-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PCyNmA/nhfRtseG89ZO1qYs2WP3TLCrYgMbdKZGWcvdU8xaqVcpwfocZTYI7hyJC BWcDvGwywHNk9I8dCsSVtQ== 0000892569-98-000264.txt : 19980209 0000892569-98-000264.hdr.sgml : 19980209 ACCESSION NUMBER: 0000892569-98-000264 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 18 CONFORMED PERIOD OF REPORT: 19980130 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980206 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CERPLEX GROUP INC CENTRAL INDEX KEY: 0000915870 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 330411354 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-23602 FILM NUMBER: 98524051 BUSINESS ADDRESS: STREET 1: 1382 BELL AVE CITY: TUSTIN STATE: CA ZIP: 92680 BUSINESS PHONE: 7142585600 MAIL ADDRESS: STREET 1: 1382 BELL AVENUE CITY: TUSTIN STATE: CA ZIP: 92680 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 30, 1998 THE CERPLEX GROUP, INC. -------------------------------------------------- (Exact name of registrant as specified in charter) Delaware 0-23602 33-0411354 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File Number) Identification No.) 1382 Bell Avenue, Tustin, California 92780 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (714) 258-5600 - -------------------------------------------------------------------------------- (Registrant's telephone number including area code) Not applicable - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) 2 ITEM 5. OTHER EVENTS. On January 30, 1998, Aurora Electronics, Inc., a Delaware corporation ("Aurora") signed a definitive merger agreement with The Cerplex Group, Inc., a Delaware corporation ("Cerplex"), creating one of the largest independent companies in the parts support and services logistics market. As a result of the merger, Cerplex would become a wholly-owned subsidiary of Aurora, and the current equity holders of Cerplex would be entitled to receive in a tax-free exchange approximately 25% of the post-merger, fully-diluted common stock of Aurora, after giving effect to the WCAS financing described below. Under the terms of the merger agreement, each share of Cerplex common stock would convert into 1.076368 shares of Aurora common stock. The merger is subject to regulatory approvals and the satisfaction of certain other conditions precedent, including securing acceptable senior bank financing. No assurance can be given that such conditions precedent will be achieved. The merger is expected to be completed by the end of April 1998. Following the completion of the merger, Aurora will change its name to The Cerplex Group, Inc. and the combined company will operate under that name. Larry McTavish will be the Chairman and Chief Executive Officer of the combined enterprises. Subject to the merger, Aurora's principal stockholder, Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS"), has agreed to provide additional financing to Aurora in the form of $18 million of new preferred stock and $15 million of new subordinated debt, and to exchange approximately $11 million of outstanding Aurora subordinated debt and accrued interest for $3.3 million of new preferred stock. After giving effect to the merger and the WCAS financing, WCAS would own approximately 69.2% of the fully-diluted common stock of Aurora. The proceeds of the WCAS financing and the proposed new senior bank financing would be used to repay approximately $30 million of outstanding senior bank obligations of Cerplex. In addition, at the effective time of the merger, approximately $18 million of outstanding subordinated notes of Cerplex, which have been purchased by WCAS, would be cancelled and exchanged for $5.7 million of the new subordinated notes of Aurora. Aurora contemplates offering to all of its existing stockholders the right to purchase a pro rata share of the new preferred stock and new subordinated notes. The rights offering will be made only by means of a prospectus. Any stockholder not electing to participate in this offering would experience substantial dilution of its existing equity interest in Aurora. 2 3 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED. Not applicable. (b) PRO FORMA FINANCIAL INFORMATION. Not applicable. (c) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF EXHIBITS METHOD OF FILING - ------ ----------------------- ---------------- 2.1 Agreement of Merger dated as of August Incorporated herein by 30, 1993, by and among Cerplex reference to Exhibit 2.1 to the Incorporated, Diversified Manufacturing Company's Registration Services, Inc. ("DMS"), EMServe, Inc. Statement on Form S-1 (File No. ("EMServe"), InCirT Technology 33-75004) which was declared Incorporated ("InCirT") and Testar, Inc. effective by the Commission on ("Testar"). April 8, 1994. 2.2 Agreement and Plan of Merger dated Incorporated herein by November 12, 1993, between The Cerplex reference to Exhibit 2.2 to the Group Subsidiary, Inc. and Registrant Company's Registration (conformed copy to original). Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994. 2.3 Certificate of Ownership and Merger of Incorporated herein by Registrant with and into The Cerplex reference to Exhibit 2.2 to the Group Subsidiary, Inc. dated as of Company's Registration November 12, 1993. 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 Incorporated herein by December 17, 1993 by and between Certech reference to Exhibit 2.4 to the Technology, Inc., a wholly-owned Company's Registration subsidiary of the Registrant ("Certech"), Statement on Form S-1 (File No. and Spectradyne, Inc. ("Spectradyne"). 33-75004) which was declared effective by the Commission on April 8, 1994.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS METHOD OF FILING - ------ ----------------------- ---------------- 2.5 Purchase and Sale Agreement dated as of Incorporated herein by July 29, 1994, by and among The Cerplex reference to Exhibit 2 to the Group, Inc., Cerplex Limited, BT Repair Form 8-K filed July 29, 1994. Services Limited and BT. 2.6 Contract for repair, calibration and Incorporated herein by warehousing of certain items of BT reference to Exhibit 10 to the Equipment dated as of July 29, 1994, Form 8-K filed July 29, 1994. among The Cerplex Group and Cerplex Limited and BT. 2.7 Formation and Contribution Agreement Incorporated herein by effective December 1, 1994 by and among reference to Exhibit 2.7 to the Modcomp/Cerplex L.P., Modular Computer Company's Annual Report on Form Systems, Inc., Cerplex Subsidiary, Inc. 10-K for the fiscal year ended and The Cerplex Group, Inc. January 1, 1995. 2.8 Contingent Promissory Note dated December Incorporated herein by 1, 1994 issued by Modcomp/Cerplex L.P. to reference to Exhibit 2.8 to the Modular Computer Systems, Inc. Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1995. 2.9 Limited Partnership Agreement of Incorporated herein by Modcomp/Cerplex L.P. effective December reference to Exhibit 2.8 to the 1, 1994. Company's Annual Report on Form 10-K for the fiscal year ended January 1, 1995. 2.10 Put/Call Option Agreement effective Incorporated herein by December 1, 1994 by and among Cerplex reference to Exhibit 2.8 to the Subsidiary, Inc., The Cerplex Group, Company's Annual Report on Form Inc., Modular Computer Systems, Inc. and 10-K for the fiscal year ended Modcomp Joint Venture Inc. January 1, 1995. 2.11 Stock Purchase Agreement dated as of June Incorporated herein by 29, 1995 by and among The Cerplex Group, reference to Exhibit 2.11 to Inc., Tu Nguyen and Phuc Le. the Company's Quarterly Report on Form 10-Q for the quarter ended October 1, 1995.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS METHOD OF FILING - ------ ----------------------- ---------------- 2.12 Letter Agreement dated April 5, 1996 by Incorporated herein by and among Modular Computer Systems, Inc., reference to Exhibit 2.12 to Modcomp Joint Venture, Inc., AEG the Company's Annual Report on Aktiengesellschaft, the Company, Cerplex Form 10-K for the fiscal year Subsidiary, Inc. and Modcomp/Cerplex L.P. ended December 31, 1995. 2.13 Stock Purchase Agreement dated as of May Incorporated herein by 24, 1996, by and among The Cerplex Group, reference to Exhibit 2.13 to Inc., Cerplex Limited, Rank Xerox - The the Company's Current Report on Document Company SA and Rank Xerox Form 8-K dated May 24, 1996. Limited (conformed copy to original). 2.14 Contract of Warranty dated as of May 24, Incorporated herein by 1996, by and among The Cerplex Group, reference to Exhibit 2.14 to Inc., Cerplex Limited, Rank Xerox - The the Company's Current Report on Document Company SA and Rank Xerox Form 8-K dated May 24, 1996. Limited (conformed copy to the original). 2.15 Supply and Services Agreement dated as of Incorporated herein by May 24, 1996, by and among The Cerplex reference to Exhibit 2.15 to Group, Inc., Cerplex Limited, Rank Xerox the Company's Current Report on - The Document Company SA and Rank Xerox Form 8-K dated May 24, 1996. Limited (conformed copy to the original). 2.16 Stock Purchase Agreement dated March 28, Incorporated herein by 1997 relating to all of the outstanding reference to Exhibit 2.13 to stock of Peripheral Computer Support, the Company's Annual Report on Inc. among the Company, PCS Acquisition Form 10-K for the fiscal year Co., Inc., and Lincolnshire Equity ended December 31, 1996. Partners, L.P. 2.17 Asset Purchase Agreement dated August 6, Incorporated herein by 1997 by and among the Company, Cerplex reference to Exhibit 2.17 to Subsidiary, Inc., Modcomp Joint Venture, the Company's Quarterly Report Inc., Modcomp/Cerplex L.P. and CSP Inc. on Form 10-Q for the quarter ended June 30, 1997.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS METHOD OF FILING - ------ ----------------------- ---------------- 2.18 Agreement and Plan of Merger dated as of Filed herein. January 30, 1998 ("Merger Agreement") among Aurora Electronics, Inc., a Delaware corporation ("Aurora"), Holly Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Aurora ("Aurora Sub") and the Company. 4.1 Stock Purchase Agreement dated as of Incorporated herein by November 19, 1993 by and among the reference to Exhibit 4.1 to the Registrant, the stockholders of the Company's Registration Registrant identified in Part A of Statement on Form S-1 (File No. Schedule I thereto and the purchasers of 33-75004) which was declared shares of the Registrant's Series A effective by the Commission on Preferred Stock identified in Schedule I April 8, 1994. thereto (including the Schedules thereto; Exhibits omitted). 4.2 Registration Rights Agreement dated as of Incorporated herein by November 19, 1993, by and among the reference to Exhibit 4.2 to the Registrant, the investors listed on Company's Registration Schedule A thereto and the security Statement on Form S-1 (File No. holders of the Registrant listed on 33-75004) which was declared Schedule B thereto, together with effective by the Commission on Amendment No. 1. April 8, 1994. 4.3 Co-Sale Agreement dated as of November Incorporated herein by 19, 1993, by and among the Registrant, reference to Exhibit 4.3 to the the managers listed on Schedule A thereto Company's Registration and the investors listed on Schedule B Statement on Form S-1 (File No. thereto. 33-75004) which was declared effective by the Commission on April 8, 1994. 4.4 Warrant Agreement dated as of November Incorporated herein by 19, 1993, by and among the Registrant and reference to Exhibit 4.4 to the the purchasers listed in Annex 1 thereto. Company's Registration Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS METHOD OF FILING - ------ ----------------------- ---------------- 4.5 Placement Agent Warrant Purchase Incorporated herein by Agreement dated as of November 19, 1993, reference to Exhibit 4.5 to the between the Registrant and Donaldson, Company's Registration Lufkin & Jenrette Securities Corporation. 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 Incorporated herein by November 19, 1993, between the Registrant reference to Exhibit 4.6 to the and certain stock purchasers. Company's 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 Incorporated herein by November 19, 1993, between the Registrant reference to Exhibit 4.7 to the and certain note purchasers. Company's 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 Incorporated herein by November 19, 1993, by and among the reference to Exhibit 4.8 to the Registrant and The Northwestern Mutual Company's Registration Life Insurance Company, John Hancock Statement on Form S-1 (File No. Mutual Life Insurance, Registrant and 33-75004) which was declared Bank of Scotland London Nominees Limited. effective by the Commission on April 8, 1994. 4.9 Amendment No. 2 to Registration Rights Incorporated herein by Agreement dated as of April 6, 1994, by reference to Exhibit 4.9 to the and among the Registrant and certain of Company's Registration its Securities holders. Statement on Form S-1 (File No. 33-75004) which was declared effective by the Commission on April 8, 1994.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS METHOD OF FILING - ------ ----------------------- ---------------- 4.10 Amendment to Note Purchase Agreement, Incorporated herein by dated as of October 27, 1994, by and reference to Exhibit 4.10 to among the Company, Northwestern Mutual the Company's Annual Report on Life Insurance Company, John Hancock Form 10-K for the fiscal year Mutual Life Insurance Company and North ended March 31, 1995. Atlantic Smaller Companies Trust P.L.C. (collectively, the "Noteholders"). 4.11 Waiver and Amendment Agreement dated Incorporated herein by April 15, 1996 by and among Company, The reference to Exhibit 4.11 to Northwestern Mutual Life Insurance the Company's Annual Report on Company, John Hancock Mutual Life Form 10-K for the fiscal year Insurance Company and North Atlantic ended December 31, 1995. Smaller Companies Investment Trust PLC. 4.12 Warrant Agreement dated as of April 15, Incorporated herein by 1996 by and among Company, The reference to Exhibit 4.12 to Northwestern Mutual Life Insurance the Company's Annual Report on Company, John Hancock Mutual Life Form 10-K for the fiscal year Insurance Company and North Atlantic ended December 31, 1995. Smaller Companies Investment Trust PLC. 4.13 First Amendment to Warrant Agreement Incorporated herein by dated April 15, 1996 by and among Company reference to Exhibit 4.13 to and each of the holders of warrants the Company's Annual Report on listed on Schedule A thereto, with Form 10-K for the fiscal year respect to that certain Warrant Agreement ended December 31, 1995. dated November 19, 1993. 4.14 First Amendment to Observation Rights Incorporated herein by Agreement dated as of April 15, 1996 reference to Exhibit 4.14 to between Company and certain note the Company's Annual Report on purchasers. Form 10-K for the fiscal year ended December 31, 1995. 4.15 Third Amendment to Registration Rights Incorporated herein by Agreement dated as of April 15, 1996 by reference to Exhibit 4.15 to and among Company, the investors of the Company's Annual Report on Company listed on Schedule A thereto and Form 10-K for the fiscal year the security holders of Company listed on ended December 31, 1995. Schedule B thereto.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS METHOD OF FILING - ------ ----------------------- ---------------- 4.16 Warrant Agreement dated April 15, 1996 by Incorporated herein by and among Company, Wells Fargo Bank, reference to Exhibit 4.16 to National Association, Sumitomo Bank of the Company's Annual Report on California, BHF Bank Aktiengesellschaft Form 10-K for the fiscal year and Comerica Bank-California. ended December 31, 1995. 4.17 Stock Purchase Agreement dated June 10, Incorporated herein by 1996 by and among the Company and the reference to Exhibit 4.17 to investors listed on Schedule A thereto. the Company's Quarterly Report on Form 10-Q filed August 14, 1996. 4.18 Fourth Amendment to Registration Rights Incorporated herein by Agreement dated June 10, 1996 by and reference to Exhibit 4.18 to among Company, the investors listed on the Company's Quarterly Report Schedule A thereto, the security holders on Form 10-Q filed August 14, of Company listed on Schedule B thereto, 1996. the banks listed on Schedule C thereto and each of the parties listed on Schedule D thereto. 4.19 Certificate of Designation of Preferences Incorporated herein by of Series B Preferred Stock of The reference to Exhibit 3.3 to the Cerplex Group, Inc. Company's Quarterly Report on Form 10-Q filed August 14, 1996. 4.20 Waiver and Amendment Agreement dated Incorporated herein by October 31, 1996 by and among the company reference to Exhibit 4.17 to and the Noteholders. the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 4.21 Waiver and Amendment Agreement dated Incorporated herein by December 9, 1996 by and among the company reference to Exhibit 4.18 to and the Noteholders. the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 4.22 Side Letter dated March 28, 1997 by and Incorporated herein by among the Company and the Noteholders. reference to Exhibit 4.19 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS METHOD OF FILING - ------ ----------------------- ---------------- 4.23 Amended and Restated Note Purchase Incorporated herein by Agreement dated April 9, 1997 by and reference to Exhibit 4.20 to among the Company and the Noteholders. the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996. 4.24 Second Amendment to Warrant Agreement Incorporated herein by dated April 9, 1997, by and among the reference to Exhibit 4.21 to Company and each of the holders of the Company's Annual Report on warrants listed on Schedule A thereto, Form 10-K for the fiscal year which Second Amendment amends the Warrant ended December 31, 1996. Agreement dated November 19, 1993 as amended by the First Amendment to Warrant Agreement dated April 15, 1996. 4.25 Second Amendment to Warrant Agreement Incorporated herein by dated April 9, 1997 by and among the reference to Exhibit 4.22 to Company and each of the holders of the Company's Annual Report on warrants listed on Schedule A thereto, Form 10-K for the fiscal year which Second Amendment amends the Warrant ended December 31, 1996. Agreement dated April 15, 1996, as amended by a Waiver and Amendment Agreement dated October 31, 1996. 4.26 Amended and Restated Warrant Agreement Incorporated herein by dated April 9, 1997 by and among the reference to Exhibit 4.23 to Company; Wells Fargo Bank, National the Company's Annual Report on Association; BHF-Bank Aktiengesellschaft; Form 10-K for the fiscal year and Citibank, N.A. ended December 31, 1996. 4.27 Fifth Amendment to Registration Rights Incorporated herein by Agreement dated as of April 9, 1997 by reference to Exhibit 4.27 to and among the Company, the investors the Company's Quarterly Report listed on Schedule A thereto, the on Form 10-Q for the quarter security holders of the Company listed on ended June 30, 1997. Schedule B thereto, the banks listed on Schedule C thereto, and the parties listed on Schedule D thereto. 4.28 Waiver Agreement dated as of June 30, Incorporated herein by 1997 among the Company and the reference to Exhibit 4.28 to Noteholders. the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS METHOD OF FILING - ------ ----------------------- ---------------- 4.29 Side letter dated July 10, 1997 by and Incorporated herein by among the Company and the Noteholders. reference to Exhibit 4.29 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 4.30 Side letter dated August 6, 1997 by and Incorporated herein by among the Company and the Noteholders. reference to Exhibit 4.30 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. 4.31 Sixth Amendment to Registration Rights Incorporated herein by Agreement dated as of August 20, 1997 by reference to Exhibit 4.31 to and among the Company, the investors the Company's Current Report on listed on Schedule A thereto, the Form 8-K dated August 27, 1997. security holders of the Company listed on Schedule B thereto, the banks listed on Schedule C thereto, and the parties listed on Schedule D thereto. 4.32 First Amendment Agreement dated as of Incorporated herein by August 20, 1997, by and among the reference to Exhibit 4.32 to Company, The Northwestern Mutual Life the Company's Current Report on Insurance Company, John Hancock Mutual Form 8-K dated August 27, 1997. Life Insurance Company and North Atlantic Smaller Companies Investment Trust PLC. 4.33 Warrant Agreement dated as of August 20, Incorporated herein by 1997 by and between the Company, The reference to Exhibit 4.33 to Northwestern Mutual Life Insurance the Company's Current Report on Company, John Hancock Mutual Life Form 8-K dated August 27, 1997. Insurance Company and North Atlantic Smaller Companies Investment Trust PLC. 4.34 Third Amendment to Warrant Agreement Incorporated herein by dated as of August 20, 1997, by and among reference to Exhibit 4.34 to the Company and the Noteholders with the Company's Current Report on respect to that certain Warrant Agreement Form 8-K dated August 27, 1997. dated as of April 15, 1996 by and among the Company and the Noteholders.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS METHOD OF FILING - ------ ----------------------- ---------------- 4.35 Third Amendment to Warrant Agreement Incorporated herein by dated as of August 20, 1997, by and among reference to Exhibit 4.35 to the Company and the Noteholders with the Company's Current Report on respect to that certain Warrant Agreement Form 8-K dated August 27, 1997. dated as of November 19, 1993 by and among the Company and the Noteholders. 4.36 Warrant Agreement dated as of August 20, Incorporated herein by 1997 by and between the Company and reference to Exhibit 4.36 to Citibank, N.A. the Company's Current Report on Form 8-K dated August 27, 1997. 4.37 Second Amendment to Observation Rights Incorporated herein by Agreement dated August 20, 1997 by and reference to Exhibit 4.37 to among the Company, the Northwestern the Company's Current Report on Mutual Life Insurance Company and John Form 8-K dated August 27, 1997. Hancock Mutual Life Insurance Company. 99.1 Press Release issued by Aurora and the Filed herein. Company on February 2, 1998. 99.2 Irrevocable Proxy and Option Agreement Filed herein. dated January 30, 1998 among the Company and the stockholders listed on the signature pages thereof (Exhibit A to Merger Agreement). 99.3 Form of Affiliates Letter (Exhibit B Filed herein. to Merger Agreement). 99.4 Stockholders Agreement dated January 30, Filed herein. 1998 between Welsh, Carson, Anderson & Stowe VII, L.P., a Delaware limited partnership ("WCAS"), Aurora and the Company. 99.5 Interim Management Agreement dated Filed herein. January 30, 1998 between the Company and Aurora. 99.6 Securities Purchase and Exchange Filed herein. Agreement dated January 30, 1998 ("Securities Purchase and Exchange Agreement") among Aurora, WCAS and the other several purchasers named in Annex I thereto and WCAS Capital Partners II, L.P.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBITS METHOD OF FILING - ------ ----------------------- ---------------- 99.7 Form of 10% Senior Subordinated Bridge Filed herein. Note of Aurora Electronics, Inc. as payor (Exhibit A-1 to Securities Purchase and Exchange Agreement). 99.8 Form of 10% Senior Subordinated Note Due Filed herein. December 31, 2004 of Aurora Electronics, Inc. as payor (Exhibit A-2 to Securities Purchase and Exchange Agreement). 99.9 Form of Certificate of Designations, Filed herein. Preferences and Rights of Senior Cumulative Convertible Preferred Stock of Aurora Electronics, Inc. (Exhibit B to Securities Purchase and Exchange Agreement). 99.10 Form of Certificate of Amendment to the Filed herein. Restated Certificate of Incorporation of Aurora Electronics, Inc. (Exhibit C to Securities Purchase and Exchange Agreement). 99.11 Amended and Restated Registration Rights Filed herein. Agreement dated January 30, 1998 among Aurora and the several purchasers named in Schedules I and II thereto (Exhibit D to Securities Purchase and Exchange Agreement). 99.12 10% Senior Subordinated Bridge Note of Filed herein. Aurora Electronics, Inc. as payor. 99.13 Cerplex Note Purchase Agreement dated Filed herein. January 30, 1998 ("Note Purchase Agreement") between the Company and Aurora. 99.14 10% Subordinated Note Due June 30, 1998 Filed herein. of The Cerplex Group, Inc. as payor (Exhibit A to Note Purchase Agreement). 99.15 Forbearance and Repayment Agreement dated January 30, 1998 by and among the Company, Aurora and Citibank, N.A. 99.16 Seventh Amendment to Credit Agreement and Filed herein. Limited Waiver dated January 30, 1998 by and among the Company, the financial institution listed on the signature page thereof ("Lender") and Citibank, N.A., as successor to Wells Fargo Bank, National Association, as administrative agent for Lender.
13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: February 6, 1998 THE CERPLEX GROUP, INC. By: /s/ Robert W. Hughes ---------------------------------------- Robert W. Hughes Senior Vice President and Chief Financial Officer 14 15 INDEX TO EXHIBITS
Sequentially Numbered Exhibit Description Page ------- ----------- ------------ 2.18 Agreement and Plan of Merger dated as of January 30, 1998 ("Merger Agreement") among Aurora Electronics, Inc., a Delaware corporation ("Aurora"), Holly Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of Aurora ("Aurora Sub") and the Company. 99.1 Press Release issued by Aurora and the Company on February 2, 1998. 99.2 Irrevocable Proxy and Option Agreement dated January 30, 1998 among the Company and the stockholders listed on the signature pages thereof (Exhibit A to Merger Agreement). 99.3 Form of Affiliates Letter (Exhibit B to Merger Agreement). 99.4 Stockholders Agreement dated January 30, 1998 between Welsh, Carson, Anderson & Stowe VII, L.P. a Delaware limited partnership ("WCAS"), Aurora and the Company. 99.5 Interim Management Agreement dated January 30, 1998 between the Company and Aurora. 99.6 Securities Purchase and Exchange Agreement dated January 30, 1998 ("Securities Purchase and Exchange Agreement") among Aurora, WCAS and the other several purchasers named in Annex I thereto and WCAS Capital Partners II, L.P.
