loan Commitments. The Loans shall be prepaid, and
the Revolving Loan Commitments shall be permanently reduced, in
the amounts and under the circumstances set forth below, all
such prepayments and reductions to be applied as specified in
subsection 2.4A(iv).
(a) Prepayments and Reductions From Net Asset
Sale Proceeds. On the date of receipt by Company or any of its
Subsidiaries of any Net Asset Sale Proceeds in respect of any
Asset Sale (other than (1) any Asset Sale described in clauses
(d) through (f) and (2) the sale of the stock of On Command
Video and the sale of end-of-life Inventory), Company shall
prepay the Loans and/or the Revolving Loan Commitments shall be
permanently reduced in an aggregate amount equal to 66-2/3% of
such Net Asset Sale Proceeds.
(b) Prepayments and Reductions Due to Issuance
of Securities. On the date of receipt by Company of the Cash
proceeds (any such proceeds net of underwriting discounts and
commissions and other reasonable costs and expenses associated
therewith, being "NET SECURITIES PROCEEDS") from the issuance
of any Securities of Company after the Third Amendment
Effective Date, Company shall prepay the Loans, and the
Revolving Loan Commitments shall be permanently reduced, in an
aggregate amount equal to 25% of such Net Securities Proceeds.
Any such mandatory prepayments shall be applied as specified in
subsection 2.4A(iv).
(c) Prepayments From Cash Flow From Operating
Activities. On or before March 1, 1998, Company shall prepay
the Loans, and the Revolving Loan Commitments shall be
permanently reduced, in an aggregate amount equal to the amount
by which 66-2/3% of "Net Cash Provided (Used) by Operating
Activities" during such
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period, as set forth on the internally prepared consolidated
cash flow statement of Company and its Subsidiaries for the
Fiscal Year ending December 31, 1997, exceeds $9,000,000.
(d) Prepayments from the Sale of Modcomp. On
the date of receipt by Company or any of its Subsidiaries of
any Net Asset Sale Proceeds from any Asset Sale relating to
Modcomp or its Subsidiaries, Company shall prepay the Loans,
and/or the Revolving Loan Commitments shall be permanently
reduced, in an aggregate amount equal to (1) 66% of such Net
Asset Sale Proceeds in the event the sale occurs prior to
September 30, 1997 and (2) 80% of such Net Asset Sale Proceeds
in the event the sale occurs on or after September 30, 1997.
(e) Prepayments from the Sale of PCS. On the
date of receipt by Company or any of its Subsidiaries of any
Net Asset Sale Proceeds from any Asset Sale relating to PCS or
its Subsidiaries, Company shall prepay the Loans, and/or the
Revolving Loan Commitments shall be permanently reduced, in an
aggregate amount equal to the greater of (1) $8,000,000 or (2)
62.26% of such Net Asset Sale Proceeds. In addition, on the
date of receipt by Company or any of its Subsidiaries of any
Net Asset Sale Proceeds from any Asset Sale relating to PCS or
its Subsidiaries as a result of a payment from any holdback or
reserve established by the purchaser, Company shall prepay the
Loans, and/or the Revolving Loan Commitments shall be
permanently reduced, in an aggregate amount equal to 100% of
such Net Asset Sale Proceeds.
(f) Prepayment from the Sale of Pen
Interconnect Stock. On the date of receipt by Company or any of
its Subsidiaries of any Net Asset Sale Proceeds from the sale
of the stock of Pen Interconnect, Company shall prepay the
Loans, and/or the Revolving Loan Commitments shall be
permanently reduced, in an amount equal to 100% of such Net
Asset Sale Proceeds.
(g) Prepayments from Royalties. On the date of
receipt by Company thereof, Company shall prepay the Loans,
and/or the Revolving Loan Commitments shall be permanently
reduced, in an amount equal to 100% of the royalties and
dividend payments paid by Cerplex SAS. Such prepayments in
respect of such royalty payments shall be in an amount not less
than $275,000 each fiscal quarter and shall be made on the
earlier of (1) the date any such payment is received by Company
and (2) January 31, April 30, July 31 and October 31 of each
year and such prepayments in respect of such dividend payments
shall be in an amount not less than $400,000 each
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Fiscal Year and shall be made on the earlier of (1) the date
any such payment is received by Company and (2) July 31 of each
year.
(h) Mandatory Prepayments and Termination of
Commitments. On the 5th day after the occurrence of a Change in
Control, or on any earlier day after the occurrence of a Change
in Control if requested by Administrative Agent with the
consent of Requisite Lenders, (a) Company shall prepay, subject
to subsection 2.6D, all of the outstanding Loans and (b) the
Revolving Loan Commitments and the obligation of each Lender to
make any Loan shall be terminated as of such date.
(i) Calculations of Net Proceeds Amounts;
Additional Prepayments and Reductions Based on Subsequent
Calculations. Concurrently with any prepayment of the Loans
and/or reduction of the Revolving Loan Commitments pursuant to
subsections 2.4A(iii)(a)-(f), Company shall deliver to Agent an
Officers' Certificate demonstrating the calculation of the
amount (the "NET PROCEEDS AMOUNT") of the applicable Net Asset
Sale Proceeds, Net Securities Proceeds, or Net Cash Provided
(Used) by Operating Activities, as the case may be, that gave
rise to such prepayment and/or reduction. In the event that
Company shall subsequently determine that the actual Net
Proceeds Amount was greater than the amount set forth in such
Officers' Certificate, Company shall promptly make an
additional prepayment of the Loans (and/or, if applicable, the
Revolving Loan Commitments shall be permanently reduced) in an
amount equal to the amount of such excess, and Company shall
concurrently therewith deliver to Administrative Agent an
Officers' Certificate demonstrating the derivation of the
additional Net Proceeds Amount resulting in such excess.
(j) Prepayments Due to Restrictions on
Revolving Loan Commitments. Company shall from time to time
prepay the Revolving Loans to the extent necessary to give
effect to the limitations set forth in subsection 2.1A(ii).
(k) Reductions of Commitments Not Limited to
Amount of Loans Outstanding. The amount of any required
reduction of the Revolving Loan Commitments pursuant to any
provision of this subsection 2.4A(iii) shall not be affected by
the fact that the outstanding principal amount of Loans at the
time of such reduction is less than the amount of such
reduction.
(iv) Application of Prepayments and Unscheduled
Reduction of Revolving Loan Commitments.
14
<PAGE> 15
(a) Application of Voluntary Prepayments by
Type of Loans. Any voluntary prepayments pursuant to subsection
2.4A(i) shall be applied as specified by Company in the
applicable notice of prepayment; provided that in the event
Company fails to specify the Loans to which any prepayment
shall be applied, such prepayment shall be applied first to
repay outstanding Term Loans to the full extent thereof, and
second to repay outstanding Revolving Loans to the full extent
thereof.
(b) Application of Mandatory Prepayments by
Type of Loans. Any amount (the "APPLIED AMOUNT") required to be
applied as a mandatory prepayment of the Loans and/or a
reduction of the Revolving Loan Commitments pursuant to
subsections 2.4A(iii)(a)-(d) and (f)-(h) shall be applied first
to prepay the Term Loans to the full extent thereof, second, to
the extent of any remaining portion of the Applied Amount, to
prepay the Revolving Loans to the full extent thereof and to
permanently reduce the Revolving Loan Commitments by the amount
of such prepayment, and third, to the extent of any remaining
portion of the Applied Amount, to further permanently reduce
the Revolving Loan Commitments to the full extent thereof. Any
Applied Amount required to be applied as a mandatory prepayment
of the Loans and/or a reduction of the Revolving Loan
Commitments pursuant to subsection 2.4A(iii)(e) shall be
applied first to prepay the Revolving Loans in the amount of
$1,500,000, second to prepay the Term Loans to the full extent
thereof, third, to the extent of any remaining portion of the
Applied Amount, to prepay the Revolving Loans to the full
extent thereof and to permanently reduce the Revolving Loan
Commitments by the amount of such prepayment, and fourth, to
the extent of any remaining portion of the Applied Amount, to
further permanently reduce the Revolving Loan Commitments to
the full extent thereof.
"B. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) Manner and Time of Payment. All payments by Company of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in Dollars in same day funds, without defense,
setoff or counterclaim, free of any restriction or condition, and
delivered to Administrative Agent not later than 10:00 A.M. (Los
Angeles time) on the date due at the Funding and Payment Office for the
account of Lenders; funds received by Administrative Agent after that
time on such due date shall be deemed to have been paid by Company on
the next succeeding Business Day. Company hereby authorizes
Administrative Agent to charge its accounts with Administrative Agent
in order to cause timely payment to be made to Administrative Agent of
all principal, interest, fees and expenses due
15
<PAGE> 16
hereunder (subject to sufficient funds being available in its accounts
for that purpose).
(ii) Application of Payment to Principal and Interest. All
payments in respect of the principal amount of any Loan shall, to the
extent required by subsection 2.2C, include payment of accrued interest
on the principal amount being repaid and all such payments shall,
except as otherwise required by subsection 2.2C, be applied to the
payment of interest before application to principal.
(iii) Apportionment of Payments. Aggregate principal and
interest payments shall be apportioned among all outstanding Loans to
which such payments relate, in each case proportionately to Lenders'
respective Pro Rata Shares. Administrative Agent shall promptly
distribute to each Lender, at its primary address set forth below its
name on the appropriate signature page hereof or at such other address
as such Lender may request, its Pro Rata Share of all such payments
received by Administrative Agent and the commitment fees of such Lender
when received by Administrative Agent pursuant to subsection 2.3.
(iv) Payments on Business Days. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business
Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall be included in the computation of the
payment of interest hereunder or of the commitment fees hereunder, as
the case may be.
(v) Notation of Payment. Each Lender agrees that before
disposing of any Note held by it, or any part thereof (other than by
granting participations therein), that Lender will make a notation
thereon of all Loans evidenced by that Note and all principal payments
previously made thereon and of the date to which interest thereon has
been paid; provided that the failure to make (or any error in the
making of) a notation of any Loan made under such Note shall not limit
or otherwise affect the obligations of Company hereunder or under such
Note with respect to any Loan or any payments of principal or interest
on such Note."
K. Subsection 2.6 is hereby amended to read in its entirety as follows:
"[intentionally omitted]"
L. Subsection 2.9 is hereby amended to read in its entirety as follows:
"[intentionally omitted]"
16
<PAGE> 17
SECTION 1.3 AMENDMENTS TO SECTION 3: LETTERS OF CREDIT.
A. Section 3 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"[intentionally omitted]"
SECTION 1.4 AMENDMENTS TO SECTION 4: CONDITIONS TO LOANS AND LETTERS OF CREDIT.
A. Subsection 4.3 is hereby amended to read in its entirety as follows:
"[intentionally omitted]"
SECTION 1.5 AMENDMENTS TO SECTION 6: COMPANY'S AFFIRMATIVE COVENANTS.
A. Subsection 6.1(i) of the Credit Agreement is hereby amended by
deleting the reference to "50 days" contained therein and substituting "42 days"
therefor.
B. Subsection 6.1(iii) of the Credit Agreement is hereby amended by
adding the phrase "and clause (xxi) below" after the phrase "clauses (i) and
(ii) above" contained therein.