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Sequentially Numbered Exhibit Description Page ------- ----------- ------------ 99.7 Form of 10% Senior Subordinated Bridge Note of Aurora Electronics, Inc. as payor (Exhibit A-1 to Securities Purchase and Exchange Agreement). 99.8 Form of 10% Senior Subordinated Note Due December 31, 2004 of Aurora Electronics, Inc. as payor (Exhibit A-2 to Securities Purchase and Exchange Agreement). 99.9 Form of Certificate of Designations, Preferences and Rights of Senior Cumulative Convertible Preferred Stock of Aurora Electronics, Inc. (Exhibit B to Securities Purchase and Exchange Agreement). 99.10 Form of Certificate of Amendment to the Restated Certificate of Incorporation of Aurora Electronics, Inc. (Exhibit C to Securities Purchase and Exchange Agreement). 99.11 Amended and Restated Registration Rights Agreement dated January 30, 1998 among Aurora and the several purchasers named in Schedules I and II thereto (Exhibit D to Securities Purchase and Exchange Agreement). 99.12 10% Senior Subordinated Bridge Note of Aurora Electronics, Inc. as payor. 99.13 Cerplex Note Purchase Agreement dated January 30, 1998 ("Note Purchase Agreement") between the Company and Aurora. 99.14 10% Subordinated Note Due June 30, 1998 of The Cerplex Group, Inc. as payor (Exhibit A to Note Purchase Agreement). 99.15 Forbearance and Repayment Agreement dated January 30, 1998 by and among the Company, Aurora and Citibank, N.A. 99.16 Seventh Amendment to Credit Agreement and Limited Waiver dated January 30, 1998 by and among the Company, the financial institution listed on the signature page thereof ("Lender") and Citibank, N.A., as successor to Wells Fargo Bank, National Association, as administrative agent for Lender.
16 EX-2.18 2 AGREEMENT & PLAN OF MERGER DATED AS OF 1/30/1998 1 EXHIBIT 2.18 ================================================================================ AGREEMENT AND PLAN OF MERGER Among AURORA ELECTRONICS, INC. HOLLY ACQUISITION CORP. and THE CERPLEX GROUP, INC. Dated as of January 30, 1998 ================================================================================ 2 ARTICLE I. THE MERGER SECTION 1.01. The Merger . . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.02. Effective Time . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.03. Closing . . . . . . . . . . . . . . . . . . . . . . . . 4 ARTICLE II. THE SURVIVING CORPORATION SECTION 2.01. Certificate of Incorporation . . . . . . . . . . . . . 4 SECTION 2.02. By-Laws . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 2.03. Directors and Officers of Surviving Corporation . . . . . . . . . . . . . . . . . 5 ARTICLE III. CONVERSION OF SHARES SECTION 3.01. Exchange Ratio . . . . . . . . . . . . . . . . . . . . 5 SECTION 3.02. Exchange of Company Stock; Procedures . . . . . . . . . 7 SECTION 3.03. Dividends; Transfer Taxes; Escheat . . . . . . . . . . 8 SECTION 3.04. No Fractional Securities . . . . . . . . . . . . . . . 8 SECTION 3.05. Closing of Company Transfer Books . . . . . . . . . . . 9 SECTION 3.06. Further Assurances . . . . . . . . . . . . . . . . . . 9 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY SECTION 4.01. Organization . . . . . . . . . . . . . . . . . . . . 10 SECTION 4.02. Capitalization . . . . . . . . . . . . . . . . . . . 10 SECTION 4.03. Company Subsidiaries . . . . . . . . . . . . . . . . 11 SECTION 4.04. Authority Relative to this Agreement . . . . . . . . 11 SECTION 4.05. Consents and Approvals; No Violations . . . . . . . . 12 SECTION 4.06. Reports and Financial Statements . . . . . . . . . . 13 SECTION 4.07. Absence of Certain Changes or Events; Material Contracts . . . . . . . . . . . . . . . . 13 SECTION 4.08. Absence of Undisclosed Liabilities . . . . . . . . . 14 SECTION 4.09. No Default . . . . . . . . . . . . . . . . . . . . . 14 SECTION 4.10. Litigation . . . . . . . . . . . . . . . . . . . . . 14 SECTION 4.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 4.12. Title to Properties; Encumbrances . . . . . . . . . . 16 SECTION 4.13. Intellectual Property . . . . . . . . . . . . . . . . 16 SECTION 4.14. Compliance with Applicable Law . . . . . . . . . . . 18 SECTION 4.15. Information in Disclosure Documents and Registration Statement . . . . . . . . . . . . 19 SECTION 4.16. Employee Benefit Plans; ERISA . . . . . . . . . . . . 19 SECTION 4.17. Environmental Laws and Regulations . . . . . . . . . 20 SECTION 4.18. Vote Required . . . . . . . . . . . . . . . . . . . . 21 SECTION 4.19. Opinion of Financial Advisor . . . . . . . . . . . . 21
i 3 SECTION 4.20. DGCL Section 203 . . . . . . . . . . . . . . . . . . 22 SECTION 4.21. Labor Matters . . . . . . . . . . . . . . . . . . . . 22 SECTION 4.22. Severance Arrangements . . . . . . . . . . . . . . . 22 SECTION 4.23. Affiliate Transactions . . . . . . . . . . . . . . . 22 SECTION 4.24. Brokers . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT SECTION 5.01. Organization . . . . . . . . . . . . . . . . . . . . 23 SECTION 5.02. Capitalization . . . . . . . . . . . . . . . . . . . 23 SECTION 5.03. Parent Subsidiaries . . . . . . . . . . . . . . . . . 24 SECTION 5.04. Authority Relative to this Agreement . . . . . . . . 25 SECTION 5.05. Consents and Approvals; No Violations . . . . . . . . 25 SECTION 5.06. Reports and Financial Statements . . . . . . . . . . 26 SECTION 5.07. Absence of Certain Changes or Events . . . . . . . . 26 SECTION 5.08. Absence of Undisclosed Liabilities . . . . . . . . . 26 SECTION 5.09. No Default . . . . . . . . . . . . . . . . . . . . . 27 SECTION 5.10. Litigation . . . . . . . . . . . . . . . . . . . . . 27 SECTION 5.11. Taxes . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 5.12. Compliance with Applicable Law . . . . . . . . . . . 28 SECTION 5.13. Information in Disclosure Documents and Registration Statement . . . . . . . . . . . . 29 SECTION 5.14. Vote Required . . . . . . . . . . . . . . . . . . . . 29 SECTION 5.15. Opinion of Financial Advisor . . . . . . . . . . . . 30 SECTION 5.16. Brokers . . . . . . . . . . . . . . . . . . . . . . . 30 ARTICLE VI. CONDUCT OF BUSINESS PENDING THE MERGER SECTION 6.01. Conduct of Business by the Company Pending the Merger . . . . . . . . . . . . . . . . 30 SECTION 6.02. Conduct of Business by Parent Pending the Merger . . . . . . . . . . . . . . . . 32 SECTION 6.03. Conduct of Business of Sub . . . . . . . . . . . . . 33 ARTICLE VII. ADDITIONAL AGREEMENTS SECTION 7.01. Access and Information . . . . . . . . . . . . . . . 33 SECTION 7.02. No Solicitation . . . . . . . . . . . . . . . . . . . 33 SECTION 7.03. Registration Statement . . . . . . . . . . . . . . . 34 SECTION 7.04. Proxy Statements; Stockholder Approvals . . . . . . . 35 SECTION 7.05. Affiliates . . . . . . . . . . . . . . . . . . . . . 36 SECTION 7.06. Reasonable Efforts . . . . . . . . . . . . . . . . . 36 SECTION 7.07. Certain Agreements . . . . . . . . . . . . . . . . . 37 SECTION 7.08. Company Stock Options . . . . . . . . . . . . . . . . 37 SECTION 7.09. Settlement of Company Stock Purchase Rights . . . . . . . . . . . . . . . . . . . 38
ii 4 SECTION 7.10. Public Announcements . . . . . . . . . . . . . . . . 39 SECTION 7.11. Directors' and Officers' Indemnification and Insurance . . . . . . . . . . . . . . . . . . . 39 SECTION 7.12. Expenses . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 7.13. Supplemental Disclosure . . . . . . . . . . . . . . . 40 SECTION 7.14. Public Reporting; Continued Listing . . . . . . . . . 40 ARTICLE VIII. CONDITIONS TO CONSUMMATION OF THE MERGER SECTION 8.01. Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . . . . 41 SECTION 8.02. Conditions to Obligations of Parent and Sub to Effect the Merger . . . . . . . . . . . . . 41 SECTION 8.03. Conditions to Obligation of the Company to Effect the Merger . . . . . . . . . . . . . . . 43 ARTICLE IX. TERMINATION SECTION 9.01. Termination . . . . . . . . . . . . . . . . . . . . . 44 SECTION 9.02. Effect of Termination . . . . . . . . . . . . . . . . 45 ARTICLE X. GENERAL PROVISIONS SECTION 10.01. Amendment and Modification . . . . . . . . . . . . . 46 SECTION 10.02. Waiver . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 10.03. Survivability; Investigations . . . . . . . . . . . 47 SECTION 10.04. Notices . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 10.05. Descriptive Headings; Interpretation . . . . . . . . 48 SECTION 10.06. Entire Agreement; Assignment . . . . . . . . . . . . 48 SECTION 10.07. Governing Law; Jurisdiction . . . . . . . . . . . . 48 SECTION 10.08. Severability . . . . . . . . . . . . . . . . . . . . 48 SECTION 10.09. Counterparts . . . . . . . . . . . . . . . . . . . . 49
Exhibits Exhibit A Irrevocable Proxy and Option Agreement Exhibit B Form of Affiliates Letter iii 5
Term Section ---- ------- Acquiring Person . . . . . . . . . . . . . . . . . . . . . . . 9.01(d) Acquisition Transaction . . . . . . . . . . . . . . . . . . . . . . 7.02 Affiliate Letters . . . . . . . . . . . . . . . . . . . . . . . 7.05(b) Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05(a) Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . 4.14 Brobeck . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.03(d) Business . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.13(c) Cerplex Credit Agreement . . . . . . . . . . . . . . . . . . . Preamble Cerplex Note Purchase Agreement . . . . . . . . . . . . . . . . Preamble Cerplex Subordinated Notes . . . . . . . . . . . . . . . . . . Preamble Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 3.02(b) Chase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Chase Amendment . . . . . . . . . . . . . . . . . . . . . . . . Preamble Citibank . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.03 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.03 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Company Common Stock . . . . . . . . . . . . . . . . . . . . . Preamble Company ERISA Affiliate . . . . . . . . . . . . . . . . . . . . 4.16(a) Company Material Adverse Effect . . . . . . . . . . . . . . . . . . 4.01 Company Permits . . . . . . . . . . . . . . . . . . . . . . . . . . 4.14 Company Plans . . . . . . . . . . . . . . . . . . . . . . . . . 4.16(a) Company Preferred Stock . . . . . . . . . . . . . . . . . . . . 3.01(b) Company SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . 4.06 Company Stock . . . . . . . . . . . . . . . . . . . . . . . . . 3.01(b) Company Stock Option . . . . . . . . . . . . . . . . . . . . . 3.01(d) Company Stock Purchase Rights . . . . . . . . . . . . . . . . . 3.01(d) Computer Software . . . . . . . . . . . . . . . . . . . . . . . 4.13(e) Confidentiality Agreement . . . . . . . . . . . . . . . . . . . . . 7.01 Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.05 DGCL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . 3.01(a) Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . 1.02 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . 4.17(a) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.16(b) Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.05 Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . 3.02(a) Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . 3.01(a) Forbearance Agreement . . . . . . . . . . . . . . . . . . . . . Preamble GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.06 Governmental Entity . . . . . . . . . . . . . . . . . . . . . . . . 4.05 HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.05 Intellectual Property . . . . . . . . . . . . . . . . . . . . . 4.13(a) Interim Management Agreement . . . . . . . . . . . . . . . . . Preamble Irrevocable Proxy and Option Agreement . . . . . . . . . . . . Preamble Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03 Maximum Amount . . . . . . . . . . . . . . . . . . . . . . . . 7.11(b) Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
iv 6 NASD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.05 New Lender . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble New Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08 New Parent Preferred Stock . . . . . . . . . . . . . . . . . . Preamble New Parent Senior Subordinated Notes . . . . . . . . . . . . . Preamble Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Parent Certificate of Amendment . . . . . . . . . . . . . . . . . . 5.14 Parent Common Stock . . . . . . . . . . . . . . . . . . . . . . Preamble Parent Material Adverse Effect . . . . . . . . . . . . . . . . . . 5.01 Parent Permits . . . . . . . . . . . . . . . . . . . . . . . . . . 5.11 Parent Preferred Stock . . . . . . . . . . . . . . . . . . . . Preamble Parent SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . 5.05 Parent Senior Subordinated Notes . . . . . . . . . . . . . . . Preamble Parent Stock Options . . . . . . . . . . . . . . . . . . . . . 5.02(a) Parent Stock Purchase Rights . . . . . . . . . . . . . . . . . 5.02(a) Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . 4.15 Registration Statement . . . . . . . . . . . . . . . . . . . . . . 4.15 SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.06 Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . 4.05 Securities Purchase and Exchange Agreement . . . . . . . . . . Preamble Senior Commitment . . . . . . . . . . . . . . . . . . . . . . . Preamble Series A Preferred . . . . . . . . . . . . . . . . . . . . . . 4.02(a) Series B Preferred . . . . . . . . . . . . . . . . . . . . . . 4.02(a) Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11(a) Stockholders Agreement . . . . . . . . . . . . . . . . . . . . Preamble Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble Sub Common Stock . . . . . . . . . . . . . . . . . . . . . . . 3.01(c) Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . 3.01(b) Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . 1.01 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11(b) Tax Return . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11(b) WCAS VII . . . . . . . . . . . . . . . . . . . . . . . . . . . Preamble
v 7 AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER, dated as of January 30, 1998, among AURORA ELECTRONICS, INC., a Delaware corporation ("Parent"), HOLLY ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of Parent ("Sub"), and THE CERPLEX GROUP, INC., a Delaware corporation (the "Company"). WHEREAS, the respective Boards of Directors of Parent, Sub and the Company deem it advisable and in the best interests of their respective stockholders that Sub merge with and into the Company (the "Merger") in accordance with the terms of this Agreement and the General Corporation Law of the State of Delaware (the "DGCL"), and, in furtherance thereof such Boards of Directors have approved the Merger; and WHEREAS, Parent, Sub and the Company desire that at the Effective Time (as hereinafter defined) all outstanding shares of the capital stock of the Company (excluding Dissenting Shares (as hereinafter defined) and all shares of capital stock of the Company held as treasury shares) be converted into the right to receive fully paid and nonassessable shares of Common Stock, $.03 par value ("Parent Common Stock"), of Parent, and that all options and other rights to purchase shares of the capital stock of the Company be canceled, exchanged or assumed, in each case, as hereinafter provided; and WHEREAS, Parent, Sub and the Company desire that, immediately after the Effective Time and solely as a result of the Merger, the Company shall continue as the surviving corporation, the separate existence of Sub (except as it may be continued by operation of law) shall cease and Parent will own all the issued and outstanding shares of the capital stock of the surviving corporation; and WHEREAS, for federal income tax purposes, it is intended that the Merger shall qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"); and WHEREAS, concurrently with the execution and delivery of this Agreement and as a condition and inducement to Parent's willingness to enter into this Agreement, certain holders of shares of the Common Stock, par value $.001 per share (the "Company Common Stock"), of the Company who own in the aggregate a majority of the outstanding shares of Company Common Stock are entering into an agreement with Parent in the form attached hereto as Exhibit A (the "Irrevocable Proxy and Option Agreement"), pursuant to which such stockholders have agreed, among other things, (i) to grant irrevocable proxies coupled with an interest to representatives of Parent to vote such shares of 8 Company Common Stock in favor of the Merger, (ii) to grant Parent an option to purchase such shares of Company Common Stock for the same number of shares as such stockholders would receive in the Merger and (iii) not to transfer or otherwise dispose of such shares of Company Common Stock or any interest therein except pursuant to the Merger or such option, all on the terms and subject to the conditions set forth therein; and WHEREAS, Parent and certain holders of the capital stock of Parent are entering into a Securities Purchase and Exchange Agreement of even date herewith (the "Securities Purchase and Exchange Agreement"), pursuant to which such stockholders have agreed at the Effective Time to (i) purchase $15,000,000 principal amount of 10% Senior Subordinated Notes due 2004 (the "New Parent Senior Subordinated Notes") of Parent, for cash equal to the principal amount thereof (except that a portion of the purchase price payable by Welsh, Carson, Anderson & Stowe VII, L.P. ("WCAS VII") shall be paid by surrender or exchange of other indebtedness as provided therein), (ii) subject to the rights offering referred to below, purchase up to 180,000 shares of Senior Convertible Preferred Stock, $.01 par value ("New Parent Preferred Stock") of Parent, for a cash purchase price of $100 per share, (iii) exchange an aggregate $10 million principal amount of Parent's existing 10% Senior Subordinated Notes due 2001 together with accrued interest thereon (the "Parent Senior Subordinated Notes") for an aggregate 33,000 shares of New Parent Preferred Stock and (iv) convert all outstanding shares of Convertible Preferred Stock, $.01 par value ("Parent Preferred Stock") into Parent Common Stock, on the terms and subject to the conditions set forth therein; and WHEREAS, pursuant to a Stockholders Agreement of even date herewith (the "Stockholders Agreement") among WCAS VII, Parent and the Company, WCAS VII has agreed (i) to vote its shares of Parent Common Stock in favor of approval of the Parent Certificate of Amendment (as defined herein), (ii) subject to consummation of the Merger, to convert all outstanding shares of Parent Preferred Stock into Parent Common Stock in accordance with the Certificate of Incorporation of Parent, (iii) to make further assurances with respect to Parent's obligations under this Agreement and the Securities Purchase and Exchange Agreement and (iv) to grant together with Parent an option to the Company to purchase certain securities of the Company held by WCAS VII and Parent in the event this Agreement terminates and the Merger is not consummated, all on the terms and subject to the conditions contained in the Stockholders Agreement; and WHEREAS, Parent wishes to afford its public stockholders the right to participate in the purchase of New Parent Preferred Stock and the New Parent Subordinated Notes on the same basis as the purchasers in the Securities Purchase and Exchange Agreement and, to that end, proposes to offer to such public 2 9 holders a right to purchase their proportionate share, based on fully-diluted holdings of Parent Common Stock, of the New Parent Preferred Stock and the New Parent Subordinated Notes; and WHEREAS, Parent and the Company are entering into an Interim Management Agreement of even date herewith (the "Interim Management Agreement"), providing for the chief executive officer of Parent to serve jointly as the chief executive officer of the Company of Parent and the Company during the period specified therein; and WHEREAS, pursuant to a Note and Warrant Assignment and Transfer Agreement of even date herewith (the "Cerplex Note Purchase Agreement"), simultaneously with the execution and delivery hereof, WCAS VII is purchasing for cash from the holders thereof (i) an aggregate $18,069,375 principal amount of outstanding 9.50% Senior Subordinated Notes due 2001 together with accrued interest thereon (the "Cerplex Subordinated Notes") of the Company, representing all the issued and outstanding Cerplex Subordinated Notes and (ii) certain warrants to purchase shares of Company Common Stock, all on the terms and subject to the conditions set forth therein; and WHEREAS, pursuant to a Forbearance Agreement of even date herewith and a Seventh Amendment to Credit Agreement and Limited Waiver of even date herewith (collectively, the "Forbearance Agreement"), Citibank, N.A. ("Citibank") is agreeing to the repayment of certain loans at a discount and to waive certain defaults and forbear from enforcing certain of its rights under the Credit Agreement dated as of October 12, 1994, as amended (the "Cerplex Credit Agreement") among the Company, the lenders named therein and Wells Fargo Bank, N.A., as Agent, pending consummation of the Merger and repayment of the obligations of the Company under the Cerplex Credit Agreement, all on the terms and subject to the conditions set forth in the Forbearance Agreement; and WHEREAS, as a condition precedent to the Merger, Parent desires to obtain proceeds from a new senior lender of at least $17,000,000 (the "New Senior Loan") on terms acceptable to Parent; and WHEREAS, pursuant to a letter agreement of even date herewith (the "Chase Waiver"), The Chase Manhattan Bank, N.A. ("Chase") is consenting to the New Senior Loan and agreeing to the subordination to the New Senior Loan of Chase's currently outstanding loan pursuant to the Credit Agreement, dated as of March 29, 1996, as amended, among Aurora Electronics Group, Inc., the guarantors named therein, the lenders named therein, and Chase (formerly known as Chemical Bank), as Agent, all on the terms and subject to the conditions set forth in the Chase Amendment; 3 10 NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows: ARTICLE I. THE MERGER SECTION 1.01. The Merger. In accordance with the provisions of this Agreement and the DGCL, at the Effective Time (as defined in Section 1.02), Sub shall be merged with and into the Company, the separate existence of Sub (except as it may be continued by operation of law) shall thereupon cease, and the Company shall be the surviving corporation in the Merger (sometimes hereinafter called the "Surviving Corporation") and shall continue its corporate existence under the laws of the State of Delaware. The Merger shall have the effects set forth in Section 259 of the DGCL. SECTION 1.02. Effective Time. The Merger shall become effective at the time of filing of, or at such later time specified in, a properly executed Certificate of Merger, in the form required by and executed in accordance with the DGCL, filed with the Secretary of State of the State of Delaware in accordance with the provisions of Section 251 of the DGCL. Such filing shall be made as soon as practicable after the Closing (as defined in Section 1.03). When used in this Agreement, the term "Effective Time" shall mean the date and time at which the Merger shall become effective. SECTION 1.03. Closing. The closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York, at 10:00 a.m., local time, on the day on which all of the conditions set forth in Article VIII are satisfied or waived or on such other date and at such other time and place as Parent and the Company shall agree (such date, the "Closing Date"). ARTICLE II. THE SURVIVING CORPORATION SECTION 2.01. Certificate of Incorporation. The Certificate of Incorporation of Sub in effect at the Effective Time shall be the Certificate of Incorporation of the Surviving Corporation until amended in accordance with applicable law, except that the name of the Surviving Corporation shall be "The Cerplex Group, Inc." 4 11 SECTION 2.02. By-Laws. The By-Laws of Sub as in effect at the Effective Time shall be the By-Laws of the Surviving Corporation until amended in accordance with applicable law. SECTION 2.03. Directors and Officers of Surviving Corporation. (a) The directors of Sub at the Effective Time shall be the initial directors of the Surviving Corporation and shall hold office from the Effective Time until their respective successors are duly elected or appointed and qualified in the manner provided in the Certificate of Incorporation or By-Laws of the Surviving Corporation or as otherwise provided by law. (b) The officers of the Company at the Effective Time shall be the initial officers of the Surviving Corporation and shall hold office from the Effective Time until their respective successors are duly elected or appointed and qualified in the manner provided in the Certificate of Incorporation or By-Laws of the Surviving Corporation, or as otherwise provided by law. ARTICLE III. CONVERSION OF SHARES SECTION 3.01. Exchange Ratio. At the Effective Time, by virtue of the Merger and without any action on the part of the holder thereof: (a) Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than (i) shares to be canceled in accordance with Section 3.01(b) and (ii) shares of Company Common Stock for which appraisal rights have been perfected in accordance with Section 262 of the DGCL ("Dissenting Shares")) shall be converted into the right to receive, subject to adjustment as provided in Section 3.01(f) below, 1.076368 (the "Exchange Ratio") shares of Parent Common Stock, payable upon the surrender of the certificate formerly representing such share of Company Common Stock. (b) (i) All shares of Company Common Stock and all shares of Preferred Stock, $.001 par value (the "Company Preferred Stock") of the Company (collectively sometimes hereinafter referred to as "Company Stock") that, in either case, are (x) held by the Company as treasury shares or (y) owned by Parent or any wholly-owned Subsidiary of Parent, and (ii) all shares of Preferred Stock issued and outstanding immediately prior to the Effective Time, shall be canceled and retired and cease to exist, and no securities of Parent or other consideration shall be delivered in exchange therefor. As used in this Agreement, the 5 12 term "Subsidiary", means, with respect to any party, any corporation or other organization, whether incorporated or unincorporated, a majority of whose outstanding equity securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such party and/or one or more of its Subsidiaries. (c) Each share of Common Stock, par value $.01 per share ("Sub Common Stock"), of Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one fully paid and nonassessable share of Common Stock, par value $.01 per share, of the Surviving Corporation. (d) Each outstanding option to purchase Company Common Stock (each, a "Company Stock Option") under all stock option plans of the Company shall be assumed by Parent as more specifically provided in Section 7.08 and each outstanding right, subscription, warrant, call, option or other agreement or arrangement of any kind (collectively, "Company Stock Purchase Rights") to purchase or otherwise to receive from the Company or any of its Subsidiaries any of the outstanding authorized but unissued or treasury shares of the capital stock or any other security of the Company or any of its Subsidiaries shall be canceled or assumed, as applicable, by Parent as more specifically provided in Section 7.09. (e) The holders of Dissenting Shares, if any, shall be entitled to payment by the Surviving Corporation of the appraised value of such shares to the extent permitted by and in accordance with the provisions of Section 262 of the DGCL; provided, however, that (i) if any holder of Dissenting Shares shall, under the circumstances permitted by the DGCL, subsequently deliver a written withdrawal of such holder's demand for appraisal of such shares, or (ii) if any holder fails to establish such holder's entitlement to rights to payment as provided in such Section 262, or (iii) if neither any holder of Dissenting Shares nor the Surviving Corporation has filed a petition demanding a determination of the value of all Dissenting Shares within the time provided in such Section 262, such holder or holders (as the case may be) shall forfeit such right to payment for such shares and such shares shall thereupon be deemed to have been converted into Parent Common Stock pursuant to Section 3.01(a) as of the Effective Time. The Surviving Corporation shall be solely responsible for, and shall pay out of its own funds, any amounts which become due and payable to holders of Dissenting Shares, and such amounts shall not be paid directly or indirectly by Parent. (f) It is understood that the parties intend for the Exchange Ratio to result in a capital structure for Parent in which the holders of all equity securities on a fully-diluted 6 13 basis of the Company issued and outstanding at the Effective Time (including, without limitation, Company Common Stock, Company Stock Options and the Company Stock Purchase Rights listed on Schedule 4.02(a) which are not terminated prior to the Effective Time) shall receive in the Merger equity securities of Parent (including Parent Common Stock, Parent Stock Options (as hereinafter defined) or Parent Stock Purchase Rights (as hereinafter defined), as the case may be) constituting 25% of the Parent Common Stock on a fully-diluted basis after giving effect to the Merger and the consummation of all transactions to be consummated concurrently with the Merger (including the issuance of the New Parent Preferred Stock, the cancellation of