C. Subsection 6.1(xvi) of the Credit Agreement is hereby amended to
read in its entirety as follows:
"(xvi) Agings. as soon as possible and within 20 days after the
end of each month a summary of all Accounts Receivable and a summary of
accounts payable agings."
D. Subsection 6.1(xxi) of the Credit Agreement is hereby amended to
read in its entirety as follows:
"(xxi) Monthly Financials: as soon as available and in any
event within 30 days after the end of each month, the consolidated
balance sheet of Company and its Subsidiaries as at the end of such
month, the related consolidated statements of income, stockholders'
equity and cash flows of Company and its Subsidiaries for such month,
and an income statement for such month showing the results of
operations for each division of Company and its Subsidiaries, all in
reasonable detail and certified by the chief financial officer of
Company that they fairly present the financial condition of Company and
its Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, subject to
changes resulting from audit and normal year-end adjustments; and"
17
<PAGE> 18
E. Subsection 6.1 of the Credit Agreement is hereby further amended by
(i) redesignating clause (xxii) thereof as clause (xxiii) thereof; and (ii)
adding the following as new clause (xxii) thereof;
"(xxii) Borrowing Base Certificates: as soon as available and
in any event within 20 days after the last day of each month, a
Borrowing Base Certificate dated as of the last day of such month,
together with any additional schedules and other information as
Administrative Agent may reasonably request; provided, however, that in
the event the aggregate principal amount of outstanding Revolving Loans
exceeds the Borrowing Base for any two consecutive months, a Borrowing
Base Certificate shall be required to be delivered as of the last day
of each two-week period within 20 days of the end of such period; and"
F. Subsection 6.16 of the Credit Agreement is hereby amended to read in
its entirety as follows:
"Company shall hire a new chief executive officer no later than
May 30, 1997. In addition, Company shall continue to retain the
services of a financial advisor, satisfactory to Lenders, through the
Commitment Termination Date."
G. Section 6 of the Credit Agreement is hereby amended by adding the
following as new subsections 6.17 and 6.18 thereof:
"6.17 WARRANTS. On or before April 30, 1997, Lenders, Company
and the other parties thereto shall enter into a Fifth Amendment to
Registration Rights Agreement in form and substance satisfactory to
Lenders. On or before May 15, 1997, Company shall file a Post-Effective
Amendment to its Registration Statement on Form S-3, or shall file a
Registration Statement on Form S-3, with respect to the shares of the
common stock of Company underlying the 750,000 warrants issued to
Lenders on the Third Amendment Effective Date, and shall use its best
efforts to cause such Post-Effective Amendment or Registration
Statement to become effective as soon as possible thereafter. On or
prior to July 15, 1997, Company shall receive the approval of the
stockholders of Company, and shall amend its Certificate of
Incorporation, to increase the authorized shares of the common stock of
Company from 30,000,000 to 50,000,000 shares.
"6.18. POST-CLOSING DELIVERIES. On or before April 30, 1997,
Company shall have delivered to Lenders:
(i) originally executed copies of one or more
favorable written opinions of counsel for each foreign Subsidiary of
Company, in form and substance reasonably satisfactory to
Administrative Agent and its counsel,
18
<PAGE> 19
dated as of a recent date as to such matters as Administrative Agent
acting on behalf of Lenders may reasonably request;
(ii) originally executed copies of one or more
favorable written opinions of Brobeck, Phleger & Harrison LLP, counsel
for Company in form and substance reasonably satisfactory to
Administrative Agent and its counsel with respect to the perfection of
Administrative Agent's security interests;
(iii) certified copies of the organizational documents
of each of its foreign Subsidiaries, together with a good standing
certificate from the jurisdiction of its incorporation, each dated a
recent date; and
(iv) resolutions of the Board of Directors of each of
its foreign Subsidiaries approving and authorizing the execution,
delivery, and performance of the Third Amendment to Credit Agreement
dated as of April 9, 1997, certified as of a recent date by the
corporate secretary or an assistant secretary of such Subsidiary as
being in full force and effect without modification or amendment.
In addition, Company agrees that, on or before April 30, 1997,
Company will execute and deliver all instruments and documents, and take all
other actions, that Administrative Agent reasonably requests, in order to
perfect and protect any security interest granted or purported to be granted to
Lenders pursuant to the Collateral Documents with respect to any Collateral
acquired by Company or any of its Domestic Subsidiaries since the Closing Date
or as a result of any changes in the location of any such Collateral or in the
principal place of business or location of records of Company or any of its
Domestic Subsidiaries."
19
<PAGE> 20
SECTION 1.6 AMENDMENTS TO SECTION 7: COMPANY'S NEGATIVE COVENANTS.
A. Subsection 7.1(vi) of the Credit Agreement is hereby amended to read
in its entirety as follows:
"[intentionally omitted]"
B. Subsections 7.4(i) and 7.4(vi) of the Credit Agreement are hereby
amended to read in their entirety as follows:
"[intentionally omitted]"
C. Subsection 7.6 of the Credit Agreement is hereby amended to read in
its entirety as follows:
"7.6 FINANCIAL COVENANTS.
"A. LIQUIDITY RATIO. Company shall not permit the ratio of (i)
Consolidated Current Assets to (ii) Consolidated Current Liabilities as
of the last day of any fiscal quarter of Company set forth below to be
less than the correlative amount indicated:
<TABLE>
<CAPTION>
PERIOD MINIMUM LIQUIDITY RATIO
------ -----------------------
<S> <C>
Fiscal quarter ended March 31, 1997 0.66:1.00
Fiscal quarter ended June 30, 1997 0.71:1.00
Fiscal quarter ended September 30, 1997 0.69:1.00
Fiscal quarter ended December 31, 1997 0.72:1.00
Fiscal quarter ended March 31, 1998 and thereafter 0.74:1.00
</TABLE>
"B. MINIMUM WORKING CAPITAL RATIO. Company shall not permit the
ratio of (a) Consolidated Accounts Receivable plus Consolidated
Inventory to (b) Total Bank Indebtedness as of the last day of any
fiscal quarter of Company set forth below to be less than the
correlative amount indicated:
<TABLE>
<CAPTION>
PERIOD MINIMUM WORKING CAPITAL RATIO
------ -----------------------------
<S> <C>
Fiscal quarter ended March 31, 1997 0.73:1.00
Fiscal quarter ended June 30, 1997 0.71:1.00
Fiscal quarter ended September 30, 1997 0.71:1.00
Fiscal quarter ended December 31, 1997 0.74:1.00
Fiscal quarter ended March 31, 1998 and thereafter 0.75:1.00
</TABLE>
20
<PAGE> 21
"C. MAXIMUM LEVERAGE RATIO. Company shall not permit the ratio
of Consolidated Total Liabilities as of the last day of any fiscal
quarter of Company to Consolidated Tangible Net Worth for the period
set forth below then ended to be greater than (i.e., less negative but
not positive) the correlative amount indicated:
<TABLE>
<CAPTION>
PERIOD MAXIMUM LEVERAGE RATIO
------ ----------------------
<S> <C>
Fiscal quarter ended March 31, 1997 -13.00:1.00
Fiscal quarter ended June 30, 1997 -39.00:1.00
Fiscal quarter ended September 30, 1997 -35.00:1.00
Fiscal quarter ended December 31, 1997 -60.00:1.00
Fiscal quarter ended March 31, 1998 and thereafter -120.00:1.00
</TABLE>
"D. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Company shall not
permit Consolidated Tangible Net Worth at any time during any period
set forth below to be less than the correlative amount indicated plus
100% of any Net Securities Proceeds from the issuance of any Securities
of Company after the Third Amendment Effective Date:
<TABLE>
<CAPTION>
MINIMUM CONSOLIDATED TANGIBLE
PERIOD NET WORTH
------ ---------
<S> <C>
March 31, 1997 through June 29, 1997 ($9,566,000)
June 30, 1997 through September 29, 1997 ($3,112,000)
September 30, 1997 through December 30, 1997 ($3,254,000)
December 31, 1997 through March 30, 1998 ($2,013,000)
March 31, 1998 and thereafter ($1,113,000)
</TABLE>
"E. MINIMUM PROFITABILITY. Company shall not permit
Consolidated Net Income (excluding any gain on the sale of PCS) for any
period set forth below to be less than the correlative amount
indicated:
<TABLE>
<CAPTION>
PERIOD MINIMUM PROFITABILITY
------ ---------------------
<S> <C>
Fiscal quarter ended March 31, 1997 ($5,537,000)
Fiscal quarter ended June 30, 1997 (3,570,000)
Fiscal quarter ended September 30, 1997 (641,000)
Fiscal quarter ended December 31, 1997 857,000
Fiscal quarter ended March 31, 1998 900,000
</TABLE>
"F. MINIMUM PROFITABILITY FROM NORTH AMERICAN AND CORPORATE
OPERATIONS. Company shall not permit Consolidated Net Income From North
American and Corporate Operations for any period set forth below to be
less than the correlative amount indicated:
21
<PAGE> 22
<TABLE>
<CAPTION>
PERIOD MINIMUM PROFITABILITY
------ ---------------------
<S> <C>
Fiscal quarter ended March 31, 1997 ($7,023,000)
Fiscal quarter ended June 30, 1997 (4,308,000)
Fiscal quarter ended September 30, 1997 (2,128,000)
Fiscal quarter ended December 31, 1997 (1,099,000)
Fiscal quarter ended March 31, 1998 (900,000)"
</TABLE>
D. Subsection 7.8 of the Credit Agreement is hereby amended to read
in its entirety as follows:
"Company shall not, and shall not permit its Subsidiaries to,
make or incur Consolidated Capital Expenditures in an amount exceeding
(i) $5,500,000 in the aggregate during the Fiscal Year ending December
31, 1997 or (ii) $750,000 in the aggregate during any fiscal quarter
thereafter."
SECTION 1.7 AMENDMENTS TO SECTION 8: EVENTS OF DEFAULT.
A. Subsection 8.1 is hereby amended to read in its entirety as follows:
"Failure by Company to pay any installment of
principal of any Loan when due, whether at stated maturity, by
acceleration, by notice of voluntary prepayment, by mandatory
prepayment or otherwise; or failure by Company to pay any interest on
any Loan or any fee or any other amount due under this Agreement within
five days after the date due; or"
B. Subsection 8.3 of the Credit Agreement is hereby amended by
inserting the phrase ", 6.1(iii)" after the phrase "2.5" contained therein and
by adding the phrase ", 6.17" after the phrase "6.10" contained therein.
C. Section 8 of the Credit Agreement is hereby amended by (i) adding
the word "or" at the end of subsection 8.13 thereof and (ii) adding the
following as new subsection 8.14 thereof:
"8.14. Sale of Assets; Repayment of Loans.