the Cerplex Warrants acquired pursuant to the Cerplex Note Purchase Agreement and the cancellation of warrants pursuant to the Forbearance Agreement), not including, for purposes of such calculation, 50% of the shares of Parent Common Stock subject to then outstanding Parent Stock Options and 50% of the then outstanding Parent Stock Purchase Rights with an exercise price or conversion price greater than $2.50. Accordingly, the parties agree to make such adjustments to the Exchange Ratio as may be appropriate to give effect to the intent of the parties set forth herein; provided, that such adjustments may be made no later than five (5) business days prior to the Effective Time. SECTION 3.02. Exchange of Company Stock; Procedures. (a) Prior to the Closing Date, Parent shall designate a bank or trust company reasonably acceptable to the Company to act as Exchange Agent hereunder (the "Exchange Agent"). As soon as practicable after the Effective Time, Parent shall deposit with or for the account of the Exchange Agent stock certificates representing the number of shares of Parent Common Stock issuable pursuant to Section 3.01 in exchange for outstanding shares of Company Stock, which shares of Parent Common Stock shall be deemed to have been issued at the Effective Time. (b) As soon as practicable after the Effective Time, Parent shall cause the Exchange Agent to mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Company Stock (the "Certificates") that were converted pursuant to Section 3.01 into the right to receive shares of Parent Common Stock (i) a form of letter of transmittal specifying that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon proper delivery of the Certificates to the Exchange Agent and (ii) instructions for use in surrendering such Certificates in exchange for certificates representing shares of Parent Common Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly executed, the holder of such Certificate shall be entitled to receive in exchange therefor (x) a certificate representing that number of whole shares of 7 14 Parent Common Stock which such holder has the right to receive pursuant to the provisions of this Article III and (y) cash in lieu of any fractional shares of Parent Common Stock to which such holder is entitled pursuant to Section 3.04, after giving effect to any required tax withholdings, and the Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Company Stock which is not registered in the transfer records of the Company, a certificate representing the proper number of shares of Parent Common Stock may be issued to a transferee if the Certificate representing such Company Stock is presented to the Exchange Agent, accompanied by all documents required to evidence and effect such transfer, and by evidence that any applicable stock transfer taxes had been paid. Until surrendered as contemplated by this Section 3.02(b), each Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender a certificate representing shares of Parent Common Stock and cash in lieu of any fractional shares of Parent Common Stock as contemplated by this Article III. SECTION 3.03. Dividends; Transfer Taxes; Escheat. No dividends or distributions that are declared on shares of Parent Common Stock will be paid to persons entitled to receive certificates representing shares of Parent Common Stock hereunder until such persons surrender their Certificates. Upon such surrender, there shall be paid to the person in whose name the certificates representing such shares of Parent Common Stock shall be issued, any dividends or distributions with respect to such shares of Parent Common Stock which have a record date after the Effective Time and shall have become payable between the Effective Time and the time of such surrender. In no event shall the person entitled to receive such dividends or distributions be entitled to receive interest thereon. Promptly following the date which is six months after the Effective Time, the Exchange Agent shall deliver to Parent all cash, certificates and other documents in its possession relating to the transactions described in this Agreement, and any holders of Company Stock who have not theretofore complied with this Article III and the letter of transmittal shall look thereafter only to Parent for the shares of Parent Common Stock, any dividends or distributions thereon, and any cash in lieu of fractional shares thereof to which they are entitled pursuant to this Article III. Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto shall be liable to a holder of Company Stock for any shares of Parent Common Stock, any dividends or distributions thereon or any cash in lieu of fractional shares thereof delivered to a public official pursuant to applicable abandoned property, escheat or similar laws. SECTION 3.04. No Fractional Securities. No certificates or scrip representing fractional shares of Parent Common Stock shall be issued upon the surrender for exchange of Certificates, 8 15 and such fractional interests shall not entitle the owner thereof to vote or to any rights of a security holder. In lieu of any such fractional securities, each holder of Company Stock who would otherwise have been entitled to a fraction of a share of Parent Common Stock upon surrender of such holder's Certificates will be entitled to receive sufficient funds to make a cash payment (without interest) determined by multiplying (i) the fractional interest to which such holder would otherwise be entitled (after taking into account all shares of Company Stock then held of record by such holder) and (ii) the average last sale price of shares of Parent Common Stock for the twenty trading days immediately prior to the Effective Time or, if no such sale takes place on such days, the average of the closing bid and asked prices thereof for such days, in each case as officially reported on the principal national securities exchange on which Parent Common Stock is then listed or admitted to trading or on the OTC Bulletin Board. It is understood (x) that the payment of cash in lieu of fractional shares of Parent Common Stock is solely for the purpose of avoiding the expense and inconvenience to Parent of issuing fractional shares and does not represent separately bargained-for consideration and (y) that no holder of Company Stock will receive cash in lieu of fractional shares of Parent Common Stock in an amount greater than the value of one full share of Parent Common Stock. SECTION 3.05. Closing of Company Transfer Books. At the Effective Time, the stock transfer books of the Company shall be closed and no transfer of shares of Company Stock shall thereafter be made. If, after the Effective Time, Certificates are presented to the Parent, they shall be canceled and exchanged as provided in this Article III. SECTION 3.06. Further Assurances. If, at any time after the Effective Time, the Surviving Corporation shall consider or be advised that any deeds, bills of sale, assignments, assurances or any other actions or things are necessary or desirable to vest, perfect or confirm of record or otherwise in the Surviving Corporation its right, title or interest in, to or under any of the rights, properties or assets of either of Sub or the Company acquired or to be acquired by the Surviving Corporation as a result of, or in connection with, the Merger or otherwise to carry out this Agreement, the officers of the Surviving Corporation shall be authorized to execute and deliver, in the name and on behalf of each of Sub and the Company or otherwise, all such deeds, bills of sale, assignments and assurances and to take and do, in such names and on such behalves or otherwise, all such other actions and things as may be necessary or desirable to vest, perfect or confirm any and all right, title and interest in, to and under such rights, properties or assets in the Surviving Corporation or otherwise to carry out the purposes of this Agreement. 9 16 ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to Parent and Sub as follows: SECTION 4.01. Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power to carry on its business as it is now being conducted or presently proposed to be conducted. The Company is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except where the failure to be so qualified will not have a material adverse effect, individually or in the aggregate, on the business, properties, financial condition, results of operations or prospects of the Company and its subsidiaries taken as a whole, or the ability of the Company to consummate the Merger and the other transactions contemplated by this Agreement (a "Company Material Adverse Effect"). SECTION 4.02. Capitalization. (a) The authorized capital stock of the Company consists of 60,000,000 shares of Company Common Stock and 5,000,000 shares of Company Preferred Stock, of which 3,066,340 shares have been designated as Series A Preferred Stock (the "Series A Preferred") and 8,000 shares have been designated as Series B Preferred Stock (the "Series B Preferred"). As of January 30, 1998, (i) 36,366,084 shares of Company Common Stock were issued and outstanding, (ii) no shares of Series A Preferred were issued and outstanding, (iii) no shares of Series B Preferred were issued and outstanding, (iv) Company Stock Options to acquire 1,294,881 shares of Company Common Stock were outstanding under all stock option plans of the Company, (v) 6,000,000 shares of Company Common Stock were reserved for issuance pursuant to the Company Stock Options and all other employee benefit plans of the Company and (vi) 4,705,119 shares of Company Common Stock were reserved for issuance upon the exercise of outstanding Company Stock Purchase Rights. All of the issued and outstanding shares of Company Common Stock are validly issued, fully paid and nonassessable. Schedule 4.02(a) sets forth with respect to each Company Stock Option and each Company Stock Purchase Right, the exercise price, the vesting or exercisability schedule (as applicable), the expiration date and the number of shares of Company Common Stock into which such Company Stock Option or Company Stock Purchase Right, as the case may be, is exercisable. (b) Except as disclosed in this Section 4.02 or as set forth on Schedule 4.02(a), (i) there are no 10 17 outstanding Company Stock Options or Company Stock Purchase Rights, (ii) there is no outstanding security of any kind convertible into or exchangeable for shares of capital stock of the Company, and (iii) there is no voting trust or other agreement or understanding to which the Company or any of its Subsidiaries is a party or is bound with respect to the voting of the capital stock of the Company or any of its Subsidiaries. (c) Except as set forth on Schedule 4.02(c), the Company has not in any manner accelerated or provided for the acceleration or the vesting or exercisability of, or otherwise modified the terms and conditions applicable to, any of the Company Stock Options, whether set forth in the governing stock option plans of the Company, a stock option grant, award or other agreement or otherwise. Except as set forth on Schedule 4.02(c), none of the awards, grants or other agreements pursuant to which Company Stock Options were issued have provisions which accelerate the vesting or right to exercise such options upon the execution of this Agreement (including the documents attached as Exhibits hereto), the consummation of the transactions contemplated hereby (or thereby) or any other "change of control" events. SECTION 4.03. Company Subsidiaries. Schedule 4.03(a) contains a complete and accurate list of all Subsidiaries of the Company. Each Subsidiary of the Company that is a corporation, is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each Subsidiary of the Company that is a partnership is duly formed and validly existing under the laws of its jurisdiction of formation. Each Subsidiary of the Company has the corporate power or the partnership power, as the case may be, to carry on its business as it is now being conducted or presently proposed to be conducted. Each Subsidiary of the Company is duly qualified as a foreign corporation or a foreign partnership, as the case may be, authorized to do business, and is in good standing, in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except where the failure to be so qualified will not have a Company Material Adverse Effect. All of the outstanding shares of capital stock of the Subsidiaries of the Company that are corporations are validly issued, fully paid and nonassessable. Except as set forth in Schedule 4.03(b), all of the outstanding shares of capital stock of, or other ownership interests in, each other Subsidiary of the Company are directly owned by the Company or a Subsidiary of the Company free and clear of any liens, pledges, security interests, claims, charges or other encumbrances of any kind whatsoever ("Liens"). SECTION 4.04. Authority Relative to this Agreement. The Company has the requisite corporate power and authority to execute and deliver this Agreement, the Interim Management 11 18 Agreement and the Forbearance Agreement and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated on its part hereby have been duly authorized by the Company's Board of Directors and, except for the approval of its stockholders to be sought at the stockholders meeting contemplated by Section 7.04(a) with respect to this Agreement, no other corporate proceedings on the part of the Company are necessary to authorize this Agreement or for the Company to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by the Company and constitutes a valid and binding agreement of the Company, enforceable against the Company in accordance with its terms. SECTION 4.05. Consents and Approvals; No Violations. Except as set forth in Schedule 4.05 or as otherwise stated herein, neither the execution, delivery and performance of this Agreement, the Interim Management Agreement or the Forbearance Agreement by the Company, nor the consummation by the Company of the transactions contemplated hereby or thereby, will (i) con- flict with or result in any breach of any provisions of the charter, by-laws or other organizational documents of the Company or any of its Subsidiaries, (ii) require a filing with, or a permit, authorization, consent or approval of, any federal, state, local or foreign court, arbitral tribunal, administrative agency or commission or other governmental or other regulatory authority or administrative agency or commission (a "Governmental Entity"), except in connection with or in order to comply with the applicable provisions of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), state securities or "blue sky" laws, the By-Laws of the National Association of Securities Dealers (the "NASD") and the filing and recordation of a Certificate of Merger as required by the DGCL, (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, or result in the creation of any Liens on any property or asset of the Company or any of its Subsidiaries pursuant to, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, license, contract, agreement or other instrument or obligation (each, a "Contract") to which the Company or any of its Subsidiaries is a party or by which any of them or any of their properties or assets may be bound or (iv) violate any law, order, writ, injunction, decree, statute, rule or regulation of any Governmental Entity applicable to the Company, any of its Subsidiaries or any of their properties or assets, except, in the case of clauses (ii), (iii) and (iv), where the failure to make such filing or obtain such authorization, consent or approval would not have, or where such violations, breaches or defaults or 12 19 Liens would not have, in any such case, a Company Material Adverse Effect. SECTION 4.06. Reports and Financial Statements. Except as set forth in Schedule 4.06, the Company has timely filed all reports required to be filed with the Securities and Exchange Commission (the "SEC") pursuant to the Exchange Act or the Securities Act since January 1, 1995 (collectively, the "Company SEC Reports"), and has previously made available to Parent true and complete copies of all such Company SEC Reports. Such Company SEC Reports, as of their respective dates except to the extent that such Company SEC Reports were subsequently amended or restated, complied in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as the case may be, and none of such Company SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent that such Company SEC Reports were subsequently amended or restated, the financial statements of the Company included in the Company SEC Reports have been prepared in accordance with United States generally accepted accounting principles ("GAAP") consistently applied throughout the periods indicated (except as otherwise noted therein or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of unaudited statements to normal recurring year-end adjustments and any other adjustments described therein) the consolidated financial position of the Company and its consolidated Subsidiaries as at the dates thereof and the consolidated results of operations and cash flows of the Company and its consolidated Subsidiaries for the periods then ended. Since December 31, 1996, there has been no change in any of the significant accounting (including tax accounting) policies, practices or procedures of the Company or any of its consolidated Subsidiaries. SECTION 4.07. Absence of Certain Changes or Events; Material Contracts. Except as set forth on Schedule 4.07 or in the Company SEC Reports filed and publicly available prior to the date of this Agreement, since September 30, 1997, (i) neither the Company nor any of its Subsidiaries has conducted its business and operations other than in the ordinary course and consistent with past practices, or taken any actions that, if it had been in effect, would have violated or been inconsistent with the provisions of Section 6.01 in such manner as to result in a Company Material Adverse Effect and (ii) there has not been any material adverse change in the business, properties, financial condition, results of operations or prospects of the Company and each of its Subsidiaries taken as a whole. Except as set forth on Schedule 4.07, the transactions contemplated by this Agreement will not require the consent from or the giving of notice to a third party 13 20 pursuant to the terms, conditions or provisions of any material Contract to which the Company or any of its Subsidiaries is a party. SECTION 4.08. Absence of Undisclosed Liabilities. Except for liabilities or obligations which are accrued or reserved against in the Company's financial statements (or reflected in the notes thereto) included in the Company SEC Reports or which were incurred after September 30, 1997 in the ordinary course of business and consistent with past practice, and except as set forth on Schedule 4.08, none of the Company and its Subsidiaries has any liabilities or obligations (whether absolute, accrued, contingent or otherwise) of a nature required by GAAP to be reflected in a consolidated balance sheet or reflected in the notes thereto) or which would have a Company Material Adverse Effect. SECTION 4.09. No Default. Except as set forth on Schedule 4.09, neither the Company nor any Subsidiary of the Company is in default or violation (and no event has occurred which with notice or the lapse of time or both would constitute a default or violation) of any term, condition or provision of (i) its charter, by-laws or comparable organizational documents, (ii) any Contract to which the Company or any of its Subsidiaries is a party or by which they or any of their properties or assets may be bound, or (iii) any order, writ, injunction, decree, statute, rule or regulation of any Governmental Entity applicable to the Company or any of its Subsidiaries, except, in the cases of clauses (ii) and (iii), for defaults or violations which would not have a Company Material Adverse Effect. SECTION 4.10. Litigation. Except for litigation disclosed in the notes to the financial statements included in the Company SEC Reports or set forth in Schedule 4.10 hereto, there is no suit, action, proceeding or investigation pending of which the Company has received notice or, to the knowledge of the Company, threatened against or affecting the Company or any of its Subsidiaries, the outcome of which, in the reasonable judgment of the Company, is likely to have a Company Material Adverse Effect; nor is there any judgment, decree, injunction, ruling or order of any Governmental Entity outstanding against the Company or any of its Subsidiaries having, or which is reasonably likely to have, a Company Material Adverse Effect. SECTION 4.11. Taxes. (a) The Company has heretofore delivered or will make available to Parent true, correct and complete copies of the consolidated federal, state, local and foreign income, franchise sales and other Tax Returns (as hereinafter defined) filed by the Company and the Company Subsidiaries for each of the Company's fiscal years ended December 31, 1996, 1995, 1994, 1993 and 1992 14 21 inclusive. Except as set forth on Schedule 4.11, the Company has duly filed, and each Subsidiary has duly filed, all material federal, state, local and foreign income, franchise, sales and other Tax Returns required to be filed by the Company or any of its Subsidiaries. All such Tax Returns are true, correct and complete, in all material respects, and the Company and each of its Subsidiaries have duly paid, all Taxes (as hereinafter defined) shown on such Tax Returns and have made adequate provision for payment of all accrued but unpaid material Taxes anticipated in respect of all periods since the periods covered by such Tax Returns. Except as set forth on Schedule 4.11, all material deficiencies assessed as a result of any examination of Tax Returns of the Company or any of its Subsidiaries by federal, state, local or foreign tax authorities have been paid or reserved on the financial statements of the Company in accordance with GAAP consistently applied, and true, correct and complete copies of all revenue agent's reports, "30-day letters," or "90-day letters" or similar written statements proposing or asserting any Tax deficiency against the Company or any of its Subsidiaries for any open year have been heretofore delivered to Parent. The Company has heretofore delivered or promptly will make available to Parent true, correct and complete copies of all written tax-sharing agreements and written descriptions of all such unwritten agreements or arrangements to which the Company or any of its Subsidiaries is a party. Except as set forth in Schedule 4.11, no material issue has been raised during the past five years by any federal, state, local or foreign taxing authority which, if raised with regard to any other period not so examined, could reasonably be expected to result in a proposed material deficiency for any other period not so examined. Except as disclosed in Schedule 4.11 hereof, neither the Company nor any of its Subsidiaries has granted any extension or waiver of the statutory period of limitations applicable to any claim for any material Taxes. The consolidated federal income tax returns of the Company and its Subsidiaries have been examined by and settled with the Internal Revenue Service (the "Service"), or the statute of limitations has expired, for all years through 1993. Except as set forth in Schedule 4.11, (i) neither the Company nor any of its Subsidiaries is a party to any agreement, contract or arrangement that would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code; (ii) no consent has been filed under Section 341(f) of the Code with respect to any of the Company or the Subsidiaries of the Company; (iii) neither the Company nor any of the Subsidiaries of the Company has participated in, or cooperated with, an international boycott within the meaning of Section 999 of the Code; and (iv) neither the Company nor any of the Subsidiaries of the Company has issued or assumed any corporate acquisition indebtedness, as defined in Section 279(b) of the Code. The Company and each Subsidiary of the Company have complied (and until the Effective Time will comply) in all material respects with all applicable laws, rules and regulations 15 22 relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions under any foreign laws) and have, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all amounts required to be so withheld and paid over under all applicable laws. (b) For purposes of this Agreement, the term "Taxes" shall mean all taxes, charges, fees, levies, duties, imposts or other assessments, including, without limitation, income, gross receipts, excise, property, sales, use, transfer, gains, license, payroll, withholding, capital stock and franchise taxes, imposed by the United States, or any state, local or foreign government or subdivision or agency thereof, including any interest, penalties or additions thereto. For purposes of this Agreement, the term "Tax Return" shall mean any report, return or other information or document required to be supplied to a taxing authority in connection with Taxes. SECTION 4.12. Title to Properties; Encumbrances. Except as described in the following sentence or as set forth in Schedule 4.12, each of the Company and its Subsidiaries has good, valid and marketable title to, or a valid leasehold interest in, all of its respective material properties and assets (real, personal and mixed, tangible and intangible), including, without limitation, all the properties and assets reflected in the consolidated balance sheet of the Company and its Subsidiaries as of September 30, 1997 included in the Company's Quarterly Report on Form 10-Q for the period ended on such date (except for properties and assets disposed of in the ordinary course of business and consistent with past practices since September 30, 1997). None of such properties or assets are subject to any Liens (whether absolute, accrued, contingent or otherwise), except (i) as specifically set forth in the Company SEC Reports or in Schedule 4.12 and (ii) minor imperfections of title and encumbrances, if any, which are not substantial in amount, do not materially detract from the value of the property or assets subject thereto and do not impair the operations of any of the Company and its Subsidiaries. SECTION 4.13. Intellectual Property. (a) Except as set forth on Schedule 4.13, the Company and its Subsidiaries are the sole and exclusive owners of all material patents, patent applications, patent rights, trademarks, trademark rights, trade names, trade name rights, copyrights, service marks, trade secrets, registrations for and applications for registration of trademarks, service marks and copyrights, technology and know how, rights in Computer Software (as hereinafter defined) and other proprietary rights and information and all technical and user manuals and documentation made 16 23 or used in connection with any of the foregoing, used or held for use in connection with the businesses of the Company or any of its Subsidiaries as currently conducted (collectively, the "Intellectual Property"), free and clear of all Liens except as set forth on Schedule 4.13 and except minor imperfections of title and encumbrances, if any, which are not substantial in amount, do not materially detract from the value of the Intellectual Property subject thereto and do not impair the operations of any of the Company and its Subsidiaries. (b) Each of the Company and its Subsidiaries owns or in the case of material Intellectual Property licensed from a third party, to the knowledge of the Company has the right to use all of the material Intellectual Property used by it or held for use by it in connection with its business. To the knowledge of the Company, there are no conflicts with or infringements of any Intellectual Property by any third party. To the knowledge of the Company, the conduct of the businesses of the Company and its Subsidiaries as currently conducted (collectively, the "Business") does not conflict with or infringe in any way any proprietary right of any third party, which conflict or infringement would have a Company Material Adverse Effect or restrict in any material fashion the conduct of such Business, and there is no claim, suit, action or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries (i) alleging any such conflict or infringement with any third party's proprietary rights, or (ii) challenging the ownership, use, validity or enforceability of the Intellectual Property. (c) The material Computer Software used by the Company or any of its Subsidiaries in the conduct of the Business is either: (i) owned by the Company or such Subsidiary of the Company, as the case may be, as the result of internal development by an employee of the Company or such Subsidiary of the Company; (ii) developed on behalf of the Company or any of its Subsidiaries by a consultant or contractor and all ownership rights therein have been assigned or otherwise transferred to or vested in the Company or such Subsidiary of the Company, as the case may be; or (iii) licensed or acquired from a third party pursuant to a written license, assignment, or other Contract which is in full force and effect and of which neither the Company nor any of its Subsidiaries is in material breach. Except as set forth on Schedule 4.13, (x) no third party has had access to any of the source code for any of the Computer Software described in clause (i) or (ii) hereof and (iii) no act has been done or omitted to be done by the Company or any of its Subsidiaries to impair or