Company shall fail to consummate the sale of PCS on or
prior to April 15, 1997 or to receive cash proceeds on or prior to such
date in connection with such sale in an amount equal to at least
$12,850,000; or Company shall fail to consummate the sale of the Pen
Interconnect stock held by Company on or prior to June 30, 1997; or the
sum of (a) the Revolving Loan Commitments and (b) the aggregate
principal amount of the Term Loans then outstanding shall exceed
$36,500,000 as of December 31, 1997;"
22
<PAGE> 23
D. The three paragraphs of the THEN clause following new subsection
8.14 are hereby amended to read in their entirety as follows:
"THEN (i) upon the occurrence of any Event of Default described in subsection
8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on
the Loans and (b) all other Obligations shall automatically become immediately
due and payable, without presentment, demand, protest or other requirements of
any kind, all of which are hereby expressly waived by Company, and the
obligation of each Lender to make any Loan hereunder shall thereupon terminate,
and (ii) upon the occurrence and during the continuation of any other Event of
Default, Administrative Agent shall, upon the written request or with the
written consent of Requisite Lenders, by written notice to Company, declare all
or any portion of the amounts described in clauses (a) through (b) above to be,
and the same shall forthwith become, immediately due and payable, and the
obligation of each Lender to make any Loan hereunder shall thereupon terminate.
Notwithstanding anything contained in the preceding paragraph,
if at any time within 60 days after an acceleration of the Loans pursuant to
such paragraph Company shall pay all arrears of interest and all payments on
account of principal which shall have become due otherwise than as a result of
such acceleration (with interest on principal and, to the extent permitted by
law, on overdue interest, at the rates specified in this Agreement) and all
Events of Default and Potential Events of Default (other than non-payment of the
principal of and accrued interest on the Loans, in each case which is due and
payable solely by virtue of acceleration) shall be remedied or waived pursuant
to subsection 10.6, then Lenders having or holding 80% of the aggregate Loan
Exposure of all Lenders, by written notice to Company, may at their option
rescind and annul such acceleration and its consequences; but such action shall
not affect any subsequent Event of Default or Potential Event of Default or
impair any right consequent thereon. The provisions of this paragraph are
intended merely to bind Lenders to a decision which may be made at the election
of such Lenders and are not intended to benefit Company and do not grant Company
the right to require Lenders to rescind or annul any acceleration hereunder,
even if the conditions set forth herein are met."
SECTION 1.8 AMENDMENTS TO SECTION 10: MISCELLANEOUS.
A. Subsection 10.6(ix) of the Credit Agreement is hereby amended to
read in its entirety as follows:
"(ix) changes the payment dates of interest payable hereunder;"
B. Subsections 10.6(ii), 10.6(x) and 10.6(xii) of the Credit Agreement
are hereby amended to read in their entirety as follows:
"[intentionally omitted]"
23
<PAGE> 24
SECTION 1.9 AMENDMENTS TO EXHIBITS AND SCHEDULES.
A. Schedule 1.1 of the Credit Agreement is hereby deleted and Schedule
1.1 hereto substituted therefor.
B. Schedule 1.2 hereto is hereby added as Schedule 1.2 of the Credit
Agreement.
C. Schedule 2.1 of the Credit Agreement is hereby deleted and Schedule
2.1 hereto substituted therefor.
D. Exhibit IV of the Credit Agreement is hereby deleted and Exhibits
I-A and I-B hereby substituted therefor.
E. Exhibit V of the Credit Agreement is hereby deleted and Exhibit II
hereto substituted therefor.
F. Exhibit III hereto is hereby added as Exhibit XVII to the Credit
Agreement.
G. Exhibit VIII of the Credit Agreement is hereby deleted and Exhibit
IV hereto substituted therefor.
H. Exhibit III of the Credit Agreement is hereby deleted.
SECTION 2. CONSENT
Lenders hereby consent to (a) the release of their Liens on the
assets and capital stock of PCS provided the proposed sale by Company of PCS is
consummated or prior to April 15, 1997 and Company receives cash proceeds on or
prior to such date in connection with such sale in an amount equal to at least
$12,850,000, which proceeds are applied to prepayment of the Loans in accordance
with subsection 2.4 and (b) the release of their Liens on the Pen Interconnect
stock held by Company provided the proposed sale by Company of such stock is
consummated on or prior to June 30, 1997 and Company receives cash proceeds on
or prior to such date in connection with such sale in an amount equal to the
market price per share of such stock, which proceeds are applied to prepayment
of the Loans in accordance with subsection 2.4. Lenders hereby authorize
Administrative Agent to take such action as may be necessary to (i) release the
Lien of Lenders on the stock and assets of PCS in connection with any such sale
of PCS and to release PCS from its obligations under the Subsidiary Guaranty and
the Collateral Documents to which PCS is a party and (ii) release the Lien of
Lenders on the stock of Pen Interconnect in connection with any such sale of
such stock.
24
<PAGE> 25
SECTION 3. WAIVER
Subject to the terms and conditions set forth herein and in
reliance on the representations and warranties of Company herein contained,
Lenders hereby waive compliance with the provisions of:
(a) subsection 6.11 of the Credit Agreement with respect to the
real property leases and subleases of Company and its Subsidiaries set forth on
Schedule 3 hereto for the period from and including January 31, 1997 to and
including April 30, 1997;
(b) subsection 8.2(i) of the Credit Agreement with respect to
the failure of Company to pay the promissory note payable to Lucent Technology,
Inc. for the period from and including March 31, 1997 to and including May 1,
1998, provided that Company makes no payments in connection with any settlement
of the pending dispute with respect to the payment of such note; and
(c) subsection 8.5 of the Credit Agreement with respect to the
failure of Company to comply with subsection 6.11 of the Credit Agreement for
the period from and including January 31, 1997 to and including April 30, 1997.
SECTION 4. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective only upon the
satisfaction of all of the following conditions precedent (the date of
satisfaction of such conditions being referred to herein as the "THIRD AMENDMENT
EFFECTIVE DATE"):
A. On or before the Third Amendment Effective Date, Company shall
deliver to Lenders (or to Administrative Agent for Lenders with sufficient
originally executed copies, where appropriate, for each Lender and its counsel)
the following, each, unless otherwise noted, dated the Third Amendment Effective
Date:
1. Certified copies of its Certificate of Incorporation,
together with a good standing certificate from the Secretary of State
of the State of Delaware, each dated a recent date prior to the Third
Amendment Effective Date;
2. Copies of its Bylaws, certified as of the Third Amendment
Effective Date by its corporate secretary or an assistant secretary;
3. Resolutions of its Board of Directors approving and
authorizing the execution, delivery, and performance of this Amendment
the Pledge Amendment dated as of April 9, 1997 (the "PLEDGE AMENDMENT")
and the WARRANT AGREEMENT, certified as of the Third Amendment
Effective Date by its corporate secretary or an assistant secretary as
being in full force and effect without modification or amendment;
25
<PAGE> 26
4. Signature and incumbency certificates of its officers
executing this Amendment, the Pledge Amendment and the Warrant
Agreement;
5. Executed copies of this Amendment and the Pledge Amendment;
and
6. Executed copies of the Notes.
B. On or before the Third Amendment Effective Date, Company shall
deliver to Lenders (or to Administrative Agent for Lenders with sufficient
originally executed copies, where appropriate, for each Lender and its counsel)
the following, each, unless otherwise noted, dated the Third Amendment Effective
Date:
1. Certified copies of the organizational documents of each of
its Domestic Subsidiaries, together with a good standing certificate
from the jurisdiction of its incorporation, each dated a recent date
prior to the Third Amendment Effective Date;
2. Resolutions of the Board of Directors of each of its
Domestic Subsidiaries approving and authorizing the execution,
delivery, and performance of this Amendment, certified as of the Third
Amendment Effective Date by the corporate secretary or an assistant
secretary of such Subsidiary as being in full force and effect without
modification or amendment;
3. Signature and incumbency certificates of the officers of
each of its Subsidiaries executing this Amendment; and
4. Executed copies of this Amendment.
C. On or before the Third Amendment Effective Date, and in
consideration for the concessions made by Lenders in connection with this Third
Amendment, Administrative Agent and Lenders shall have received duly executed
copies of the Amended and Restated Warrant Agreement, dated as of April 9, 1997,
between Company and Lenders (the "WARRANT AGREEMENT"), in form and substance
satisfactory to Lenders. On or before the Third Amendment Effective Date,
Company shall have issued to Lenders Warrants for 875,000 shares of the common
stock, $0.01 par value per share, of Company (the "COMMON STOCK"), in form and
substance satisfactory to Lenders, pursuant to the Warrant Agreement with an
exercise price per share equal to the market price of a share of the Common
Stock on April 4, 1997 in exchange for the 125,000 Warrants currently held by
Lenders.
D. Lenders and their respective counsel shall have received originally
executed copies of one or more favorable written opinions of Brobeck, Phleger &
Harrison LLP, counsel for Company, in form and substance reasonably satisfactory
to Administrative Agent and its counsel, dated as of the Third Amendment
Effective
26
<PAGE> 27
Date and setting forth substantially the matters in the opinions designated in
Exhibit V to this Amendment and as to such other matters as Administrative Agent
acting on behalf of Lenders may reasonably request.
E. On or before the Third Amendment Effective Date, Administrative
Agent and Lenders shall have received duly executed copies of the Amended and
Restated Note Purchase Agreement, in form and substance satisfactory to
Administrative Agent and Lenders. Such Amended and Restated Note Purchase
Agreement shall provide, among other things, that interest thereunder shall be
payable on February 19 and August 19 of each year.
F. On or before the Third Amendment Effective Date, Company shall have
delivered to Administrative Agent and Lenders a Borrowing Base Certificate
prepared as of March 31, 1997. Such Borrowing Base Certificate shall reflect a
Borrowing Base of at least $4,500,000.
G. On or before the Third Amendment Effective Date, all corporate and
other proceedings taken or to be taken in connection with the transactions
contemplated hereby and all documents incidental thereto not previously found
acceptable by Administrative Agent, acting on behalf of Lenders, and its counsel
shall be satisfactory in form and substance to Administrative Agent and such
counsel, and Administrative Agent and such counsel shall have received all such
counterpart originals or certified copies of such documents as Administrative
Agent may reasonably request.
SECTION 5. CONDITIONS SUBSEQUENT
On or before April 11, 1997, Administrative Agent, on behalf of
Lenders, shall have received the portion of the restructuring fee from Company
payable on such date and Administrative Agent shall have received the agent's
fee for the period from and including March 31, 1997 to and excluding May 1,
1998.
SECTION 6. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment and to
amend the Credit Agreement in the manner provided herein, Company represents and
warrants to each Lender that the following statements are true, correct and
complete:
A. CORPORATE POWER AND AUTHORITY. Company has all requisite corporate
power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance of the Amended Agreement have been duly
27
<PAGE> 28
authorized by all necessary corporate action on the part of Company, as the case
may be.
C. NO CONFLICT. The execution and delivery by Company of this Amendment
and the performance of the Amended Agreement do not and will not (i) violate any
provision of any law or any governmental rule or regulation applicable to
Company or any of its Subsidiaries, the Certificate or Articles of Incorporation
or Bylaws of Company or any of its Subsidiaries or any order, judgment or decree
of any court or other agency of government binding on Company or any of its
Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any Contractual Obligation of
Company or any of its Subsidiaries, (iii) result in or require the creation or
imposition of any Lien upon any of the properties or assets of Company or any of
its Subsidiaries (other than any Liens created under any of the Loan Documents
in favor of Administrative Agent on behalf of Lenders), or (iv) require any
approval of stockholders or any approval or consent of any Person under any
Contractual Obligation of Company or any of its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by Company of this
Amendment and the performance by Company of the Amended Agreement do not and
will not require any registration with, consent or approval of, or notice to, or
other action to, with or by, any federal, state or other governmental authority
or regulatory body.