dedicate to the Public or entitle any Governmental Entity to hold abandoned any of such Computer Software. (d) For purposes of this Agreement, the term "Computer Software" shall mean (i) any and all computer programs 17 24 consisting of sets of statements and instructions to be used directly or indirectly in computer software or firmware, (ii) databases and compilations, including without limitation any and all data and collections of data, whether machine readable or otherwise, (iii) all versions of the foregoing (x) including without limitation all screen displays and designs thereof, and all component modules of source code or object code or natural language code therefor, and (y) whether recorded on papers, magnetic media or other electronic or non-electronic device, (iv) all descriptions, flow-charts and other work product used to design, plan, organize and develop any of the foregoing, and (v) all documentation, including without limitation all technical and user manuals and training materials, relating to the foregoing. SECTION 4.14. Compliance with Applicable Law. Except as set forth on Schedule 4.14 or as disclosed in the Company SEC Reports, (i) the Company and its Subsidiaries hold, and are in compliance with the terms of, all permits, licenses, exemptions, orders and approvals of all Governmental Entities necessary for the current and proposed conduct of their respective businesses ("Company Permits"), except for failures to hold or to comply with such permits, licenses, exemptions, orders and approvals which would not have a Company Material Adverse Effect, (ii) no fact exists or event has occurred, and no action or proceeding is pending or, to the Company's knowledge, threatened, that has a reasonable possibility of resulting in a revocation, nonrenewal, termination, suspension or other material impairment of any material Company Permits, (iii) the businesses of the Company and its Subsidiaries are not being conducted in violation of any applicable law, ordinance, regulation, judgment, decree or order of any Governmental Entity ("Applicable Law"), except for violations or possible violations which do not and are not reasonably likely to have a Company Material Adverse Effect, and (iv) to the knowledge of the Company, (x) no investigation or review by any Governmental Entity with respect to the Company or its Subsidiaries is pending or threatened and (y) no Governmental Entity has indicated an intention to conduct the same, other than, in each case, those which the Company reasonably believes will not have a Company Material Adverse Effect. SECTION 4.15. Information in Disclosure Documents and Registration Statement. None of the information to be supplied by the Company for inclusion in (i) the Registration Statement to be filed with the SEC by Parent on Form S-4 under the Securities Act for the purpose of registering the shares of Parent Common Stock to be issued in connection with the Merger (the "Registration Statement") or (ii) the joint proxy statement to be distributed in connection with Parent's and the Company's meetings of stockholders with respect to this Agreement (the "Proxy Statement") will, in the case of the Registration Statement and any post-effective amendment thereof, at the time it becomes effective or is filed, as the case may be, and, in any such case, at 18 25 the Effective Time, or, in the case of the Proxy Statement or any amendments thereof or supplements thereto, at the time of the mailing of the Proxy Statement and any amendments or supplements thereto, and at the time of the meeting of stockholders of the Company to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Proxy Statement will comply as to form in all material respects with the applicable provisions of the Exchange Act, and the rules and regulations promulgated thereunder, except that no representation is made by the Company with respect to statements made therein based on information supplied by Parent or its representatives for inclusion in the Proxy Statement or with respect to information concerning Parent or any of its Subsidiaries included or incorporated by reference in the Proxy Statement. SECTION 4.16. Employee Benefit Plans; ERISA. (a) Schedule 4.16 hereto sets forth a true and complete list of each material employee benefit plan, arrangement or agreement that is maintained, or was maintained at any time during the five (5) calendar years preceding the date of this Agreement (the "Company Plans"), by the Company or by any United States trade or business, whether or not incorporated (a "Company ERISA Affiliate"), which together with the Company would be deemed a "single employer" within the meaning of Section 414(b) and (c) of the Code. (b) Each of the Company Plans that is subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA") is and has been in compliance with ERISA and the Code in all material respects; each of the Company Plans intended to be "qualified" within the meaning of Section 401(a) of the Code has received an IRS determination letter regarding its tax- qualified status; no Company Plan has an accumulated or waived funding deficiency within the meaning of Section 412 of the Code; neither the Company nor any Company ERISA Affiliate has incurred, directly or indirectly, any material liability (including any material contingent liability) to or on account of a Company Plan pursuant to Title IV of ERISA; no proceedings have been instituted to terminate any Company Plan that is subject to Title IV of ERISA; no "reportable event," as such term is defined in Section 4043(b) of ERISA, has occurred with respect to any Company Plan subject to Title IV of ERISA; and no condition exists that presents a material risk to the Company or any Company ERISA Affiliate of incurring a material liability to or on account of a Company Plan pursuant to Title IV of ERISA. (c) The current value of the assets of each of the Company Plans that are subject to Title IV of ERISA, based 19 26 upon the actuarial assumptions (to the extent reasonable) presently used by the Company Plans, exceeds the present value of the accrued benefits under each such Company Plan; no Company Plan is a multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) and no Company Plan is a multiple employer plan as defined ia Section 413 of the Code; and all material contributions or other amounts payable by the Company as of the Effective Time with respect to each Company Plan in respect of current or prior plan years have been either paid or accrued on the balance sheet of the Company. To the best knowledge of the Company, there are no material pending, threatened or anticipated claims (other than routine claims for benefits) by, on behalf of or against any of the Company Plans or any trusts related thereto. (d) Neither the Company nor any Company ERISA Affiliate, nor any Company Plan, nor any trust created thereunder, nor any trustee or administrator thereof has engaged in a transaction in connection with which the Company or any Company ERISA Affiliate, any Company Plan, any such trust, or any trustee or administrator thereof, or any party dealing with any Company Plan or any such trust could be subject to either a material civil penalty assessed pursuant to Section 409 or 502(i) of ERISA or a material tax imposed pursuant to Section 4975 or 4976 of the Code. No Company Plan provides death or medical benefits (whether or not insured), with respect to current or former employees of the Company or any Company ERISA Affiliate beyond their retirement or other termination of service other than (i) coverage mandated by applicable law or (ii) death benefits under any "employee pension plan," as that term is defined in Section 3(2) of ERISA). SECTION 4.17. Environmental Laws and Regulations. (a) Except as set forth on Schedule 4.17 and except for matters which would not, individually or in the aggregate, be reasonably expected to result in a Company Material Adverse Effect: (i) the Company and its Subsidiaries are and have been in compliance with, and there are no outstanding allegations by any person or entity that the Company or its Subsidiaries has not been in compliance with, all applicable laws, rules, regulations, common law, ordinances, decrees, orders or other binding legal requirements relating to pollution (including the treatment, storage and disposal of wastes and the remediation or releases and threatened releases of materials), the preservation of the environment, and the exposure to materials in the environment or work place ("Environmental Laws") and (ii) the Company and its Subsidiaries currently hold all permits, licenses, registrations and other governmental authorizations (including exemptions, waivers, and the like) and financial assurance required under Environmental Laws for the Company and its Subsidiaries to operate their businesses as currently conducted. 20 27 (b) Except as set forth on Schedule 4.17, (i) to the knowledge of the Company, there is no friable asbestos-containing material in or on any real property currently owned, leased or operated by the Company or its Subsidiaries and (ii) there are and have been no underground storage tanks (whether or not required to be registered under any applicable law), dumps, landfills, lagoons, surface impoundments, injection wells or other land disposal units in or on any property currently owned, leased or operated by the Company or its Subsidiaries. (c) Except as set forth on Schedule 4.17, (i) neither the Company nor its Subsidiaries has received (or, to the knowledge of the Company, is expected to receive) (x) any written communication from any person stating or alleging that any of them may be a potentially responsible party under any Environmental Law (including, without limitation, the Federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980, a amended) with respect to any actual or alleged environmental contamination nor (y) any request for information under any Environmental Law from any Governmental Entity with respect to any actual or alleged material environmental contamination; and (ii) none of the Company, its Subsidiaries or any Governmental Entity is conducting or has conducted (or, to the knowledge of the Company, is threatening to conduct) any environmental remediation or investigation which could result in a material liability of the Company or its Subsidiaries under any Environmental Law. SECTION 4.18. Vote Required. The affirmative vote of (i) the holders of a majority of the outstanding shares of capital stock of the Company entitled to vote thereon, consisting of the Company Common Stock present in person or represented by proxy at the stockholders' meeting of the Company described in Section 7.04(a) (provided that the shares so present or repre- sented constitute a majority of the outstanding shares of Company Common Stock) is the only vote of the holders of any class or series of the Company's capital stock necessary to approve the Merger. The Board of Directors of the Company (at a meeting duly called and held) has unanimously (i) approved this Agreement, the Forbearance Agreement and the Interim Management Agreement, (ii) determined that the transactions contemplated hereby and thereby are fair to and in the best interests of the holders of Company Stock and (iii) determined to recommend this Agreement, the Merger and the other transactions contemplated hereby to such holders for approval and adoption. SECTION 4.19. Opinion of Financial Advisor. The Company has received the opinion of Chanin and Company LLC, dated the date hereof, substantially to the effect that the consideration to be received in the Merger by the holders of Company Common Stock is fair to such holders from a financial point of view. 21 28 SECTION 4.20. DGCL Section 203. Prior to the date hereof, the Company has elected, in accordance with the provisions of Section 203(b) of the DGCL, not to be governed by Section 203 of the DGCL. SECTION 4.21. Labor Matters. Except as set forth in Schedule 4.21, neither the Company nor any of its Subsidiaries is a party to, or bound by, any collective bargaining agreement, contract or other understanding with a labor union or labor organization and, to the knowledge of the Company, there is no activity, involving any employees of the Company or its Subsidiaries seeking to certify a collective bargaining unit or engaging in any other organizational activity. SECTION 4.22. Severance Arrangements. Except as set forth on Schedule 4.22 hereto, neither the Company nor any of its subsidiaries is party to any agreement with any employee (i) the benefits of which (including, without limitation, severance benefits) are contingent, or the terms of which are materially altered, upon the occurrence of a transaction involving the Company or any of its Subsidiaries of the nature of any of the transactions contemplated by this Agreement, the Merger or the Interim Management Agreement or (ii) providing severance benefits in excess of those generally available under the Company's severance policies as in effect on the date hereof (which are described on Schedule 4.22), or which are conditioned upon a change of control, after the termination of employment of such employees regardless of the reason for such termination of employment, and neither the Company nor any of its Subsidiaries is a party to any employment agreement or compensation guarantee extending for a period longer than one year from the date hereof. Schedule 4.22 sets forth all employment agreements and compensation guarantees, regardless of duration, to which the Company or any of its Subsidiaries is a party. SECTION 4.23. Affiliate Transactions. Except as set forth in Schedule 4.23 or as disclosed in the Company SEC Reports, there are no material Contracts that are still in force or effect (oral or written) between the Company or any of its Subsidiaries, on the one hand, and any (i) officer or director of the Company or any of its Subsidiaries, (ii) record or beneficial owner of five percent or more of the voting securities of the Company or (iii) affiliate (as such term is defined in Regulation 12b-2 promulgated under the Exchange Act) of any such officer, director or beneficial owner, on the other hand. SECTION 4.24. Brokers. Except as set forth in Schedule 4.24 hereto, no broker, finder or financial advisor is entitled to any brokerage, finder's or other fee or commission in connection with the Merger or the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. 22 29 ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT Parent represents and warrants to the Company as follows: SECTION 5.01. Organization. Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has the corporate power to carry on its business as it is now being conducted or presently proposed to be conducted. Parent is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities make such qualification necessary, except where the failure to be so qualified will not have a material adverse effect individually or in the aggregate, on the business, properties, financial condition, results of operations or prospects of Parent and its Subsidiaries taken as a whole or on the ability of Parent to consummate the Merger and the other transactions contemplated by this Agreement (a "Parent Material Adverse Effect"). Sub is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Sub has not engaged in any business (other than in connection with this Agreement and the transactions contemplated hereby) since the date of its incorporation. SECTION 5.02. Capitalization. (a) The authorized capital stock of Parent consists of 50,000,000 shares of Parent Common Stock, and 1,000,000 shares of Preferred Stock, par value $.01 per share of Parent, of which 400,000 shares have been designated Convertible Preferred Stock, 25,000 shares have been designated Series B Convertible Preferred Stock, 25,000 shares have been designated Series C Convertible Preferred Stock and 20,000 shares have been designated Series D Convertible Preferred Stock. As of January 30, 1998, (i) 6,847,583 shares of Parent Common Stock were issued and outstanding, (ii) 470,000 shares of Parent Preferred Stock were issued and outstanding, (iii) options to acquire 4,311,599 shares of Parent Common Stock (the "Parent Stock Options") were outstanding under all stock option plans of Parent, (iv) 5,209,887 shares of Parent Common Stock were reserved for issuance pursuant to the Parent Stock Options and all other employee benefit plans of Parent, (v) 30,000,000 shares of Parent Common Stock were reserved for issuance upon the conversion of the outstanding Parent Preferred Stock and (vi) 3,700,000 shares of Parent Company Stock were reserved for issuance upon the exercise of all outstanding rights, subscriptions, warrants, calls, options or other agreements or arrangements of any kind (collectively, the "Parent Stock Purchase Rights") to purchase or 23 30 otherwise receive from Parent any of the outstanding authorized but unissued or treasury shares of the capital stock or any other security of Parent. All of the outstanding shares of capital stock of Parent are, and the shares of Parent Common Stock issuable in exchange for shares of Company Common Stock and Company Preferred Stock at the Effective Time in accordance with this Agreement will be, when so issued, duly authorized, validly issued, fully paid and nonassessable. Schedule 5.02 sets forth with respect to each Parent Stock Option and Parent Stock Purchase Right, the exercise price, the vesting or exercisability schedule (as applicable), the expiration date and the number of shares of Parent Common Stock into which such Parent Stock Option or Parent Stock Purchase Right, as the case may be, is exercisable. (b) The authorized capital stock of Sub consists of 1,000 shares of Sub Common Stock, of which 1,000 shares, as of the date hereof, were issued and outstanding. All of such outstanding shares are owned by Parent, and are validly issued, fully paid and nonassessable. (c) Except as disclosed in this Section 5.02 or as set forth on Schedule 5.02, (i) there are no outstanding Parent Stock Options or Parent Stock Purchase Rights, (ii) there is no outstanding security of any kind convertible into or exchangeable for such capital stock and (iii) there is no voting trust or other agreement or understanding to which Parent or Sub is a party or is bound with respect to the voting of the capital stock of Parent or Sub. SECTION 5.03. Parent Subsidiaries. Schedule 5.03(a) contains a complete and accurate list of all Subsidiaries of Parent. Each Subsidiary of Parent that is a corporation is duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. Each Subsidiary of Parent that is a partnership is duly formed and validly existing under the laws of its jurisdiction of formation. Each Subsidiary of Parent has the corporate power or the partnership power, as the case may be, to carry on its business as it is now being conducted or presently proposed to be conducted. Each Subsidiary of Parent is duly qualified as a foreign corporation or a foreign partnership, as the case may be, authorized to do business, and is in good standing, in each jurisdiction where the character of its properties owned or held under lease or the nature of its activities makes such qualification necessary, except where the failure to be so qualified will not have a Parent Material Adverse Effect. All of the outstanding shares of capital stock of the Subsidiaries of Parent that are corporations are validly issued, fully paid and nonassessable. Except as set forth in Schedule 5.03(b), all of the outstanding shares of capital stock of, or other ownership interests in, each other Subsidiary of 24 31 Parent are directly owned by Parent or a Subsidiary of Parent free and clear of any Liens. SECTION 5.04. Authority Relative to this Agreement. Each of Parent and Sub has the requisite corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement by each of Parent and Sub and the consummation by Parent and Sub of the transactions contemplated on its part hereby have been duly authorized by their respective Boards of Directors, and by Parent as the sole stockholder of Sub, and, except for the approval of Parent's stockholders to be sought at the stockholders meeting contemplated by Section 7.04(b), no other corporate proceedings on the part of Parent or Sub are necessary to authorize this Agreement or for Parent and Sub to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by each of Parent and Sub and constitutes a valid and binding agreement of each of Parent and Sub, enforceable against Parent and Sub in accordance with its terms. SECTION 5.05. Consents and Approvals; No Violations. Except as set forth in Schedule 5.05 or as otherwise stated herein, neither the execution, delivery and performance of this Agreement by Parent or Sub, nor the consummation by Parent or Sub of the transactions contemplated hereby will (i) conflict with or result in any breach of any provisions of the Certificate of Incorporation or By-Laws of Parent or of Sub, (ii) require a filing with, or a permit, authorization, consent or approval of, any Governmental Entity except in connection with or in order to comply with the applicable provisions of the HSR Act, the Securities Act, the Exchange Act, state laws relating to takeovers, if applicable, state securities or "blue sky" laws, the By-Laws of NASD and other exchanges on which the shares of Parent Common Stock are listed, and the filing and recordation of a Certificate of Merger as required by the DGCL, (iii) result in a violation or breach of, or constitute (with or without due notice or lapse of time or both) a default (or give rise to any right of termination, cancellation or acceleration) under, or result in the creation of a Lien on any property or asset of Parent or any of its Subsidiaries pursuant to, any of the terms, conditions or provisions of any Contract to which Parent or Sub is a party or by which either of them or any of their properties or assets may be bound or (iv) violate any law, order, writ, injunction, decree, statute, rule or regulation of any Governmental Entity applicable to Parent, Sub or any of their properties or assets, except, in the case of clauses (ii), (iii) and (iv), where the failure to make such filing or obtain such authorization, consent or approval would not have, or where such violations, breaches or defaults or Liens would not have, in any such case, a Parent Material Adverse Effect. 25 32 SECTION 5.06. Reports and Financial Statements. Except as set forth in Schedule 5.06, Parent has timely filed all reports required to be filed with the SEC pursuant to the Exchange Act or the Securities Act since January 1, 1995 (collectively, the "Parent SEC Reports"), and has previously made available to the Company true and complete copies of all such Parent SEC Reports. Such Parent SEC Reports, as of their respective dates except to the extent that such Parent SEC Reports were amended or restated, complied in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as the case may be, and none of such SEC Reports contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Except to the extent that such Parent SEC Reports were amended or restated, the financial statements of Parent included in the Parent SEC Reports have been prepared in accordance with GAAP consistently applied throughout the periods indicated (except as otherwise noted therein or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC) and fairly present (subject, in the case of unaudited statements, to normal, recurring year-end adjustments and any other adjustments described therein) the consolidated financial position of Parent and its consolidated Subsidiaries as at the dates thereof and the consolidated results of operations and cash flows of Parent and its consolidated Subsidiaries for the periods then ended. Since December 31, 1996, there have been no changes in any of the significant accounting (including tax accounting) policies, practices or procedures of the Parent or any of its consolidated Subsidiaries. SECTION 5.07. Absence of Certain Changes or Events. Except as set forth in Schedule 5.07 or in the Parent SEC Reports since September 30, 1997, Parent has not conducted its business and operations other than in the ordinary course and consistent with past practices, or taken any actions, that if it had been in effect, would have violated Section 6.02 in such a manner as to result in a Parent Material Adverse Effect. SECTION 5.08. Absence of Undisclosed Liabilities. Except for liabilities or obligations which are accrued or reserved against in Parent's financial statements (or reflected in the notes thereto) included in the Parent SEC Reports or which were incurred after September 30, 1997 in the ordinary course of business and consistent with past practice, and except as set forth in Schedule 5.08, none of Parent and its Subsidiaries has any liabilities or obligations (whether absolute, accrued, contingent or otherwise) of a nature required by GAAP to be reflected in a consolidated balance sheet (or reflected in the notes thereto) or which would have a Parent Material Adverse Effect. 26 33 SECTION 5.09. No Default. Neither Parent nor any Subsidiary of Parent is in default or violation (and no event has occurred which with notice or the lapse of time or both would constitute a default or violation) of any term, condition or provision of (i) its charter, by-laws or comparable organizational documents, (ii) Contracts to which Parent or its Subsidiaries is a party or by which they or any of their properties or assets may be bound, or (iii) any order, writ, injunction, decree, statute, rule or regulation of any Governmental Entity applicable to Parent or any of its Subsidiaries, except, in the case of causes (ii) and (iii) above, for defaults or violations which would not have a Parent Material Adverse Effect. SECTION 5.10. Litigation. Except for litigation disclosed in the notes to the financial statements included in the Parent SEC Reports, there is no suit, action, proceeding or investigation pending of which Parent has received notice or, to the knowledge of Parent, threatened against or affecting Parent or any of its Subsidiaries, the outcome of which, in the reasonable judgment of Parent, is likely to have a Parent Material Adverse Effect; nor is there any judgment, decree, injunction, ruling or order of any Governmental Entity outstanding against Parent or any of its Subsidiaries having, or which is reasonably likely to have, a Parent Material Adverse Effect. SECTION 5.11. Taxes. Parent has heretofore delivered or will make available to the Company true correct and complete copies of the consolidated federal, state, local and foreign income, franchise, sales and other Tax Returns filed by Parent and its Subsidiaries for each of the Parent's fiscal years ended December 31, 1996, 1995, 1994, 1993 and 1992 inclusive. Except as set forth on Schedule 5.11, Parent has duly filed, and each of its Subsidiaries has duly filed, all material federal, state, local and foreign income, franchise, sales and other Tax Returns required to be filed by Parent or the Subsidiaries of Parent. All such Tax Returns are true, correct and complete, in all material respects, and Parent and the Subsidiaries of Parent have duly paid all Taxes shown on such Tax Returns and have paid or made adequate provision for payment of all accrued but unpaid material Taxes in respect of all periods since the periods covered by such Tax Returns. Except as set forth on Schedule 5.11, all material deficiencies assessed as a result of any examination of Tax Returns of Parent or the Subsidiaries of Parent by federal, state, local or foreign tax authorities have been paid or reserved on the financial statements of Parent in accordance with GAAP consistently applied, and true, correct and complete copies of all revenue agent's reports, "30-day letters," or "90-day letters" or similar written statements proposing or asserting any Tax deficiency against Parent or the Subsidiaries of Parent for any open year have been heretofore delivered to the Company. Except as set forth on Schedule 5.11, no material issue has been raised during the past five years by any federal, state, 27 34 local or foreign taxing authority which, if raised with regard to any other period not so examined, could reasonably be expected to result in a proposed material deficiency for any other period not so examined. Except as disclosed in Schedule 5.11, neither Parent nor any of its Subsidiaries has granted any extension or waiver of the statutory period of limitations applicable to any claim for any material Taxes. The consolidated federal income tax returns of Parent and the Subsidiaries of Parent have been examined by and settled with the Service, or the statute of limitations has expired, for all years through 1993. Except as set forth on Schedule 5.11, neither Parent nor any Subsidiary of Parent (i) is a party to any agreement, contract or arrangement that would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code; (ii) has filed a consent under Section 341(f) of the Code with respect to any of Parent or the Subsidiaries of Parent; (iii) has participated in, or cooperated with, an international boycott within the meaning of Section 999 of the Code; or (iv) has issued or assumed any corporate acquisition indebtedness, as defined in Section 279(b) of the Code. Parent and each of the Subsidiaries of Parent have complied (and until the Effective Time will comply) in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes (including, without limitation, withholding of Taxes pursuant to Sections 1441 and 1442 of the Code or similar provisions