E. BINDING OBLIGATION. This Amendment and the Amended Agreement have
been duly executed and delivered by Company and are the legally valid and
binding obligations of Company, enforceable against Company in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting creditors'
rights generally or by equitable principles relating to enforceability.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Section 5 of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the First Amendment Effective Date to the same extent as
though made on and as of that date, except to the extent such representations
and warranties specifically relate to an earlier date, in which case they were
true, correct and complete in all material respects on and as of such earlier
date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing or will
result from the consummation of the transactions contemplated by this Amendment
that would constitute an Event of Default or a Potential Event of Default.
28
<PAGE> 29
SECTION 7. ACKNOWLEDGEMENT AND CONSENT
Company is a party to the Company Collateral Documents, in each
case as amended through the Third Amendment Effective Date, pursuant to which
Company has created Liens in favor of Administrative Agent on certain Collateral
to secure the Obligations. Guarantors are a party to the Guaranty and the
Subsidiary Collateral Documents, in each case as amended through the First
Amendment Effective Date, pursuant to which each Guarantor has (i) guarantied
the Obligations and (ii) created Liens in favor of Administrative Agent on
certain Collateral to secure the obligations of such Guarantor under the
Guaranty. Company and Guarantors are collectively referred to herein as the
"CREDIT SUPPORT PARTIES", and the Guaranty, the Company Collateral Documents and
the Subsidiary Collateral Documents are collectively referred to herein as the
"CREDIT SUPPORT DOCUMENTS".
Each Credit Support Party hereby acknowledges that it has
reviewed the terms and provisions of the Credit Agreement and this Amendment and
consents to the amendment of the Credit Agreement effected pursuant to this
Amendment. Each Credit Support Party hereby confirms that each Credit Support
Document to which it is a party or otherwise bound and all Collateral encumbered
thereby will continue to guaranty or secure, as the case may be, to the fullest
extent possible the payment and performance of all "Obligations," "Guarantied
Obligations" and "Secured Obligations," as the case may be (in each case as such
terms are defined in the applicable Credit Support Document), including, without
limitation, the payment and performance of all such "Obligations," "Guarantied
Obligations" or "Secured Obligations," as the case may be, in respect of the
Obligations of Company now or hereafter existing under or in respect of the
Amended Agreement and the Notes defined therein.
Each Credit Support Party acknowledges and agrees that any of
the Credit Support Documents to which it is a party or otherwise bound shall
continue in full force and effect and that all of its obligations thereunder
shall be valid and enforceable and shall not be impaired or limited by the
execution or effectiveness of this Amendment. Each Credit Support Party
represents and warrants that all representations and warranties contained in the
Amended Agreement and the Credit Support Documents to which it is a party or
otherwise bound are true, correct and complete in all material respects on and
as of the Third Amendment Effective Date to the same extent as though made on
and as of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which case they were true, correct
and complete in all material respects on and as of such earlier date.
Each Credit Support Party (other than Company) acknowledges and
agrees that (i) notwithstanding the conditions to effectiveness set forth in
this Amendment, such Credit Support Party is not required by the terms of the
Credit Agreement or any other Loan Document to consent to the amendments to the
Credit Agreement effected pursuant to this Amendment and (ii) nothing in the
Credit
29
<PAGE> 30
Agreement, this Amendment or any other Loan Document shall be deemed to require
the consent of such Credit Support Party to any future amendments to the Credit
Agreement.
SECTION 8. MISCELLANEOUS
A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
1. On and after the Third Amendment Effective Date, each
reference in the Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import referring to the Credit
Agreement, and each reference in the other Loan Documents to the
"Credit Agreement", "thereunder", "thereof" or words of like import
referring to the Credit Agreement shall mean and be a reference to the
Amended Agreement.
2. Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
3. Without limiting the generality of the provisions of
subsection 10.6 of the Credit Agreement, the waiver set forth above
shall be limited precisely as written and relates solely to the
noncompliance by Company with the provisions of subsections 6.11,
8.2(i) and 8.5 of the Credit Agreement in the manner and to the extent
described above. Nothing in this Waiver shall be deemed to:
(i) constitute a waiver of compliance by Company with
respect to (i) subsections 6.11, 8.2(i) or 8.5 of the Credit
Agreement in any other instance or (ii) any other term,
provision or condition of the Credit Agreement or any other
instrument or agreement referred to therein; or
(ii) prejudice any right or remedy that Administrative
Agent or any Lender may now have (except to the extent such
right or remedy was based upon existing defaults that will not
exist after giving effect to the waiver set forth above) or may
have in the future under or in connection with the Credit
Agreement or any other instrument or agreement referred to
therein.
B. FEES AND EXPENSES. Company acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Administrative Agent and its counsel with respect to this Amendment and the
documents and transactions contemplated hereby shall be for the account of
Company.
30
<PAGE> 31
C. HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO
CONFLICTS OF LAWS PRINCIPLES.
E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed an original, but
all such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
31
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
THE CERPLEX GROUP, INC.
By:
----------------------------------------------
Title:
--------------------------------------------
CERTECH TECHNOLOGY, INC. (for purposes
of Section 7 only) as a Credit Support Party
By:
----------------------------------------------
Title:
--------------------------------------------
CERPLEX MASS., INC. (for purposes of
Section 7 only) as a Credit Support Party
By:
----------------------------------------------
Title:
--------------------------------------------
CERPLEX LIMITED (for purposes of Section 7
only) as a Credit Support Party
By:
----------------------------------------------
Title:
--------------------------------------------
APEX COMPUTER COMPANY (for purposes
of Section 7 only) as a Credit Support Party
By:
----------------------------------------------
Title:
--------------------------------------------
S-1
<PAGE> 33
CERPLEX SUBSIDIARY, INC. (for purposes of
Section 7 only) as a Credit Support Party
By:
----------------------------------------------
Title:
--------------------------------------------
PERIPHERAL COMPUTER SUPPORT, INC.
(for purposes of Section 7 only) as a Credit
Support Party
By:
----------------------------------------------
Title:
--------------------------------------------
MODCOMP/CERPLEX L.P. (for purposes of
Section 7 only) as a Credit Support Party
By:Cerplex Subsidiary, Inc., as general partner
By:
----------------------------------------------
Title:
--------------------------------------------
MODCOMP JOINT VENTURE, INC. (for
purposes of Section 7 only) as a Credit Support
Party
By:
----------------------------------------------
Title:
--------------------------------------------
MODULAR COMPUTER SERVICES, INC. (for
purposes of Section 7 only) as a Credit Support
Party
By:
----------------------------------------------
Title:
--------------------------------------------
S-2
<PAGE> 34
MODULAR COMPUTER SYSTEMS GMBH
(for purposes of Section 7 only)
as a Credit Support Party
By: /s/ Manfred Funel
------------------------------------------
Title:
---------------------------------------
MODCOMP FRANCE S.A. (for purposes of
Section 7 only) as a Credit Support Party
By: /s/ Manfred Funel
------------------------------------------
Title: Director General
WELLS FARGO BANK, NATIONAL
ASSOCIATION, INDIVIDUALLY AND AS
ADMINISTRATIVE AGENT
By: /s/ Michael Ho
------------------------------------------
Title: Vice President
BHF-BANK AKTIENGESELLSCHAFT, AS A
LENDER
By: /s/ Dana L. McDougall
------------------------------------------
Title: Vice President
By: /s/ Paul Travers
------------------------------------------
Title: Vice President
CITIBANK, N.A., AS A LENDER
By: /s/ Bradley L. Deitz
------------------------------------------
Title: Vice President
S-3
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE CERPLEX GROUP, INC.,
----------------------------------------
a Delaware corporation ("Cerplex")
----------------------------------
<TABLE>
<CAPTION>
JURISDICTION OF ORGANIZATION
----------------------------
ENTITY AND TYPE OF ENTITY OWNERSHIP
------ ------------------ ---------
<S> <C> <C>
CERTECH Technology, Inc. Texas corporation 100% BY CERPLEX
Cerplex Mass., Inc. Massachusetts corporation 100% BY CERPLEX
Cerplex Limited England and Wales corporation 100% BY CERPLEX
Apex Computer Company Washington corporation 100% BY CERPLEX
Cerplex Subsidiary, Inc. ("Cerplex Sub") Delaware corporation 100% BY CERPLEX
Peripheral Computer Support, Inc. ("PCS") California corporation 100% BY CERPLEX
Modcomp Joint Venture, Inc. ("MJVI") Delaware corporation 100% BY CERPLEX
Modcomp/Cerplex L.P. ("Modcomp") Delaware limited partnership 44% BY CERPLEX SUB AND 51%
BY MJVI
Modular Computer Services, Inc. Florida corporation 100% BY MODCOMP
Modcomp Canada Ltd. Canada corporation 100% BY MODCOMP
Modcomp France French societe anonyme 100% BY MODCOMP
Modcomp C.A. Venezuela corporation 100% BY MODCOMP
Cerplex S.A.S. French corporation 100% BY CERPLEX AND
CERPLEX LIMITED
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
The Cerplex Group, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
33-84946 and 333-18431) on Form S-8 and the registration statement (No.
333-12581) on Form S-3 of The Cerplex Group, Inc. of our report dated February
21, 1997 except as to Notes 12(a), 12(b) and the first and second paragraphs of
Note 18 which are as of April 9, 1997 and Note 20 which is as of April 11, 1997,
relating to the consolidated balance sheets of The Cerplex Group, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity (deficiency) and cash flows for
each of the years in the three-year period ended December 31, 1996, and the
related schedule, which reports appear in the December 31, 1996 annual report on
Form 10-K of The Cerplex Group, Inc. Our report noted above contains an
explanatory paragraph that states that the Company adopted the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of,"
during 1996.
KPMG PEAT MARWICK LLP
Orange County, California
April 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 23,782
<SECURITIES> 0
<RECEIVABLES> 28,592
<ALLOWANCES> (9,053)
<INVENTORY> 17,326
<CURRENT-ASSETS> 70,474
<PP&E> 40,977
<DEPRECIATION> (12,938)
<TOTAL-ASSETS> 105,494
<CURRENT-LIABILITIES> 57,600
<BONDS> 63,031
0
7,197
<COMMON> 51,662
<OTHER-SE> (73,996)
<TOTAL-LIABILITY-AND-EQUITY> 105,494
<SALES> 0
<TOTAL-REVENUES> 191,493
<CGS> 0
<TOTAL-COSTS> 165,248
<OTHER-EXPENSES> 44,453
<LOSS-PROVISION> 4,785
<INTEREST-EXPENSE> 8,269
<INCOME-PRETAX> (25,670)
<INCOME-TAX> 1,718
<INCOME-CONTINUING> (27,388)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (27,388)
<EPS-PRIMARY> (2.04)
<EPS-DILUTED> (2.04)
</TABLE>