under any foreign laws) and have, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authori- ties all amounts required to be so withheld and paid over under all applicable laws. SECTION 5.12. Compliance with Applicable Law. Except as disclosed in the Parent SEC Reports, (i) Parent and its Subsidiaries hold, and are in compliance with the terms of, all permits, licenses, exemptions, orders and approvals of all Governmental Entities necessary for the current or proposed conduct of their respective businesses ("Parent Permits"), except for failures to hold or to comply with such permits, licenses, exemptions, orders and approvals which would not have a Parent Material Adverse Effect, (ii) no fact exists or event has occurred, and no action or proceeding is pending or, to Parent's knowledge, threatened, that has a reasonable possibility of resulting in a revocation, non-renewal, termination, suspension or other material impairment of any material Parent Permits, (iii) the businesses of Parent and its Subsidiaries are not being conducted in violation of any Applicable Law (including ERISA and Environmental Laws), except for violations or possible violations which do not and are not reasonably likely to have a Parent Material Adverse Effect, and (iv) to the knowledge of Parent, (x) no investigation or review by any Governmental Entity with respect to Parent or its Subsidiaries is pending or threatened and (y) no Governmental Entity has indicated an intention to 28 35 conduct the same, other than, in each case, those which Parent reasonably believes will not have a Parent Material Adverse Effect. SECTION 5.13. Information in Disclosure Documents and Registration Statement. None of the information to be supplied by Parent or Sub for inclusion in (i) the Registration Statement or (ii) the Proxy Statement will, in the case of the Registration Statement and any post-effective amendment thereto, at the time it becomes effective or is filed, as the case may be, and, in any case, at the Effective Time, or, in the case of the Proxy Statement or any amendments thereof or supplements thereto, at the time of the mailing of the Proxy Statement and any amendments or supplements thereto, and at the time of the meeting of stockholders of Parent to be held in connection with the Merger, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they are made, not misleading. The Registration Statement, including all amendments thereto, and the Proxy Statement will comply as to form in all material respects with the applicable provisions of the Securities Act and the Exchange Act, and the rules and regulations promulgated thereunder, except that no representation is made by Parent with respect to statements made therein based on information supplied by the Company or its representatives for inclusion in the Registration Statement or the Proxy Statement or with respect to information concerning the Company or any of its Subsidiaries included or incorporated by reference in the Registration Statement or the Proxy Statement. SECTION 5.14. Vote Required. The affirmative vote of (i) the holders of a majority of the shares of Parent Common Stock, voting together as a single class with the holders of the Parent Preferred Stock (with such Parent Preferred Stock holders being entitled to one vote for each share of Parent Common Stock into which such shares of Parent Preferred Stock so held would be convertible on the record date set for the vote), and (ii) the holders of a majority of the outstanding shares of Parent Preferred Stock, voting as a separate class, are the only votes of the holders of any class or series of Parent capital stock necessary to approve the amendment to Parent's Certificate of Incorporation (the "Parent Certificate of Amendment") necessary to authorize a sufficient number of shares of Parent Common Stock for issuance in the Merger and for issuance upon the conversion of the New Parent Preferred Stock. The affirmative vote of Parent, as the sole stockholder of all outstanding shares of Sub Common Stock, is the only vote of the holders of any class or series of Sub capital stock necessary to approve the Merger. The Board of Directors of Parent (at a meeting duly called and held) has by the unanimous vote of the directors (w) approved this Agreement, the Securities Purchase and Exchange Agreement, the Interim Management Agreement and the Chase Waiver, (x) determined 29 36 that the transactions contemplated hereby and thereby are fair to and in the best interests of the holders of Parent Common Stock, (y) approved the Parent Certificate of Amendment and determined to submit the Parent Certificate of Amendment to such holders for approval and adoption and (z) caused Parent, as the sole stockholder of Sub, to approve and adopt this Agreement. The Board of Directors of Sub (by unanimous written consent) has approved this Agreement. SECTION 5.15. Opinion of Financial Advisor. Parent has received the opinion of Dain Rauscher Incorporated, dated January 28, 1998, substantially to the effect that the transactions contemplated hereby are fair to the stockholders of Parent (other than WCAS VII and its affiliates) from a financial point of view as a whole. SECTION 5.16. Brokers. Except as set forth on Schedule 5.16 hereto, no broker, finder or financial advisor is entitled to any brokerage finder's or other fee or commission in connection with the Merger or the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Parent or Sub. ARTICLE VI. CONDUCT OF BUSINESS PENDING THE MERGER SECTION 6.01. Conduct of Business by the Company Pending the Merger. Prior to the Effective Time, unless Parent shall otherwise agree in writing, or as otherwise expressly contemplated by this Agreement (including Schedule 6.01 hereto) or resulting from joint management of the Company and Parent pursuant to the Interim Management Agreement: (a) the Company shall conduct, and cause each of its Subsidiaries to conduct, its business only in the ordinary and usual course consistent with past practice, and the Company shall use, and cause each of its Subsidiaries to use, its reasonable efforts consistent with past practice to preserve intact its present business organization, keep available the services of its present officers and key employees, and preserve the goodwill of those having business relationships with it; (b) the Company shall not, nor shall it permit any of its Subsidiaries to, (i) amend its charter, by-laws or other organizational documents, (ii) split, combine or reclassify any shares of its outstanding capital stock, (iii) declare, set aside or pay any dividend or other distribution payable in cash, stock or property (other than payments to the Company by a Subsidiary) or (iv) directly or indirectly redeem or otherwise 30 37 acquire any shares of its capital stock or shares of the capital stock of any of its Subsidiaries; (c) the Company shall not, nor shall it permit any of its Subsidiaries to, (i) authorize for issuance, issue or sell or agree to issue or sell any shares of, or Rights to acquire or convertible into any shares of, its capital stock or shares of the capital stock of any of its Subsidiaries (whether through the issuance or granting of options, warrants, commitments, subscriptions, rights to purchase or otherwise), except for the issuance of shares of Company Common Stock upon the exercise of Company Stock Options or Company Stock Purchase Rights outstanding on the date of this Agreement and disclosed in Section 4.02 hereof; (ii) merge or consolidate with another entity; (iii) acquire or purchase an equity interest in or a substantial portion of the assets of another corporation, partnership or other business organization or otherwise acquire any assets outside the ordinary and usual course of business and consistent with past practice or otherwise enter into any material contract, commitment or transaction outside the ordinary and usual course of business consistent with past practice; (iv) sell, lease, license, waive, release, transfer, encumber or otherwise dispose of any material amount of its assets outside the ordinary and usual course of business and consistent with past practice; (v) incur, assume or prepay any material indebtedness or any other material liabilities other than in the ordinary course of business and consistent with past practice; (vi) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other person other than a Subsidiary of the Company, in each case in the ordinary course of business and consistent with past practice; (vii) make any loans, advances or capital contributions to, or investments in, any other person, other than to Subsidiaries of the Company; (viii) authorize or make capital expenditures in excess of the amounts currently budgeted therefor and disclosed to Parent; (ix) permit any insurance policy naming the Company or any Subsidiary of the Company as a beneficiary or a loss payee to be canceled or terminated other than in the ordinary course of business; or (x) enter into any contract, agreement, commitment or arrangement with respect to any of the foregoing; (d) the Company shall not, nor shall it permit its Subsidiaries to, (i) adopt, enter into, terminate or amend (except as may be required by Applicable Law) any Company Plan or other arrangement for the current or future benefit or welfare of any director, officer or current or former employee, (ii) increase in any manner the compensation or fringe benefits of, or pay any bonus to, any director, officer or employee (except for increases in salaried compensation in the ordinary course of business consistent with past practice), or (iii) take any action to fund or in any other way secure, or to accelerate or otherwise 31 38 remove restrictions with respect to, the payment of compensation or benefits under any employee plan, agreement, contract, arrangement or other Company Plan (including the Company Stock Options); and (e) the Company shall not, nor shall it permit its Subsidiaries to, take any action with respect to, or make any material change in, its accounting or tax policies or procedures. SECTION 6.02. Conduct of Business by Parent Pending the Merger. Prior to the Effective Time, unless the Company shall otherwise agree in writing, or as otherwise expressly contemplated by this Agreement or resulting from joint management of the Company pursuant to the Interim Management Agreement: (a) the business of Parent shall be conducted, and Parent shall cause each of its Subsidiaries to conduct its business, only in the ordinary and usual course consistent with past practice, and Parent shall use, and Parent shall cause each of its Subsidiaries to use, its reasonable efforts to preserve intact its present business organization, to keep available the services of its respective present officers and key employees, and preserve the goodwill of those having business relationships with it; (b) Parent shall not, nor shall it permit any of its Subsidiaries to, (i) amend its charter (other than, in the case of Parent, to increase the number of authorized shares of Parent Common Stock and to create the New Parent Preferred Stock), By-Laws or other organizational documents; (ii) split, combine or reclassify any shares of its outstanding capital stock; (iii) declare, set aside or pay any dividend or other distribution payable in cash, stock or property (other than payments to Parent by a Subsidiary or regular dividends on the Parent Preferred Stock); or (iv) directly or indirectly redeem or otherwise acquire any shares of its capital stock or shares of the capital stock of any of its Subsidiaries; (c) Parent shall not, nor shall it permit any of its Subsidiaries to, (i) authorize for issuance, issue or sell or agree to issue or sell any shares of, or Rights to acquire or convertible into any shares of, its capital stock or shares of capital stock of any of its Subsidiaries (whether through the issuance or granting of options, warrants, commitments, subscrip- tions, rights to purchase or otherwise), except for (w) the issuance of shares of Parent Common Stock (A) upon the exercise of Parent Stock Options or other Rights outstanding on the date of this Agreement and disclosed in Section 5.02 hereof, (B) upon the exercise of Parent Stock Options or Parent Stock Purchase Rights outstanding as of the date of this Agreement or Parent Stock Options described in the immediately following clause (x), or (C) upon the conversion of the Parent Preferred Stock in 32 39 accordance with its present terms, (x) the issuance of Parent Stock Options pursuant to existing employee benefit plans or arrangements in a manner consistent with past practice, (y) the issuance of New Parent Preferred Stock pursuant to the Securities Purchase and Exchange Agreement and the Parent Rights Offering and (z) the issuance of Parent Common Stock upon conversion of New Parent Preferred Stock in accordance with its terms, or (ii) merge or consolidate with any other entity, other than the merger of Sub into the Company or the merger of any Subsidiary of Parent into Parent or any Subsidiary of Parent; and (d) neither Parent nor Sub shall take any action with respect to, or make any material change in, its accounting or tax policies or procedures. SECTION 6.03. Conduct of Business of Sub. During the period from the date of this Agreement to the Effective Time, Sub shall not engage in any activities of any nature except as provided in or contemplated by this Agreement. It is understood that Sub was formed by Parent solely for the purpose of effecting the Merger, and that Sub will have no material assets and no material liabilities prior to the Merger. ARTICLE VII. ADDITIONAL AGREEMENTS SECTION 7.01. Access and Information. Each of the Company and Parent shall (and shall cause its Subsidiaries and its and their respective officers, directors, employees, auditors and agents to) afford to the other and to the other's officers, employees, financial advisors, legal counsel, accountants, consultants and other representatives reasonable access during normal business hours throughout the period prior to the Effective Time to all of its books and records and its properties, plants and personnel and, during such period, each shall furnish promptly to the other a copy of each report, schedule and other document filed or received by it pursuant to the requirements of federal securities laws, provided that no investigation pursuant to this Section 7.01 shall affect any representations or warranties made herein or the conditions to the obligations of the respective parties to consummate the Merger. Unless otherwise required by law, each party agrees that it (and its Subsidiaries and its and their respective representatives) shall hold in confidence all non-public information so acquired in accordance with the terms of the Confidentiality Agreement, dated December 9, 1997, between Parent and the Company (the "Confidentiality Agreement"). SECTION 7.02. No Solicitation. Prior to the Effective Time, the Company agrees that neither it, any of its Subsidiaries 33 40 or its affiliates, nor any of the respective directors, officers, employees, agents or representatives of the foregoing will, directly or indirectly, solicit, initiate or encourage (including by way of furnishing or disclosing non-public information) any inquiries or the making of any proposal with respect to any merger, consolidation or other business combination involving the Company or any Subsidiary of the Company or the acquisition of all or any significant assets or capital stock of the Company or any Subsidiary of the Company taken as a whole (an "Acquisition Transaction") or negotiate, explore or otherwise engage in discussions with any person (other than Parent and its representatives) with respect to any Acquisition Transaction or enter into any agreement, arrangement or understanding with respect to any such Acquisition Transaction or which would require it to abandon, terminate or fail to consummate the Merger or any other transaction contemplated by this Agreement; provided, however, that the Company may, in response to an unsolicited written proposal from a third party, furnish information to and engage in discussions with such third party, in each case only if the Board of Directors of the Company determines in good faith by a majority vote, after consultation with its financial advisors and based upon the advice of outside legal counsel to the Company, that failing to take such action would result in a breach of the fiduciary duties of the Board of Directors. The Company agrees that as of the date hereof, its Subsidiaries and affiliates, and the respective directors, officers, employees, agents and representatives of the foregoing, shall promptly cease and cause to be terminated any existing activities, discussions or negotiations with any person (other than Parent and its representatives) conducted heretofore with respect to any Acquisition Transaction. The Company agrees to immediately advise Parent in writing of any inquiries or proposals received by, any such information requested from, or any such negotiations or discussions sought to be initiated or continued with, any of the Company, its Subsidiaries or affiliates, or any of the respective directors, officers, employees, agents or representatives of the foregoing, in each case from each person (other than Parent and its representatives) with respect to an Acquisition Transaction, and the terms thereof, including the identity of such third party, and to update on an ongoing basis or upon Parent's request, the status thereof, as well as any actions taken or other developments pursuant to this Section 7.02. SECTION 7.03. Registration Statement. As promptly as practicable, Parent and the Company shall in consultation with each other prepare and file with the SEC the Proxy Statement and Parent in consultation with the Company shall prepare and file with the SEC the Registration Statement. Each of Parent and the Company shall use its reasonable best efforts to have the Registration Statement declared effective. Parent shall also use its reasonable best efforts to take any action required to be taken under state securities or "blue sky" laws in connection with the 34 41 issuance of the shares of Parent Common Stock pursuant to this Agreement and the Merger. The Company shall furnish Parent with all information concerning the Company and its Subsidiaries and the holders of its capital stock and shall take such other action as Parent may reasonably request in connection with the Registration Statement and the issuance of shares of Parent Common Stock. If at any time prior to the Effective Time any event or circumstance relating to Parent, any Subsidiary of Parent, the Company, any Subsidiary of the Company, or their respective officers or directors, is discovered by such party which should be set forth in an amendment or a supplement to the Registration Statement or Proxy Statement, such party shall promptly inform the other thereof and take appropriate action in respect thereof. SECTION 7.04. Proxy Statements; Stockholder Approvals. (a) The Company, acting through its Board of Directors, shall, subject to and in accordance with applicable law and its Certificate of Incorporation and By-Laws, promptly and duly call, give notice of, convene and hold as soon as practicable following the date upon which the Registration Statement becomes effective, a meeting of the holders of Company Common Stock for the purpose of voting to approve and adopt this Agreement and the transactions contemplated hereby, and, subject to the fiduciary duties of the Board of Directors of the Company under applicable law as advised by outside legal counsel, recommend approval and adoption of this Agreement and the transactions contemplated hereby, by the stockholders of the Company entitled to vote thereon and include in the Proxy Statement such recommendation and take all reasonable and lawful action to solicit and obtain such approval. (b) Parent, acting through its Board of Directors, shall, subject to and in accordance with applicable law and its Certificate of Incorporation and By-Laws, promptly and duly call, give notice of, convene and hold as soon as practicable following the date upon which the Registration Statement becomes effective, a meeting of the holders of Parent Common Stock and Parent Preferred Stock for the purpose of voting to approve the Parent Certificate of Amendment. (c) Parent and the Company, as promptly as practicable (or with such other timing as they mutually agree), shall cause the definitive Proxy Statement to be mailed to their stockholders. (d) At or prior to the Closing, each of Parent and the Company shall deliver to the other a certificate of its Secretary setting forth the voting results from its stockholder meeting. 35 42 SECTION 7.05. Affiliates. (a) At least 45 days prior to the Effective Time, the Company shall cause to be delivered to Parent a list identifying all persons who were, in its reasonable judgment, at the record date for its stockholders' meeting convened in accordance with Section 7.04 hereof, "affiliates" of the Company as that term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the "Affiliates"). (b) The Company shall use its best efforts to cause each person who is identified as one of its Affiliates in its list referred to in Section 7.05(a) above to deliver to Parent (with a copy to the Company), at least 30 days prior to the Effective Time, a written agreement, in the form attached here as Exhibit B (the "Affiliate Letters"). (c) If any Affiliate of the Company refuses to provide an Affiliate Letter, Parent may place appropriate legends on the certificates evidencing the shares of Parent Common Stock to be received by such Affiliate pursuant to the terms of this Agreement and to issue appropriate stop transfer instructions to the transfer agent for shares of Parent Common Stock to the effect that the shares of Parent Common Stock received by such Affiliate pursuant to this Agreement only may be sold, transferred or otherwise conveyed (i) pursuant to an effective registration statement under the Securities Act, (ii) in compliance wit Rule 145 promulgated under the Securities Act, or (iii) pursuant to another exemption under the Securities Act. SECTION 7.06. Reasonable Efforts. Subject to the terms and conditions herein provided, and with the understanding that time is of the essence, each of the parties hereto agrees to use its reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement, the Securities Purchase and Exchange Agreement, the Cerplex Note Purchase Agreement, and the Note and Warrant Assignment and Transfer Agreement, and fulfill the conditions set forth in Article VIII hereof, including, without limitation, (i) the obtaining of all necessary waivers, consents and approvals and (ii) the effecting of all necessary registrations and filings; provided, however, that the foregoing shall not require either party hereto to waive any condition to its obligation to effect the Merger set forth herein or obtain from any of its stockholders any guarantees of its obligations or any undertak- ings with respect thereto similar in purpose or effect other than as provided herein or in such agreements. Without limiting the generality of the foregoing, as promptly as practicable, the Company, Parent and Sub shall make all filings and submissions under the HSR Act as may be reasonably required to be made in 36 43 connection with this Agreement and the transactions contemplated hereby. Subject to the Confidentiality Agreements, the Company will furnish to Parent and Sub, and Parent and Sub will furnish to the Company, such information and assistance as the other may reasonably request in connection with the preparation of any such filings or submissions. Subject to the Confidentiality Agreements, the Company will provide Parent and Sub, and Parent and Sub will provide the Company, with copies of all material written correspondence, filings and communications (or memoranda setting forth the substance thereof) between such party or any of its representatives and any Governmental Entity, with respect to the obtaining of any waivers, consent or approvals and the making of any registrations or filings, in each case that is necessary to consummate the Merger and the other transactions contemplated hereby. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers or directors of Parent and the Surviving Corporation shall take all such necessary action. SECTION 7.07. Certain Agreements. Concurrently herewith, and as an essential inducement for Parent's entering into this Agreement, (i) Parent is entering into the Irrevocable Proxy and Option Agreement with certain holders of the Company Common Stock, (ii) Parent is entering into the Securities Purchase and Exchange Agreement with the several purchasers named therein, (iii) Parent and the Company are entering into the Interim Management Agreement, (iv) WCAS VII is entering into the Cerplex Note Purchase Agreement with the several noteholders named therein, (v) the Company and Citibank are entering into the Forbearance Agreement, (vi) Parent has obtained the Senior Commitment from the New Lender and (vii) Parent is entering into the Chase Amendment with Chase. SECTION 7.08. Company Stock Options. At the Effective Time, each of the Company Stock Options which is outstanding immediately prior to the Effective Time shall be assumed by Parent and converted automatically into an option to purchase shares of Parent Common Stock (a "New Option") in an amount and at an exercise price determined as provided below: (a) the number of shares of Parent Common Stock to be subject to the New Option shall be equal to the product of the number of shares of Company Common Stock remaining subject (as of immediately prior to the Effective Time) to the original option and the Exchange Ratio, provided that any fractional shares of Parent Common Stock resulting from such multiplication shall be rounded down to the nearest share; and (b) the exercise price per share of Parent Common Stock under the New Option shall be equal to the exercise price per share of Company Common Stock under the original option 37 44 divided by the Exchange Ratio, provided that such exercise price shall be rounded down to the nearest cent. The adjustment provided herein with respect to any Options which are "incentive stock options" (as defined in Section 422 of the Code) shall be and is intended to be effected in a manner which is consistent with Section 424(a) of the Code. After the Effective Time, each New Option shall be exercisable and shall vest upon the same terms and conditions as were applicable to the related Company Stock Option immediately prior to the Effective Time, except that all references to the Company shall be deemed to be references to Parent. Parent shall file with the SEC a Registration Statement on Form S-8 (or other appropriate form) or a post-effective amendment to the Registration Statement and shall take any action required to be taken under state securities "blue sky" laws for purposes of registering all shares of Parent Common Stock issuable after the Effective Time upon exercise of the New Options, and use all reasonable efforts to have such registration statement or post-effective amendment become effective with respect thereto as promptly as practicable after the Effective Time. SECTION 7.09. Settlement of Company Stock Purchase Rights. (a) At the Effective Time, each of the warrants to purchase Company Common Stock set forth on Schedule 4.02(a) hereto which are outstanding and which are not being canceled or terminated pursuant to the Forbearance Agreement or the Stockholders Agreement shall be assumed by Parent and converted automatically into a warrant to purchase shares of Parent Common Stock (a "New Warrant") in an amount and at an exercise price determined as provided below: (i) the number of shares of Parent Common Stock to be subject to the New Warrant shall be equal to the product of the number of shares of Company Common Stock remaining subject (as of immediately prior to the Effective Time) to the original warrant and the Exchange Ratio, provided that any fractional shares of Parent Common Stock resulting from such multiplication shall be rounded to the nearest share; and (ii) the exercise price per share of Parent Common Stock under the New Warrant shall be equal to the exercise price per share of Company Common Stock under the original warrant divided by the Exchange Ratio, provided that such exercise price shall be rounded to the nearest cent. After the Effective Time, each New Warrant shall be exercisable and shall vest upon the same terms and conditions as were applicable 38 45 to the related Company warrant immediately prior to the Effective Time, except that all references to the Company shall be deemed to be references to Parent. (b) At the Effective Time, each outstanding Company Stock Purchase Right not listed on Schedule 4.02(a) shall be canceled and retired and cease to exist, and no securities of Parent or other consideration shall be delivered in exchange therefor. SECTION 7.10. Public Announcements. Each of Parent, Sub, and the Company agrees that it will not issue any press release or otherwise make any public statement with respect to this Agreement (including the Exhibits hereto) or the transactions contemplated hereby (or thereby) without the prior consent of the other party, which consent shall not be unreasonably withheld or delayed; provided, however, that such disclosure can be made without obtaining such prior consent if (i) the disclosure is required by law or by obligations imposed pursuant to any listing agreement with any national securities exchange and (ii) the party making such disclosure has first used its reasonable best efforts to consult with (but not obtain the consent of) the other party about the form and substance of such disclosure. SECTION 7.11. Directors' and Officers' Indemnification and Insurance. (a) All rights to indemnification, advancement of litigation expenses and limitation of personal liability existing in favor of the directors and officers of the Company under the provisions existing on the date hereof in the Company's Certificate of Incorporation, By-Laws or by contract shall, with respect to any matter existing or occurring at or prior to the Effective Time (including the transactions contemplated by this Agreement), survive the Effective Time, and, as of the Effective Time, the Surviving Corporation and Parent shall assume all obligations of the Company in respect thereof as to any claim or claims asserted prior to or within a six-year period immediately after the Effective Time. (b) For a period of three years after the Effective Time, the Surviving Corporation and Parent shall cause to be maintained in effect the current policies of directors and officers' liability insurance maintained by the Company (provided that the Surviving Corporation and Parent may substitute therefor policies of at least the same coverage and amounts containing terms and conditions which are no less advantageous to former officers and directors of the Company with respect to claims arising from facts or events which occurred before the Effective Time); provided, however, that in no event shall the Surviving Corporation or Parent be required to expend pursuant to this Section 7.11(b) more than an amount equal to 150% of current 39 46 annual premiums paid by the Company for such insurance (the "Maximum Amount") (which premiums the Company represents and warrants to be approximately $312,000 in the aggregate). (c) The obligations under this Section 7.11 shall be transferred to, and assumed in writing by, the successor entity in the event of a sale of substantially all of the assets, merger or recapitalization of Parent during the applicable time periods referenced herein. SECTION 7.12. Expenses. Except as otherwise set forth in Section 9.02(b), whether or not the Merger is consummated, all costs and expenses incurred in connection with this Agreement (including the Exhibits hereto) and the transactions contemplated hereby (and thereby) shall be paid by the party incurring such expenses, except that (i) the filing fee in connection with filings under the HSR Act, (ii) the expenses incurred in connection with printing the Registration Statement and the Proxy Statement and (iii) the filing fee with the SEC relating to the Registration Statement or the Proxy Statement will be shared equally by Parent and the Company. In the event the Merger is consummated, Parent shall cause the Company to pay, at the Closing and in accordance with agreements entered into by the Company, the fees and expenses incurred by the Company in connection with the transactions contemplated hereby that are listed in Schedule 7.12. SECTION 7.13. Supplemental Disclosure. The Company shall give prompt notice to Parent, and Parent shall give prompt notice to the Company, of (i) the occurrence or non-occurrence, of any event of which such party is aware the occurrence, or non-occurrence, of which would result in the breach of (x) any representation or warranty by such party contained in this Agreement or (y) any covenant, condition or agreement by such party contained in this Agreement and (ii) any failure of the Company or Parent, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 7.13 shall not have any effect for the purpose of determining the satisfaction of the conditions set forth in Article VIII of this Agreement or otherwise limit or affect the remedies available hereunder to any party. SECTION 7.14. Public Reporting; Continued Listing. Parent shall use its best efforts (i) to maintain the registration of its Common Stock under Section 12 of the 1934 Act, (ii) to make and keep public information available as those terms are understood and defined in SEC Rule 144 and (iii) to maintain the listing of its Common Stock on the OTC Bulletin Board, in each case for a minimum of three years from the Effective Time. 40 47 ARTICLE VIII. CONDITIONS TO CONSUMMATION OF THE MERGER SECTION 8.01. Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following conditions: (a) HSR Approval. Any waiting period applicable to the consummation of the Merger under the HSR Act shall have expired or been terminated, and no action shall have been instituted by the Department of Justice or Federal Trade Commission challenging or seeking to enjoin the consummation of this transaction, which action shall have not been withdrawn or terminated. (b) Stockholder Approval. This Agreement and the transactions contemplated hereby shall have been approved and adopted by (i) the requisite vote (as described in Section 4.18) of the stockholders of the Company and (ii) by the requisite vote (as described in Section 5.14) of the stockholders of Parent, in each case, in accordance with applicable law. (c) Registration Statement. The Registration Statement shall have been declared effective under the Securities Act and shall not be the subject of any stop order or proceeding by the SEC seeking a stop order. (d) No Order. No Governmental Entity (including a federal or state court) of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which materially restricts, prevents or prohibits consummation of the Merger or any transaction contemplated by this Agreement; provided, however, that the parties shall use their reasonable best efforts to cause any such decree, judgment, injunction or other order to be vacated or lifted. (e) Approvals. Other than the filing of Merger documents in accordance with the DGCL, all authorizations, consents, waivers, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity, the failure of which to obtain, make or occur would have a material adverse effect at or after the Effective Time on (i) Parent or (ii) the Surviving Corporation shall have been obtained, been filed or have occurred. SECTION 8.02. Conditions to Obligations of Parent and Sub to Effect the Merger. The obligations of Parent and Sub to effect the Merger shall be subject to the satisfaction at or 41 48 prior to the Effective Time of the following additional conditions, unless waived in writing by Parent: (a) Representations and Warranties. All repre- sentations and warranties of the Company that are qualified with reference to a Company Material Adverse Effect or materiality shall be true and correct in all respects and all representations and warranties that are not so qualified shall be true and correct in all material respects, in each case as of the date of this Agreement, except to the extent such representations and warranties speak as of an earlier date. (b) Performance of Obligations of the Company. Each of the Company and its Subsidiaries shall have performed in all material respects all obligations (including those under Section 7.13) required to be performed by it under this Agreement at or prior to the Effective Time, and Parent shall have received a certificate signed on behalf of the Company by a proper officer of the Company to such effect. (c) Tax Opinion of Counsel. Parent shall have received an opinion of Hughes & Luce LLP, tax counsel to Parent, in form and substance reasonably satisfactory to Parent, dated as of the Effective Time, substantially to the effect that the Merger will constitute a reorganization for federal income tax purposes within the meaning of Section 368(a) of the Code and that, accordingly, no gain or loss will be recognized by the Company, Parent or Sub as a result of the Merger. (d) Letters of Resignation. Parent and Sub shall have received letters of resignation addressed to the Company from the members of the Company's Board of Directors and letters of resignation addressed to each of the Company's Subsidiaries from the members of such Subsidiary's board of directors, which resignations shall be effective as of the Effective Time. (e) Dissenting Shares. The aggregate number of shares of Company Common Stock into which all Dissenting Shares are convertible shall not constitute more than 5% of the number of shares of Company Common Stock outstanding as of immediately prior to the Effective Time (calculated assuming full conversion of all then issued and outstanding shares of Company Preferred Stock but no other dilution). (f) Debt Financing. Parent shall have obtained at least $17,000,000 of proceeds from the New Senior Loan on terms reasonably acceptable to Parent, as determined in good faith by Parent. (g) Repayment of Indebtedness. Citibank shall have complied with the Forbearance Agreement in all material respects and the Company shall have satisfied in full its obligations 42 49 under the Cerplex Credit Agreement, the Liens granted thereunder shall have been discharged and the Cerplex Credit Agreement shall have been terminated. SECTION 8.03. Conditions to Obligation of the Company to Effect the Merger. The obligation of the Company to effect the Merger shall be subject to the satisfaction at or prior to the Effective Time of the following additional conditions, unless waived in writing by the Company: (a) Representations and Warranties. All repre- sentations and warranties of Parent contained in this Agreement that are qualified with reference to a Parent Material Adverse Effect or materiality shall be true and correct in all respects and all representations and warranties that are not so qualified shall be true and correct in all material respects as of the date of this Agreement, and, except to the extent such representations and warranties speak as of an earlier date. (b) Performance of Obligations of Parent and Sub. Each of Parent and Sub shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Effective Time, and the Company shall have received a certificate signed on behalf of Parent by the chief executive officer or the chief financial officer of Parent to such effect. (c) Tax Opinion of Counsel. The Company shall have received an opinion of Brobeck, Phleger & Harrison, LLP ("Brobeck") in form and substance reasonably satisfactory to the Company, dated as of the Effective Time, substantially to the effect that the Merger will constitute a reorganization for federal income tax purposes within the meaning of Section 368(a) of the Code and that accordingly: (i) no gain or loss will be recognized by the stockholders of the Company who exchange their Company Stock solely for shares of Parent Common Stock pursuant to the Merger (except to the extent that cash is received in lieu of a fractional share interest); (ii) the aggregate basis of the shares of Parent Common Stock received by stockholders of the Company in the Merger will be the same as the aggregate basis of the Company Stock surrendered in exchange therefor (reduced by any amount allocable to a fractional share interest for which cash is received); (iii) the holding period of the shares of Parent Common Stock received by stockholders of the Company in the Merger will include the period during which the shares of Company Stock surrendered in exchange 43 50 therefor were held, provided such shares were held as a capital asset at the Effective Time; and (iv) no gain or loss will be recognized by the Company, Parent or Sub as a result of the Merger. In rendering such opinion Brobeck may require and rely upon representations contained in certificates of officers of Parent, Sub and the Company, certain principal stockholders and others; provided, however, that the condition set forth in this Section 8.03(c) shall be deemed satisfied if Brobeck is unable to render such opinion solely by reason of any of the holders of the Company Common Stock refusing or failing to provide Brobeck with requested representations. (d) Directors. Parent shall have appointed William A. Klein and Robert Finzi to Parent's Board of Directors. (e) Debt Financing. Parent shall have obtained at least $17,000,000 of proceeds in respect of the New Senior Loan and the Securities Purchase and Exchange Agreement shall have been consummated. ARTICLE IX. TERMINATION SECTION 9.01. Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval by the stockholders of Parent or the Company: (a) by mutual consent of Parent and the Company; (b) by either Parent or the Company, if (i) the Merger shall not have been consummated before June 30, 1998, or (ii) the approval of the stockholders of the Company required by Section 4.18 hereof shall not have been obtained at a meeting duly convened therefor or any adjournment thereof; provided that in the case of any such termination pursuant to this Section 9.01(b), the failure to so consummate the Merger by such date or to obtain such stockholder approval shall not have been caused by the action or failure to act of the party (or its Subsidiaries) seeking to terminate this Agreement, which action or failure to act constitutes a breach of this Agreement); (c) by either Parent or the Company, if any permanent injunction or action by any Governmental Entity of competent jurisdiction preventing the consummation of the Merger shall have become final and nonappealable; provided, however, that the party seeking to terminate this Agreement pursuant to 44 51 this Section 9.01(c) shall have used all reasonable efforts to remove such injunction or overturn such action; (d) by Parent, if (i) there has been breach of any representations or warranties of the Company set forth herein the effect of which is a Company Material Adverse Effect, (ii) there has been a breach in any material respect of any of the covenants or agreements set forth in this Agreement on the part of the Company, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by Parent to the Company, or (iii) the Board of Directors of the Company (x) withdraws or amends or modifies in a manner adverse to Parent or Sub its recommendation or approval in respect of this Agreement or the Merger, (y) makes any recommendation with respect to an Acquisition Transaction (including making no recommendation or stating an inability to make a recommendation), other than a recommendation to reject such Acquisition Transaction, or (z) takes any material action that would be prohibited by Section 7.02; and (e) by the Company, if (i) there has been a breach of any representations or warranties of Parent set forth herein the effect of which is a Parent Material Adverse Effect, (ii) there has been a breach in any material respect of any of the covenants or agreements set forth in this Agreement on the part of Parent, which breach is not curable or, if curable, is not cured within 30 days after written notice of such breach is given by the Company to Parent or (iii) such termination is necessary to allow the Company to enter into an Acquisition Transaction that its Board of Directors has determined in good faith, by a majority vote after consultation with its financial advisors and based upon the advice of outside legal counsel to the Company, is more favorable to the stockholders of the Company than the Merger contemplated by this Agreement (provided that the termination described in this clause (iii) shall not be effective unless and until the Company shall have paid to Parent in full the fee and expense reimbursement described in Section 9.02(b)). SECTION 9.02. Effect of Termination. (a) In the event of termination of this Agreement pursuant to this Article IX, the Merger shall be deemed abandoned and this Agreement shall forthwith become void, without liability on the part of any party hereto, except as provided in this Section 9.02, Section 7.01 and Section 7.12, and except that nothing herein shall relieve any party from liability for any breach of this Agreement. (b) If (x) Parent shall have terminated this Agreement pursuant to Section 9.01(d)(iii), (y) the Company shall have terminated this Agreement pursuant to Section 9.01(e)(iii) or (z) either (1) Parent or the Company shall have terminated 45 52 this Agreement pursuant to Section 9.01(b)(ii) or (2) Parent shall have terminated this Agreement pursuant to Section 9.01(d)(ii) and, prior to or within one (1) year after any termination described in this clause (z), the Company (or any of its Subsidiaries) shall have directly or indirectly entered into a definitive agreement for, or shall have consummated, an Acquisition Transaction, then, in any of such cases, the Company shall pay Parent (A) a termination fee of one million dollars ($1,000,000), plus (B) an amount, not in excess of five hundred thousand dollars ($500,000), equal to Parent's actual, documented out-of-pocket expenses directly attributable to the negotiation and execution of this Agreement and the transactions contemplated hereby and the Merger; provided, however, that no fee or expense reimbursement shall be paid pursuant to this Section 9.02(b) if Parent shall be in material breach of its obligations hereunder. Any fees or amounts payable under this Section 9.02(b) shall be paid in same day funds no later than (i) two business days after a termination described in clause (x) of this Section 9.02(b), (ii) concurrently with a termination described in clause (y) of this Section 9.02(b) or (ii) concurrently with the consummation of such Acquisition Transaction, in the case of a termination described in clause (z) of this Section 9.02(b). ARTICLE X. GENERAL PROVISIONS SECTION 10.01. Amendment and Modification. At any time prior to the Effective Time, this Agreement may be amended, modified or supplemented only by written agreement (referring specifically to this Agreement) of Parent, Sub and the Company with respect to any of the terms contained herein; provided, however, that after any approval and adoption of this Agreement by the stockholders of Parent or the Company, no such amendment, modification or supplementation shall be made which under applicable law requires the approval of such stockholders, without the further approval of such stockholders. SECTION 10.02. Waiver. At any time prior to the Effective Time, Parent and Sub, on the one hand, and the Company, on the other hand, may (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive any inaccuracies in the representations and warranties of the other contained herein or in any documents delivered pursuant hereto and (iii) waive compliance by the other with any of the agreements or conditions contained herein which may legally be waived. Any such extension or waiver shall be valid only if set forth in an instrument in writing specifically referring to this Agreement and signed on behalf of such party. 46 53 SECTION 10.03. Survivability; Investigations. The respective representations and warranties of Parent and the Company contained herein or in any certificates or other documents delivered prior to or as of the Effective Time (i) shall not be deemed waived or otherwise affected by any investigation made by any party hereto and (ii) shall not survive beyond the Effective Time. The covenants and agreements of the parties hereto (including the Surviving Corporation after the Merger) shall survive the Effective Time without limitation (except for those which, by their terms, contemplate a shorter survival period). SECTION 10.04. Notices. All notices and other communications hereunder shall be in writing and shall be delivered personally or by next-day courier or telecopied with confirmation of receipt, to the parties at the a dresses specified below (or at such other address for a party as shall be specified by like notice; provided that notices of a change of address shall be effective only upon receipt thereof). Any such notice shall be effective upon receipt, if personally delivered or telecopied, or one day after delivery to a courier for next-day delivery. (a) If to Parent or Sub, to: Aurora Electronics, Inc. 9477 Waples Street, Suite 250 San Diego, California 92121 Telecopy Number: (619) 552-8942 Attention: Chief Executive Officer with copies to: Reboul, MacMurray, Hewitt, Maynard & Kristol 45 Rockefeller Plaza New York, New York 10111 Telecopy Number: (212) 841-5725 Attention: William J. Hewitt, Esq. (b) if to the Company, to: The Cerplex Group, Inc. 1382 Bell Avenue Tustin, California 92780 Telecopy Number: (714) 258-0730 Attention: William A. Klein 47 54 with copies to: Brobeck Phleger & Harrison LLP 4675 MacArthur Court, Suite 1000 Newport Beach, California 92660 Telecopy Number: (714) 752-7522 Attention: Frederic A. Randall, Jr., Esq. SECTION 10.05. Descriptive Headings; Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any why the meaning or interpretation of this Agreement. References in this Agreement to Sections, Schedules, Exhibits or Articles mean a Section, Schedule, Exhibit or Article of this Agreement unless otherwise indicated. References to this Agreement shall be deemed to include the Exhibits and Schedules hereto, unless the context otherwise requires. The term "person" shall mean and include an individual, a partnership, a joint venture, a corporation, a trust, a Governmental Entity or an unincorporated organization. SECTION 10.06. Entire Agreement; Assignment. This Agreement (including the Schedules, Exhibits and other documents and instruments referred to herein), together with the Irrevocable Proxy and Option Agreement and the Confidentiality Agreements, constitute the entire agreement and supersede all other prior agreements and understandings, both written and oral, among the parties or any of them, with respect to the subject matter hereof. This Agreement is not intended to confer upon any person not a party hereto any rights or remedies hereunder except with respect to the obligations to the individuals and entities under Section 7.11 and the obligations to individuals and entities under Section 7.14. This Agreement shall not be assigned by operation of law or otherwise; provided that Parent or Sub may assign its rights and obligations hereunder to a direct or indirect subsidiary of Parent, but no such assignment shall relieve Parent or Sub, as the case may be, of its obligations hereunder. SECTION 10.07. Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without giving effect to the provisions thereof relating to conflicts of law. Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the Court of Chancery in the State of Delaware in any action, suit or proceeding arising in connection with this Agreement, and agrees that any such action, suit or proceeding shall be brought only in such court (and waives any objection based on forum non conveniens or any other objection to venue therein). SECTION 10.08. Severability. In case any one or more of the provisions contained in this Agreement should be invalid, illegal or unenforceable in any respect against a party hereto, 48 55 the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby and such invalidity, illegality or unenforceability shall only apply as to such party in the specific jurisdiction where such judgment shall be made. SECTION 10.09. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. 49 56 IN WITNESS WHEREFORE, each of Parent, Sub and the Company has caused this Agreement to be executed on its behalf by its officers thereunto duly authorized, all as of the date first above written. AURORA ELECTRONICS, INC. By: /s/ JIM C. COWART ---------------------------- Name: Jim C. Cowart Title: Chairman HOLLY ACQUISITION CORP. By: /s/ JIM C. COWART ---------------------------- Name: Jim C. Cowart Title: Chairman THE CERPLEX GROUP, INC. By: /s/ WILLIAM A. KLEIN ---------------------------- Name: William A. Klein Title: Chairman EX-99.1 3 PRESS RELEASE DATED 2/2/98 1 EXHIBIT 99.1 Contact: John Thompson, President F. Wayne Withers, Senior Vice President and Chief Financial Officer Aurora Electronics, Inc. Tel: (619) 552-1213 Stephen J. Hopkins, Chief Executive Officer The Cerplex Group, Inc. Tel: (714) 258-5301 For Immediate Release Aurora Electronics, Inc. and The Cerplex Group, Inc. Announce Merger; Aurora Names McTavish as New Chairman and CEO SAN DIEGO, CA, February 2, 1998. Aurora Electronics, Inc. (OTC Bulletin Board: AURU) and The Cerplex Group, Inc. (OTC Bulletin Board: CPLX) announced today that they have signed a definitive merger agreement, creating one of the largest independent companies in the parts support and service logistics market. As a result of the merger, Cerplex would become a wholly-owned subsidiary of Aurora, and the current equity holders of Cerplex would be entitled to receive in a tax-free exchange approximately 25% of the post-merger, fully-diluted common stock of Aurora, after giving effect to the WCAS financing described below. Under the terms of the agreement, each share of Cerplex common stock would convert into 1.076368 shares of Aurora common stock. The merger is subject to regulatory approvals and the satisfaction of certain other conditions precedent, including securing acceptable senior bank financing. No assurance can be given that such conditions precedent will be achieved. The merger is expected to be completed by the end of April 1998. Following the completion of the merger, Aurora will change its name to The Cerplex Group, Inc. and the combined company will operate under that name. Aurora also announced today that Larry McTavish will be appointed its Chairman and Chief Executive Officer, replacing Jim C. Cowart, who will serve on an interim basis as Vice-Chairman, and John Thompson, respectively. Following the merger with Cerplex, Mr. McTavish would continue as Chairman and Chief Executive Officer of the combined enterprise. Subject to the merger, Aurora's principal stockholder, Welsh, Carson, Anderson & Stowe (WCAS), has agreed to provide 2 additional financing to Aurora, in the form of $18 million of new preferred stock and $15 million of new subordinated debt, and to exchange approximately $11 million of outstanding Aurora subordinated debt and accrued interest for $3.3 million of new preferred stock. After giving effect to the merger and the WCAS financing, WCAS would own approximately 69.2% of the fully-diluted common stock of Aurora. The proceeds of the WCAS financing and the proposed new senior bank financing would be used to repay approximately $30 million of outstanding senior bank obligations of Cerplex. In addition, at the effective time of the merger, approximately $18 million of outstanding subordinated notes of Cerplex, which have been purchased by WCAS, would be cancelled and exchanged for $5.7 million of the new subordinated notes of Aurora. Aurora contemplates offering to all of its existing stockholders the right to purchase a pro rata share of the new preferred stock and new subordinated notes. The rights offering will be made only by means of a prospectus. Any stockholder not electing to participate in this offering would experience substantial dilution of its existing equity interest in Aurora. With headquarters in San Diego, California, Aurora provides computer OEMs and service organizations with spare parts support and electronics recycling services. Based in Tustin, California, Cerplex is a leading independent depot repair, parts and logistics organization, offering a complete portfolio of asset utilization and service management solutions primarily for OEMs, third party maintainers and multivendor service organizations. Statements in this press release that are not historical facts constitute forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Investors are cautioned that these forward-looking statements are inherently uncertain. Actual performance and results may differ materially from those projected in the forward-looking statements due to important risk factors including, without limitation, the possibility that the merger transaction announced today might not be consummated or, if consummated, provide the benefits to the parties and the securityholders of the combined enterprise projected herein. Additional information concerning risk factors that could cause actual results to differ materially from those projected in the forward-looking statements is contained in Aurora's and Cerplex's respective filings with the Securities and Exchange Commission. These forward- looking statements represent the companies' judgement and estimates as of the date of this press release. Aurora and Cerplex assume no obligation to update such estimates except as required by the Rules and Regulations of the Securities and Exchange Commission. EX-99.2 4 IRREVOCABLE PROXY AND OPTION AGREEMENT 1 EXHIBIT 99.2 IRREVOCABLE PROXY AND OPTION AGREEMENT Each undersigned stockholder of THE CERPLEX GROUP, INC., a Delaware corporation (the "Company"), hereby irrevocably appoints Larry McTavish and Richard H. Stowe, and each of them, or any other designee of AURORA ELECTRONICS, INC., a Delaware corporation ("Parent"), the attorneys-in-fact and proxies of such stockholder, each with full power of substitution: (a) to attend any meeting (whether annual or special or both) of the stockholders of the Company, including any adjournment or postponement thereof, on behalf of such stockholder, and at such meeting, with respect to all shares of common and preferred stock of the Company owned by such stockholder on the date hereof or acquired hereafter that are entitled to vote at such meeting or over which such stockholder has voting power (with the exception of Whitman Partners, L.P. ("Whitman Partners") who makes such agreement with respect to 2,478,773 shares of the Company's Common Stock, $.001 par value ("Company Common Stock") held by such stockholder (hereinafter, the "Whitman Shares")) and any and all other shares of common or preferred stock of the Company or other securities issued on or after the date hereof in respect of any such shares, including, without limitation, the shares of Company Common Stock indicated following such stockholder's signature at the end of this proxy and option: (i) to vote in favor of the Merger (as such term is defined in the Agreement and Plan of Merger (the "Merger Agreement") among the Company, Parent and Holly Acquisition Corp. ("Sub") dated as of the date hereof) as set forth in the Merger Agreement or on substantially the same terms, and otherwise to act with respect to such shares as each such attorney and proxy or his substitute shall deem necessary or appropriate for such purpose; and (ii) to vote and otherwise act with respect to such shares in such a manner as each such attorney and proxy or his substitute shall deem proper, with respect to (x) proposals or offers (other than the Merger) relating to (1) any proposed sale, lease or other disposition of all or a substantial amount of the assets of the Company or any of its subsidiaries (as defined in the Merger Agreement), (2) any proposed merger, consolidation or other combination of the Company or any of its subsidiaries with any other entity, (3) any sale, lease or other disposition of the shares of any subsidiary of the Company or (4) any other proposed action of the Company or any of its subsidiaries requiring stockholder approval that would conflict with or violate the Company's representations, covenants or obligations under the Merger Agreement, adversely affect the Company's ability to consummate the transactions contemplated thereby or otherwise impede, interfere with or discourage the Merger (each of the actions described in (1) - (4) above, an "Acquisition Proposal"), and (y) any procedural matters presented at any such meeting at which any action is scheduled to be taken with respect to the Merger or any Acquisition Proposal; 2 (b) to execute and deliver one or more consents in writing (pursuant to Section 228 of the General Corporation Law of the State of Delaware (the "GCL")) in lieu of such meeting or adjournment thereof; (c) if no meeting of stockholders is scheduled in accordance with the Merger Agreement, or any such meeting is canceled or adjourned, and no action is taken by written consent in lieu thereof, to call a special stockholders meeting of the Company or to act by written consent for the purpose of (i) approving the Merger or any action with respect thereto, (ii) taking action with respect to any Acquisition Proposal or (iii) replacing any or all members of the Board of Directors of the Company with such persons as may be designated by such attorneys and proxies or their substitutes to the extent permitted under the GCL and the Certificate of Incorporation of the Company; and (d) to waive for the term of this proxy and option any and all rights of such stockholder to exercise any rights as an objecting stockholder under Section 262 of the GCL, subject to the right to receive the consideration as specifically provided in the Merger Agreement. Each undersigned stockholder hereby grants Parent the irrevocable right and option (the "Option") to purchase all shares of Company Common Stock (or, in the case of Whitman Partners, any of the Whitman Shares) and warrants to purchase such shares, owned by such stockholder on the date hereof or acquired hereafter (and any and all other shares of Company Common Stock or other securities issued on or after the date hereof in respect of any such shares or warrants or in respect of any options to purchase shares of Company Common Stock), for the same consideration as such stockholder would receive in the Merger pursuant to the Merger Agreement. The Option may be exercised in whole as to all the undersigned stockholders, but not in part as to any or all of such stockholders, at any time after the expiration of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and after the earlier to occur of (a) the date the Board of Directors of the Company votes not to approve the Merger or the Merger Agreement, or otherwise withdraws or modifies its recommendation of the Merger and the Merger Agreement or recommends or accepts any other Acquisition Proposal, (b) the date the Merger Agreement terminates, other than as a result of a breach by either of Parent or Sub of any of the representations or warranties made by it or any of its obligations thereunder, and (c) the date the proxy contained herein is determined by any court to be invalid or unenforceable. Each undersigned stockholder agrees (a) (i) to take all action necessary to call, or cause the Company to call, a meeting of the stockholders of the Company, to be held no later than twenty-one business days after the date on which the Registration Statement on Form S-4 with respect to the shares of Parent Common Stock to be issued in the Merger is declared effective, for the purpose of approving the Merger and shall use its best efforts to cause such meeting to be held on its scheduled date, or (ii) to take such action by written consent in lieu thereof as is necessary to effect such approval; (b) not to deposit any of its shares of Company Common Stock (or, in the case of Whitman Partners, any of the 2 3 Whitman Shares) into a voting trust or enter into a voting agreement with respect to such shares; (c) not to sell, transfer or otherwise dispose of or pledge or otherwise encumber, any shares of Company Common Stock or options or warrants to purchase such shares owned by such stockholder (or, in the case of Whitman Partners, any of the Whitman Shares), unless the purchaser or transferee of such shares or rights agrees in writing (a copy of which shall be delivered by such stockholder to Parent) prior to such sale, transfer or disposition to be bound by and subject to the provisions contained in this proxy and option; and (d) not, in its capacity as stockholder, to solicit, initiate, encourage, endorse, support (including, by providing information) or participate in any discussions regarding, any Acquisition Proposal. Each undersigned stockholder affirms that this proxy and option is issued in connection with the Merger Agreement to facilitate the transactions contemplated thereunder and in consideration of Parent entering into the Merger Agreement and as such is coupled with an interest and is irrevocable. This proxy and option will terminate upon the earlier to occur of (a) the closing of the transactions described in the Merger Agreement and (b) the termination of the Merger Agreement in accordance with its terms. For purposes of this proxy and option, any notice of any stockholders' meeting and any written consent shall be deemed delivered to such attorneys and proxies and their substitutes when delivered to Parent in accordance with the Merger Agreement, and any written consent shall be deemed delivered to the Company when delivered to it in accordance with the Merger Agreement. By execution and delivery of this proxy and option to the designees of Parent, each undersigned stockholder confirms that such stockholder has received a copy of a substantially final form of the Merger Agreement, and that all other information deemed necessary by such stockholder concerning the Merger, the Merger Agreement and the transactions contemplated thereunder or any other matters considered by such stockholder to be relevant to the its decision to execute this proxy and option has been made available to such stockholder. All authority herein conferred or agreed to be conferred shall survive the death, dissolution, liquidation or incapacity of any undersigned stockholder and any obligation of any undersigned stockholder hereunder shall be binding upon the heirs, personal representatives, successors and assigns of such undersigned stockholder. This proxy and option revokes any and all other proxies and options heretofore granted by each and any undersigned stockholder to vote or otherwise to act with respect to any of the shares to which this proxy and option relates. No undersigned stockholder will give any subsequent proxy or option (and such proxy or option if given will be deemed not to be effective) with respect to such shares that purports to grant authority within the scope of the authority hereby conferred, except on the express condition that such proxy or option shall not be effective unless and until this proxy and option shall have terminated in accordance with its terms. This proxy shall be governed by the internal laws of the State of Delaware. Each undersigned stockholder acknowledges that money damages would be both incalculable and an insufficient remedy for any breach of this proxy and option by it, and that any such breach would cause Parent and Sub irreparable harm. Accordingly, each undersigned stockholder agrees that in the event of any breach or threatened breach of this 3 4 proxy and option, Parent, in addition to any other remedies at law or in equity it may have, shall be entitled, without the requirement of posting a bond or other security, to equitable relief, including injunctive relief and specific performance. The invalidity or unenforceability of any provision of this proxy and option in any jurisdiction shall not affect the validity or enforceability of any other provision of this proxy and option in such jurisdiction, or the validity or enforceability of any provision of this proxy and option in any other jurisdiction. Each undersigned stockholder represents and warrants that, as of the date hereof, such stockholder owns or possesses voting power with respect to the number of shares of Company Common Stock set forth following such stockholder's name below. Each undersigned stockholder (with the exception of Whitman Partners) represents and warrants that, as of the date hereof, such stockholder owns the number of shares of Company Common Stock, options to purchase shares of Company Common Stock and warrants to purchase of Company Common Stock set forth following such stockholder's name below. Whitman Partners represents and warrants that, as of the date hereof, such stockholder owns not less than 2,478,773 shares of Company Common Stock. 4 5 For the convenience of the parties, this proxy and option agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Dated: January 30, 1998 ____________________________________________ WILLIAM A. KLEIN [4,710,383 shares of Company Common Stock] KLEIN INVESTMENTS FAMILY LIMITED PARTNERSHIP By: _____________________________________ Name: _____________________________________ Title: _____________________________________ [2,442,599 shares of Company Common Stock] THE KLEIN FOUNDATION By: _____________________________________ Name: _____________________________________ Title: _____________________________________ [180,000 shares of Company Common Stock] KLEIN 1994 CHARITABLE REMAINDER TRUST By: ______________________________________ William A. Klein, Trustee [1,271,299 shares of Company Common Stock] 6 ____________________________________________ RICHARD C. DAVIS [845,871 shares of Company Common Stock] SPROUT GROWTH II, L.P. By: DLJ Capital Corporation, Managing General Partner By: _____________________________________ Robert Finzi, Attorney-in-Fact [8,410,398 shares of Company Common Stock] DLJ CAPITAL CORPORATION By: _______________________________________ Robert Finzi, Attorney-in-Fact [856,268 shares of Company Common Stock] ____________________________________________ ROBERT FINZI [3,500 shares of Company Common Stock] ____________________________________________ MYRON KUNIN [952,642 shares of Company Common Stock] ____________________________________________ JEROME JACOBSON [17,605 shares of Company Common Stock] 7 WHITMAN PARTNERS L.P. By: Whitman Capital, Inc., its general partner By: ___________________________________ Douglas Whitman Title: ___________________________________ [2,478,773 shares of Company Common Stock] Accepted and Agreed to as of the date noted above: AURORA ELECTRONICS, INC. By_______________________________ Name: Title: EX-99.3 5 FORM OF AFFILIATES LETTER 1 EXHIBIT 99.3 FORM OF AFFILIATES LETTER _________ __, 1998 Aurora Electronics, Inc. 9477 Waples Street, Suite 150 San Diego, California 92121 Ladies and Gentlemen: This letter agreement (this "Agreement") is being delivered in accordance with Section 7.05(b) of the Agreement and Plan of Merger, dated as of January 30, 1998 (the "Merger Agreement"), among Aurora Electronics, Inc., a Delaware corporation ("Parent"), Holly Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Parent ("Sub"), and The Cerplex Group, Inc., a Delaware corporation (the "Company"). The Merger Agreement provides, among other things, for the merger of Sub with and into the Company (the "Merger"), pursuant to which each share of the outstanding Common Stock, par value $.001 per share ("Company Common Stock"), of the Company will be converted into the right to receive a number of shares of Common Stock, par value $.03 per share ("Parent Common Stock"), of Parent on the basis described in the Merger Agreement. The undersigned understands that as of the date of this letter he, she or it may be deemed to be an "affiliate" of the Company (an "Affiliate") as such term is used in paragraphs (c) and (d) of Rule 145 of the General Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"). 1. The undersigned hereby represents, warrants, covenants and agrees as follows: (a) The undersigned has full power to execute this Agreement and to make the representations, warranties, covenants and agreements herein and to perform the undersigned's obligations hereunder. (b) The undersigned is the beneficial or record owner of all the shares of Company Common Stock and (ii) the options, warrants or other rights exercisable for or convertible into shares of Company Stock (collectively, the "Rights") indicated 2 immediately below the undersigned's signature and address on the last page of this Agreement (all such shares and Rights, including any hereafter acquired, the "Company Shares"). Except for the Company Shares, the undersigned does not beneficially or of record own any shares of Company Common Stock or any Rights or other equity securities of the Company. (c) The undersigned will not sell, transfer or otherwise dispose of or offer or agree to sell, transfer or dispose of (any of the foregoing, a "Disposition") any of the shares of Parent Common Stock issued to the undersigned in the Merger in exchange for the Company Shares (the "Parent Shares") in violation of the Securities Act or the Rules and Regulations. (d) The undersigned has carefully read this Agreement and the Merger Agreement and discussed with the undersigned's counsel or counsel for the Company the requirements of such documents and other applicable limitations upon the undersigned's ability to make any Disposition of the Parent Shares. (e) The undersigned understands that the issuance of Parent Common Stock pursuant to the Merger will be registered with the SEC under the Securities Act on a Registration Statement on Form S-4 and that, because at the time the Merger is submitted to a vote of the stockholders of the Company, the undersigned may be deemed to be an Affiliate of the Company and the distribution by the undersigned of any shares of Parent Common Stock has not been registered under the Securities Act, the undersigned may not make any Disposition of the Parent Shares unless (i) such Disposition has been registered under the Securities Act, (ii) such Disposition is made in conformity with the volume and other limitations of Rule 145 promulgated by the SEC under the Securities Act, or (iii) Parent has received an opinion of counsel, which opinion and counsel shall be reasonably acceptable to Parent, to the effect that such Disposition is otherwise exempt from registration under the Securities Act. (f) Except as provided in the registration rights agreement to be executed between the undersigned and Parent, the undersigned understands that Parent is under no obligation to register any Disposition of Parent Shares by the undersigned or on the undersigned's behalf under the Securities Act or to take any other action necessary in order to make compliance with an exemption from such registration available to the undersigned. (g) The undersigned understands that stop transfer instructions will be given to all transfer agents for the Parent Common Stock and that there will placed on the certificates evidencing the Parent Shares, or any replacements or substitutions therefor, a legend stating in substance: 2 3 THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT DATED [ ], 1998 BETWEEN THE REGISTERED HOLDER HEREOF AND AURORA ELECTRONICS, INC., A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICES OF AURORA ELECTRONICS, INC. (h) The undersigned also understands that unless a Disposition of the Parent Shares has been registered under the Securities Act or is made in conformity with the provisions of Rule 145, Parent reserves the right to put the following legend on the certificates evidencing any of the Parent Shares issued to any transferee of the undersigned: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933 APPLIES. THE SHARES MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933. (i) It is understood and agreed that the legends set forth in Sections 1(g) and 1(h) above shall be removed by delivery of substitute certificates without such legend if the undersigned has delivered to Parent an opinion of counsel, which opinion and counsel shall be reasonably satisfactory to Parent, or a letter from the staff of the SEC, to the effect that such legend is not required for purposes of the Rules and Regulations or the Securities Act. 2. The undersigned further understands and agrees that the representations, warranties, covenants and agreements of the undersigned set forth herein are for the benefit of Parent, the Company and the surviving corporation in the Merger and will be relied upon by such entities and their respective counsel and accountants. 3. This Agreement will be binding upon and enforceable against administrators, executors, representatives, heirs, legatees and devisees of the undersigned and any pledgees holding the Company Shares as collateral. If the Merger Agreement is terminated in accordance with its terms prior to the Effective Time (as defined in the Merger Agreement), this Agreement will thereupon automatically terminate. 3 4 Very truly yours, ------------------------------- Name: Address: ---------------------- ------------------------------- ------------------------------- Shares owned beneficially or of record: total Shares, consisting of: ------ shares of Company Common Stock; and ------ shares of Company Common Stock ------ subject to options, warrants or other rights exercisable within 60 days. Agreed to and accepted: AURORA ELECTRONICS, INC. By: -------------------------- Name: Title: THE CERPLEX GROUP, INC. By: -------------------------- Name: Title: 4 EX-99.4 6 STOCKHOLDERS AGREEMENT 1 EXHIBIT 99.4 STOCKHOLDERS AGREEMENT Agreement dated as of January 30, 1998 between WELSH, CARSON, ANDERSON & STOWE VII, L.P., a Delaware limited partnership (the "Stockholder"), AURORA ELECTRONICS, INC., a Delaware corporation ("Parent") and THE CERPLEX GROUP, INC., a Delaware corporation (the "Company"). WHEREAS, pursuant to an Agreement and Plan of Merger of even date herewith (the "Merger Agreement") among Parent, Holly Acquisition Corp., a newly organized wholly-owned Delaware subsidiary of Parent ("Sub"), and the Company, Parent desires to acquire the Company through the merger (the "Merger") of Sub with and into the Company; WHEREAS the Stockholder beneficially owns approximately 74% of the outstanding voting stock of Parent, consisting of 433,319 shares of Convertible Preferred Stock, $.01 par value ("Parent Preferred Stock"), of Parent; WHEREAS Parent desires to amend its Restated Certificate of Incorporation pursuant to a Certificate of Amendment substantially in the form of Exhibit A hereto (the "Parent Certificate of Amendment") to authorize, among other things, additional shares of Common Stock, $.03 par value ("Parent Common Stock"), of Parent that are contemplated to be issued in the Merger; WHEREAS the Stockholder is willing to agree to vote in favor of the Parent Certificate of Amendment at any meeting of the stockholders of the Parent called for such purpose and to execute and deliver any written consent approving the Parent Certificate of Amendment in lieu of such meeting; WHEREAS, subject to the consummation of the Merger and the transactions contemplated by the Securities Purchase and Exchange Agreement of even date herewith (the "Securities Purchase and Exchange Agreement"), among Parent, the several purchasers named in Annex I thereto (including the Stockholder), and WCAS Capital Partners II, L.P., a Delaware limited partnership, the Stockholder is willing to convert all the outstanding shares of Parent Preferred Stock owned by it into Parent Common Stock on the terms and subject to the conditions set forth therein; and WHEREAS, in the event the Merger Agreement terminates in accordance with its terms without consummation of the Merger contemplated thereby, (i) the Stockholder is willing to grant the Company an option to purchase (A) an aggregate $18,069,375 principal amount of Amended and Restated Senior Subordinated Notes due November 19, 2001 (collectively, the "Cerplex Subordinated Notes"), of the Company and (B) warrants (collectively, the 2 "Cerplex Warrants") to purchase an aggregate 1,500,096 shares of Common Stock, $.001 par value, of the Company, for a price equal to the consideration paid by the Stockholder for said Notes and Warrants pursuant to the Note and Warrant Assignment and Transfer Agreement, dated of even date herewith, among the several note and warrant holders named in Schedule I thereto and the Stockholder, and (ii) Parent is willing to grant the Company an option to purchase all outstanding Subordinated Notes due June 30, 1998 (the "Cerplex Bridge Notes") purchased by Parent pursuant the Note Purchase Agreement of even date herewith between Parent and the Company at a price equal to the principal amount of the Cerplex Bridge Notes plus accrued interest thereon; NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows: SECTION 1. Voting Agreement. (a) From and after the date hereof, at any meeting (whether annual or special or both) of the stockholders of Parent, including any adjournment or postponement thereof, the Stockholder agrees, with respect to all shares of Parent Common Stock and Parent Preferred Stock owned by such Stockholder on the date hereof or acquired hereafter that are entitled to vote at such meeting or over which such Stockholder has voting power (and any and all other shares of Parent Common Stock or Parent Preferred Stock or other securities issued on or after the date hereof in respect or upon conversion of any such shares), (i) to vote in favor of the Parent Certificate of Amendment, (ii) to execute and deliver one or more consents in writing (pursuant to Section 228 of the General Corporation Law of the State of Delaware (the "GCL")) in lieu of such meeting or adjournment thereof, and (iii) if no meeting of stockholders is scheduled in accordance with the Merger Agreement, or any such meeting is canceled or adjourned, and no action is taken by written consent in lieu thereof, to call a special meeting of stockholders of Parent or to act by written consent for the purpose of approving the Parent Certificate of Amendment or any action with respect thereto. SECTION 2. Further Assurances. Subject to the terms and conditions herein provided, the Stockholder agrees to (i) perform its obligations under the Securities Purchase and Exchange Agreement in accordance with the terms thereof, provided, however, that the foregoing shall not require the Stockholder to waive any condition to its obligation to close set forth therein, (ii) continue to guarantee the obligations under the Credit Agreement dated as of March 29, 1996, as amended, among Aurora Electronics Group, Inc., The Chase Manhattan Bank, as Agent 2 3 thereunder (the "Agent"), the guarantors named therein and the lenders named therein, in accordance with the terms of the Amended and Restated Guarantee, dated as of December 23, 1997 (the "Chase Guarantee") made by the Stockholders in favor of the Agent, and (iii) to forbear exercising any rights under the Cerplex Subordinated Notes through June 30, 1998 (or, if earlier, until the expiration of the Option Period (as defined below)) and (iv) to use its reasonable best efforts to cause Parent to take all actions, and to cause Parent to do all things, that Parent has agreed to do or perform, pursuant to the Merger Agreement, the Securities Purchase and Exchange Agreement, the Cerplex Note Purchase Agreement and the Cerplex Note, subject to the terms and conditions set forth in such agreements. Subject to the terms and conditions herein provided, with respect to the Cerplex Subordinated Notes the Stockholder further agrees, and the Company and the Stockholder hereby amend Section 4.1(b)(ii) of each of those separate Amended and Restated Note Purchase Agreements, each dated as of April 9, 1997, as amended by the First Amendment Agreement dated as of August 20, 1997 to provide, that on any interest payment date commencing with the February 19, 1998 interest payment date until the sooner to occur of (i) June 30, 1998, (ii) the expiration of the Option Period and (iii) payment in full in cash of all indebtedness and termination of all obligations to provide financial accommodations under that certain Credit Agreement dated as of October 12, 1994 between the Company, the lender listed on the signature page thereof and Citibank, N.A., the Company may satisfy its obligation to pay interest on each Cerplex Subordinated Note (each, a "Note") by adding an additional principal amount to the then outstanding principal amount of such Note equal to the aggregate amount of the interest payment in respect of such Note that is due on such interest payment date. Notwithstanding the foregoing provisions of this Section 2, it is understood and agreed that the Stockholder in performing its obligations under this Section 2 in no circumstances (except as and to the extent specifically provided in the Securities Purchase and Exchange Agreement and under the Chase Guarantee and the Chase Letter) shall be required (x) to expend any monies, guarantee any obligations, deliver any assets, institute any litigation or otherwise make any undertakings with respect thereto similar in purpose or effect or (y) cause Parent to waive any condition to its obligation to consummate the transactions contemplated by the Merger Agreement, the Securities Purchase and Exchange Agreement, the Cerplex Note Purchase Agreement and the Cerplex Note. SECTION 3. Conversion of Parent Preferred Stock. Subject to, and simultaneously with, the consummation of the Merger and the transactions contemplated by the Securities Purchase and Exchange Agreement, the Stockholder agrees to convert into Parent Common Stock in accordance with the Certificate of Incorporation of Parent all outstanding shares of Parent Preferred Stock owned of record or beneficially by it immediately 3 4 prior to the transactions contemplated by the Securities Purchase and Exchange Agreement. The number of shares of Parent Common Stock held by, or issuable to, the Stockholder pursuant to the exercise of all warrants, convertible securities and other rights (including, without limitation, antidilution rights) is as set forth in Section 5.02 of the Merger Agreement and Schedule 5.02 thereto, and there are no outstanding antidilution rights other than those waived pursuant to Section 6 below. SECTION 4. Company's Option to Repurchase Certain Securities. The Stockholder and Parent agree that in the event that the Merger Agreement is terminated in accordance with its terms and the Merger is not consummated, the Company shall have the right and option, for a period of 30 days after the termination of the Merger Agreement (the "Option Period"), to purchase from (i) the Stockholder, all (but not less than all) of the Cerplex Subordinated Notes and the Cerplex Warrants for an aggregate purchase price equal to $5,784,458 in cash and/or (ii) from Parent, all (but not less than all) the outstanding Cerplex Bridge Notes for a purchase price equal to the principal amount thereof plus all interest accrued thereon to the date of payment. The Company shall exercise such right and option to purchase such securities by mailing a written notice (a "Notice of Election") to the Stockholder or Parent, as the case may be, within the Option Period. If a Notice of Election shall have been received as aforesaid by the Stockholder or Parent, the Stockholder or Parent, as the case may be, shall sell the subject securities to the Company as set forth above. The closing of any such sale shall take place at the offices of Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York 10111, no later than 30 days following the expiration of the Option Period, or such other place and earlier date as may be agreed by all parties to said transaction. At such closing (i) the Stockholder shall deliver the Cerplex Subordinated Notes and Cerplex Warrants to be sold, and/or (ii) Parent shall deliver the Cerplex Bridge Notes to be sold, as the case may be, in any such case duly endorsed for transfer, against receipt of the purchase price therefor by certified or official bank check or by wire transfer of immediately available funds to the accounts specified by the Stockholder or Parent. SECTION 5. Duration of Agreement. This Agreement shall terminate upon the earliest to occur of (i) June 30, 1998, (ii) the consummation of the Merger and (iii) the termination of the Merger Agreement in accordance with its terms; provided, however, that the option contained in Section 4 hereof shall terminate at the end of the Option Period, in accordance with the provisions of such Section 4. 4 5 SECTION 6. Certain Waivers. The Stockholder hereby agrees to waive: (i) any adjustment in the Conversion Price (as defined in the Certificate of Designations, Preferences and Rights of Convertible Preferred Stock of Parent) of the Convertible Preferred Stock that might otherwise have operated by virtue of the issuance by Parent on August 14, 1997, of 775,194 shares of Parent Common Stock in settlement of a certain class action complaint; (ii) any adjustment in the respective Exercise Prices (as defined in the applicable Warrant) of the Warrants (as defined below) that might otherwise operate by virtue of the issuance by Parent of the shares of Parent Common Stock that are contemplated to be issued in the Merger; and (iii) any rights to purchase Convertible Preferred Stock pursuant to Section 4.01 of the Amended and Restated Financial Support Agreement, dated as of July 31, 1997, among Parent, the Stockholder and the other parties named therein. For the purposes of this Agreement, the term "Warrants" shall mean (i) the Common Stock Purchase Warrant, dated September 30, 1996, issued by Parent to the Stockholder, (ii) the Common Stock Purchase Warrant, dated January 27, 1997, issued by Parent to the Stockholder, (iii) the Common Stock Purchase Warrant, dated June 6, 1997, issued by Parent to the Stockholder and (iv) the Common Stock Purchase Warrant, dated July 31, 1997, issued by Parent to the Stockholder, in each case as the same may have been amended from time to time. SECTION 7. Termination of Cerplex Warrants. Effective immediately preceding the consummation of the Merger, the Cerplex Warrants (and any shares issued upon exercise thereof) shall terminate, shall be of no force or effect and shall not be deemed outstanding for the purpose of calculating the Exchange Ratio in the Merger Agreement. SECTION 8. Headings. Headings of articles, sections and paragraphs of this Agreement are inserted for convenience of reference only and shall not affect the interpretation or be deemed to constitute a part hereof. SECTION 9. Severability. In the event that any one or more of the provisions contained in this Agreement or in any other instrument referred to herein shall, for any reason, be held to be invalid, illegal or unenforceable, such illegality, invalidity or unenforceability shall not affect any other provisions of this Agreement. 5 6 SECTION 10. Benefits of Agreement; Assignment of Rights by the Company. Nothing expressed by or mentioned in this Agreement is intended or shall be construed to give any person other than the parties hereto and their respective successors and permitted assigns any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained, this Agreement and all conditions and provisions hereof being intended to be and being for the sole and exclusive benefit of the parties hereto and their respective successors and permitted assigns. Notwithstanding the foregoing, it is understood and agreed that the Company may assign its right and option to purchase securities pursuant to Section 4 hereof to a third party or parties by delivering a written notice of assignment to the Stockholder and Parent during the Option Period. SECTION 11. Notices. Any notice or other communications required or permitted hereunder shall be deemed to be sufficient and received if contained in a written instrument delivered in person or by courier or duly sent by first class certified mail, postage prepaid, or by facsimile addressed to such party at the address or facsimile number set forth below: (1) if to the Company, to it at: The Cerplex Group, Inc. 1382 Bell Avenue Tustin, California 92780 Attn: William A. Klein (2) if to the Stockholder, to it at: Welsh, Carson, Anderson & Stowe 320 Park Avenue, Suite 2500 New York, New York 10022 Attn: Thomas E. McInerney (3) if to Parent, to it at: Aurora Electronics, Inc. 9477 Waples Street, Suite 250 San Diego, California 92121 Attn: Chief Executive Officer or, in any case, at such other address or facsimile number as shall have been furnished in writing by such party to the other party hereto. All such notices, requests, consents and other communications shall be deemed to have been received (a) in the case of personal or courier delivery, on the date of such delivery, (b) in the case of mailing, on the fifth business day following the date of such mailing and (c) in the case of facsimile, when received. 6 7 SECTION 12. Modification. Neither this Agreement nor any provision hereof may be modified, changed, discharged or terminated except by an instrument in writing signed by the Company and the Stockholder. SECTION 13. Counterparts. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement. SECTION 14. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, ENFORCEABLE UNDER, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE. 7 8 IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the day and year first above written. WELSH, CARSON, ANDERSON & STOWE VII, L.P. By WCAS VII Partners, L.P., General Partner By /s/ THOMAS E. MCINERNEY --------------------------- General Partner THE CERPLEX GROUP, INC. By /s/ WILLIAM A. KLEIN -------------------------- Name: William A. Klein Title: Chairman AURORA ELECTRONICS, INC. By /s/ JIM C. COWART -------------------------- Name: Jim C. Cowart Title: Chairman EX-99.5 7 INTERIM MANAGEMENT AGREEMENT 1 EXHIBIT 99.5 INTERIM MANAGEMENT AGREEMENT INTERIM MANAGEMENT AGREEMENT, dated as of January 30, 1998, between The Cerplex Group, Inc., a Delaware corporation ("Cerplex"), and Aurora Electronics, Inc., a Delaware corporation ("Aurora"). WHEREAS, pursuant to an Agreement and Plan of Merger, dated as of January 30, 1998 (the "Merger Agreement"), between Cerplex, Aurora and Holly Acquisition Corp., a Delaware corporation and a newly-formed subsidiary of Aurora ("Sub"), Sub will merge with and into Cerplex (the "Merger"), with the result that Cerplex will become a wholly-owned subsidiary of Aurora; and WHEREAS, George L. McTavish ("McTavish") has been designated the Chairman and Chief Executive Officer of Aurora and, following the consummation of the Merger, will also be the Chairman and Chief Executive Officer of Cerplex; and WHEREAS, the Merger Agreement provides that the consummation of the Merger is subject to certain conditions; and WHEREAS, Cerplex and Aurora desire to make certain arrangements regarding the joint management of Cerplex and Aurora during the period (the "Interim Period") from the Effective Date (as defined below) through the date of consummation of the Merger; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: 1. For purposes of this Agreement, the "Effective Date" shall mean the date on which any waiting period applicable to the consummation of the Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have expired or been terminated, and no action shall have been instituted by the Department of Justice or Federal Trade Commission, as of such date, challenging or seeking to enjoin the consummation of this transaction, which action shall have not been withdrawn or terminated. 2. Cerplex agrees to implement as of the Effective Date an interim organization chart mutually acceptable to the parties. 3. (a) William A. Klein ("Klein") shall continue as Chairman of the Board of Directors of Cerplex and shall have such duties set forth in the By-laws of Cerplex in effect on the date 2 hereof and shall report directly to the Board of Directors of Cerplex. (b) On the Effective Date, Stephen J. Hopkins ("Hopkins") shall resign as Chief Executive Officer of Cerplex and shall work with Cerplex as a consultant. In that capacity, Hopkins shall report directly to the Chief Executive Officer of Cerplex. (c) On the Effective Date, McTavish shall be appointed and shall serve as Chief Executive Officer of Cerplex and shall report directly to the Board of Directors of Cerplex. During the Interim Period, McTavish shall be furnished notice of and be entitled to attend all meetings of the Board of Directors of Cerplex. 4. Cerplex shall reimburse Aurora for the costs incurred by Aurora in making Aurora's employees other than McTavish available to Cerplex during the Interim Period in fulfillment of the purposes of this Agreement. Such reimbursement shall be computed pro rata based upon the fraction of the Aurora employees' business time devoted to Cerplex under this Agreement. Such reimbursement shall be calculated as follows: (i) Aurora employee's hourly rate (computed as annual salary divided by 2000 hours), plus (ii) fringe benefits charged at a rate to be determined, multiplied by (iii) the number of hours worked for Cerplex. Reimbursement by Cerplex to Aurora shall be made not later than the fifteenth day of each calendar month for the preceding month based upon appropriate documentation to be provided by Aurora not later than the fifth business day each calendar month. All such reimbursements shall be made pursuant to a plan formulated by McTavish and subject to review by Klein and the Cerplex Board of Directors from time to time. Cerplex shall reimburse Aurora for McTavish's salary during the Interim Period pro rata based upon time spent on Cerplex matters, such amount to be paid on the fifteenth day of each month. 5. Cerplex shall indemnify and hold harmless Aurora, McTavish, and those other Aurora employees who render services to Cerplex during the Interim Period under this Agreement from and against any claims or liabilities asserted against them relating to their services to Cerplex hereunder (and Cerplex hereby forever releases Aurora and such persons from any claims by or liabilities to Cerplex arising from or relating to such services), provided that (i) such claims or liabilities did not result from acts or omissions (x) not in good faith or (y) which involve intentional misconduct or a knowing violation of law and (ii) such services were rendered in a manner reasonably believed to be in or not opposed to the best interests of Cerplex. This obligation of Cerplex shall survive the termination of this Agreement. 2 3 6. During the Interim Period, McTavish and those other Aurora employees made available to Cerplex pursuant to this Agreement shall use their best efforts to (i) avoid doing anything to the competitive disadvantage of Cerplex vis-a-vis Aurora and (ii) not use to the advantage of Aurora any confidential information of Cerplex obtained while serving in these capacities. The parties hereto acknowledge that, in the event the Merger Agreement is terminated, their obligations with respect to confidential information of Cerplex or Aurora (as the case may be) shall be governed by Section 7.01 of the Merger Agreement. 7. During the Interim Period, Cerplex shall be managed in accordance with Sections 2 and 3 above, subject to the direction of Cerplex's Board of Directors. To the extent that it does not conflict with the terms of this Agreement, the Engagement Letter, dated as of June 30, 1997, as amended, between Cerplex and Nightingale & Associates, LLC, shall continue in full force and effect during the Interim Period. 8. During the Interim Period, Aurora shall continue to be managed by its executives, subject to the direction of Aurora's Board of Directors. 9. Aurora and Cerplex each recognize that their respective companies are marginally competitive with each other and that some of the services offered by of them overlap with services offered by the other and are thus potentially detrimental to the other company. Accordingly, Aurora and Cerplex agree that during the Interim Period, neither company will undertake a major change of market strategy or product offering to the detriment of the other without first disclosing and discussing such changes with the other company. In addition, in order to facilitate coordination of the activities of Cerplex and Aurora during the Interim Period, McTavish shall use his reasonable best efforts to keep Klein reasonably informed of Aurora's continuing marketing activities. 10. This Agreement shall terminate upon the earlier to occur of (a) the consummation of the Merger, or (b) the termination of the Merger Agreement as contemplated therein, except that the provisions of Sections 4 and 5 hereof shall survive any such termination. 3 4 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on the date first above written. AURORA ELECTRONICS, INC. By: /s/ JIM C. COWART ----------------------------- Name: Jim C. Cowart Title: Chairman THE CERPLEX GROUP, INC. By: /s/ WILLIAM A. KLEIN ----------------------------- Name: William A. Klein Title: Chairman 4 EX-99.6 8 SECURITIES PURCHASE AND EXCHANGE AGREEMENT 1/30/98 1 EXHIBIT 99.6 ================================================================================ SECURITIES PURCHASE AND EXCHANGE AGREEMENT Among AURORA ELECTRONICS, INC. THE SEVERAL PURCHASERS NAMED IN ANNEX I HERETO and WCAS CAPITAL PARTNERS II, L.P. Dated as of January 30, 1998 ================================================================================ 2 TABLE OF CONTENTS
Page ---- ARTICLE I. THE CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.01 Purchase and Sale of the Bridge Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.02 Purchase and Sale of the Units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 SECTION 1.03 Purchase and Sale of the Aurora Preferred Stock to WCAS CP II . . . . . . . . . . . . . . . . . . . . . . . . . . 6 SECTION 1.04 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE II. REPRESENTATIONS AND WARRANTIES OF AURORA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 2.01 Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 2.02 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 2.03 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.04 Authorization of Agreements, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.05 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 2.06 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 2.07 Actions Pending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.08 Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.09 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE PARTICIPANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 3.01 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 3.02 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 3.03 Investment Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE IV. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4.01 Conditions Precedent to the Obligations of the Participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 4.02 Condition Precedent to the Obligations of Aurora . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ARTICLE V. TERMINATION AND ABANDONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 5.01 Termination and Abandonment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 5.02 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE VI. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 6.01 Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 6.02 Survival of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 6.03 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 6.04 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 6.05 Entire Agreement; Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 6.06 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 6.07 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 TESTIMONIUM
i 3 INDEX TO ANNEXES Annex Description ANNEX I The Purchasers INDEX TO EXHIBITS Exhibit Description EXHIBIT A-1 Form of Aurora Bridge Notes EXHIBIT A-2 Form of Aurora Senior Subordinated Notes EXHIBIT B Form of Certificate of Designation EXHIBIT C Form of Certificate of Amendment EXHIBIT D Form of Amended and Restated Registration Rights Agreement EXHIBIT E Form of Opinion of Hughes & Luce INDEX TO SCHEDULES Schedule Description 2.02 Subsidiaries 2.03 Subscriptions, Warrants, Etc. 2.07 Undisclosed Liabilities 2.09 Certain Changes ii 4 SECURITIES PURCHASE AND EXCHANGE AGREEMENT dated as of January 30, 1998, among AURORA ELECTRONICS, INC., a Delaware corporation ("Aurora"), Welsh, Carson, Anderson & Stowe VII, L.P., a Delaware limited partnership ("WCAS VII"), and the other several Purchasers named in Annex I hereto (collectively the "Purchasers") and WCAS Capital Partners II, L.P., a Delaware limited partnership ("WCAS CP II" and, collectively with the Purchasers the "Participants"). WHEREAS, pursuant to an Agreement and Plan of Merger of even date herewith (the "Merger Agreement") among Aurora, Holly Acquisition Corp., a newly organized wholly-owned Delaware subsidiary of Aurora ("Sub"), and The Cerplex Group, Inc., a Delaware corporation ("Cerplex"), Aurora desires to acquire Cerplex through the merger (the "Merger") of Sub with and into Cerplex; and WHEREAS, pursuant to an Irrevocable Proxy and Option Agreement of even date herewith (the "Option Agreement"), certain stockholders of Cerplex who own in the aggregate a majority of the outstanding shares of Cerplex entitled to vote have agreed, among other things, (i) to grant irrevocable proxies coupled with an interest to representatives of Aurora to vote their shares of Cerplex in favor of the Merger, (ii) to grant to Aurora an option to purchase their Cerplex shares for the consideration to be received by them in the Merger, and (iii) not to transfer or otherwise dispose of their Cerplex shares or any interest therein except pursuant to the Merger or such option, all on the terms and subject to the conditions contained in the Option Agreement; and WHEREAS, pursuant to a Stockholders Agreement of even date herewith (the "Stockholders Agreement") among WCAS VII, Aurora and Cerplex, WCAS VII has agreed (i) to vote its shares of Aurora in favor of approval of the Certificate of Amendment (as defined herein), (ii) subject to consummation of the Merger, to convert all currently outstanding shares of convertible preferred stock of Aurora into Common Stock, $.01 par value ("Aurora Common Stock"), (iii) to make further assurances to Cerplex with respect to Aurora's obligations under the Merger Agreement and this Agreement and (iv) to grant, together with Parent, an option to Cerplex to purchase certain securities of Cerplex held by WCAS VII and Aurora in the event the Merger Agreement terminates and the Merger is not consummated in accordance with the Certificate of Incorporation of Aurora, all on the terms and subject to the conditions contained in the Stockholders Agreement; and WHEREAS WCAS CP II holds $10,000,000 principal amount of Aurora's 10% Senior Subordinated Notes Due September 30, 2001 (the "CP II Notes") together with accrued interest thereon, being all the issued and outstanding CP II Notes; and 5 WHEREAS, on December 5, 1997, in order to alleviate Aurora's working capital shortage, the Purchasers purchased an aggregate $2,800,000 principal amount of Aurora's 10% Senior Subordinated Demand Notes (the "Demand Notes") for cash in the amount of $2,800,000; and WHEREAS, pursuant to a Note and Warrant Assignment and Transfer Agreement of even date herewith (the "Cerplex Note Purchase Agreement"), simultaneously with the execution and delivery hereof, WCAS VII is purchasing (i) an aggregate $18,069,275 principal amount of 9.50% Senior Subordinated Notes due 2001 (the "Cerplex Subordinated Notes") of Cerplex, representing all the issued and outstanding Cerplex Subordinated Notes, together with accrued interest thereon, and (ii) certain warrants (the "Cerplex Warrants") to purchase shares of Common Stock, $.001 par value ("Cerplex Common Stock") of Cerplex for cash at a price equal to 30% of the sum of the principal amount of, and accrued interest on, the Cerplex Subordinated Notes (such price being hereinafter called the "Cerplex Note and Warrant Purchase Price"); and WHEREAS, pursuant to a Forbearance Agreement of even date herewith and a Seventh Amendment to Credit Agreement and Limited Waiver Agreement of even date herewith (the "Forbearance Agreement"), Citibank, N.A. has agreed to waive certain defaults and forbear from enforcing certain of its rights under the Credit Agreement dated as of October 12, 1994, as amended (the "Cerplex Credit Agreement"), among Cerplex, the lenders named therein and Wells Fargo Bank, N.A., as Agent, pending consummation of the Merger and repayment of the obligations of Cerplex under the Cerplex Credit Agreement, all on the terms and subject to the conditions set forth in the Forbearance Agreement; and WHEREAS, Aurora desires to obtain proceeds from a new Senior lender of at least $17,000,000 (the "New Senior Loan") on terms acceptable to Aurora; and WHEREAS, pursuant to a letter agreement of even date herewith (the "Chase Waiver"), The Chase Manhattan Bank N.A. ("Chase") is consenting to the New Senior Loan and to the subordination to the New Senior Loan of Chase's currently outstanding loan pursuant to the Credit Agreement dated as of March 29, 1996, as amended (the "Existing Aurora Credit Agreement"), among Aurora Electronics Group, Inc., the guarantors named therein, the lenders named therein, and Chase (formerly known as Chemical Bank), as Agent, all on the terms and subject to the conditions set forth in the Chase Waiver; and WHEREAS, in order to provide for the working capital needs of Aurora and for other purposes, WCAS VII is willing, between the date hereof and the consummation of the Merger, upon the terms and subject to the conditions herein provided (i) on the date hereof, to purchase $3,200,000 principal amount of 2 6 Aurora's 10% Subordinated Bridge Notes in the form annexed hereto as Exhibit A-1 (the "Bridge Notes"), and (ii) from time to time between the date hereof and the consummation of the Merger, to purchase up to an additional $2,000,000 aggregate principal amount of Bridge Notes; and WHEREAS, Aurora wishes to issue and sell (i) subject to the rights offering referred to below, to the Purchasers, severally and not jointly, up to an aggregate 15,000 units (the "Units") each consisting of (x) $1,000 principal amount of Aurora's 10% Senior Subordinated Notes Due 2004 (the "Aurora Senior Subordinated Notes"), in the form annexed hereto as Exhibit A-2, and (y) 12 shares of Senior Convertible Preferred Stock, par value $1 per share ("Aurora Preferred Stock"), having the terms set forth in the form of Certificate of Designations annexed hereto as Exhibit B, for a purchase price of $2,200 per Unit payable in cash or by surrender or exchange of other indebtedness of Aurora or Cerplex as hereinafter provided; and (ii) to WCAS CP II an aggregate 33,000 shares of Aurora Preferred Stock in exchange for surrender for cancellation of the CP II Notes and all interest accrued thereon; and WHEREAS Aurora wishes to afford to its public stockholders the right to participate in the purchase of the Units on the same basis as the Purchasers and, to that end, proposes to offer to such holders rights to purchase their proportionate share of the Units based on fully-diluted holdings of Aurora Common Stock; and WHEREAS the Purchasers and WCAS CP II are willing, on the terms and subject to the conditions herein set forth, to purchase such Units and Aurora Preferred Stock, including without limitation, in the case of the Purchasers, any Units offered to but not subscribed for by the public holders of Aurora Common Stock; and WHEREAS, in order to provide sufficient Aurora Common Stock to permit conversion of the Aurora Preferred Stock, Aurora wishes to increase the authorized Aurora Common Stock from 50 million shares to 300 million shares, pursuant to a Certificate of Amendment in the form annexed hereto as Exhibit C (the "Certificate of Amendment"); and WHEREAS, in connection with the Merger, (i) the Participants and Aurora wish to amend and restate the Registration Rights Agreement dated as of March 29, 1996, among Aurora and the other parties named therein, as heretofore amended, pursuant to the Amended and Restated Registration Rights Agreement substantially in the form annexed hereto as Exhibit D (the "Restated Registration Rights Agreement"), to include among the shares entitled to registration thereunder the shares of Aurora Common Stock issuable upon conversion of shares of Aurora Preferred 3 7 Stock and shares issued to certain affiliates of Cerplex in the Merger; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereby agree as follows: ARTICLE I. THE CLOSING SECTION 1.01 Purchase and Sale of the Bridge Notes. (a) Purchase and Sale on the Date Hereof. Simultaneously with the execution and delivery hereof, Aurora is executing and delivering to WCAS VII $3,200,000 principal amount of the Bridge Notes, dated the date hereof and registered in the name of WCAS VII. Receipt of such Bridge Notes is hereby acknowledged by WCAS VII. In consideration of such Bridge Notes, and against delivery thereof as aforesaid, WCAS VII is transferring to Aurora the sum of $3,200,000 by wire transfer. Receipt of such wire transfer is hereby acknowledged by Aurora. (b) Purchases and Sales Between the Date Hereof and the Closing Date. (i) Subject to the terms and conditions set forth herein, from time to time prior to the Closing Date (as hereinafter defined), or the earlier termination of this Agreement, on a date (a "Drawdown Date") designated by Aurora to WCAS VII upon not less than five days' prior written notice (a "Bridge Notice"), Aurora shall execute and deliver to WCAS VII additional Bridge Notes, dated such Drawdown Date and registered in the name of WCAS VII, in a principal amount that, taken together with any such additional Bridge Notes theretofore so executed and delivered pursuant to this paragraph (b), does not exceed $2,000,000 (or such higher limit, if any, as WCAS VII shall, in its sole discretion, agree). Any Bridge Notice delivered hereunder shall be executed by the principal financial officer of Aurora and shall specify that the proceeds of such purchase and sale are to be relent to Cerplex for working capital purposes. (ii) As payment in full for the additional Bridge Notes being purchased by it hereunder on any Drawdown Date, and against delivery of such Notes as aforesaid, WCAS VII shall deliver to Aurora on each Drawdown Date a certified or official bank check in New York Clearing House funds payable to the order of Aurora in the amount of the principal amount of additional Bridge Notes so being purchased by it, or 4 8 shall transfer such sum to the account of Aurora by wire transfer. SECTION 1.02 Purchase and Sale of the Units. (a) Subject to the terms and conditions set forth herein, on the Closing Date, Aurora shall execute and deliver to each Purchaser the number of Units (consisting of Aurora Senior Subordinated Notes and certificates representing shares of Aurora Preferred Stock registered in the name of such Purchaser) set forth opposite such Purchaser's name in Annex I hereto. (b) Anything in paragraph (a) above to the contrary notwithstanding, in the event that (A) the Rights Offering shall have become effective as herein contemplated and (B) holders of Aurora Common Stock (or transferees of stock purchase rights granted to such holders pursuant to the Rights Offering) shall have elected to purchase Units pursuant thereto and shall have complied with the requirements for payment therefor, the number of Units to be purchased by each Purchaser shall be reduced pro tanto (subject to rounding to the nearest one-tenth of a Unit), so that the aggregate number of Units purchased by all the Purchasers shall be 15,000 minus the number of Units so purchased by such holders. (c) As payment in full for the Units being purchased by it on the Closing Date, and against delivery thereof as aforesaid, each Purchaser other than WCAS VII shall on the Closing Date: (i) surrender to Aurora for cancellation a Demand Note, in the principal amount set forth opposite the name of such Purchaser in Annex I hereto, together with interest accrued thereon to the Closing Date; and (ii) deliver to Aurora a certified or official bank check in New York Clearing House funds payable to the order of Aurora in an amount equal to $2,200 times the number of Units to be purchased by such Purchaser hereunder, as may be reduced pursuant to Section 1.02(b) above, less the amount of principal and interest surrendered under clause (i) above). (d) As payment in full for the Units being purchased by WCAS VII on the Closing Date, and against delivery thereof as aforesaid, WCAS VII shall on the Closing Date: (i) surrender to Aurora for cancellation a Demand Note, in the principal amount set forth opposite the name of WCAS VII in Annex I hereto, together with interest accrued thereon to the Closing Date; and 5 9 (ii) surrender to Aurora for cancellation each Bridge Note issued hereunder to WCAS VII, together with interest accrued thereon to the Closing Date; and (iii) deliver to Aurora the Cerplex Subordinated Notes and the Cerplex Warrants, duly endorsed for transfer, it being understood that such securities will be valued for such purpose at the Cerplex Note and Warrant Purchase Price; and (iv) deliver to Aurora a certified or official bank check in New York Clearing House funds payable to the order of Aurora in an amount equal to $2,200 times the number of Units to be purchased by WCAS VII hereunder, as may be reduced pursuant to Section 2.01(b) above, less (A) the amount of principal and interest surrendered under clauses (i) and (ii) above and (B) the Cerplex Note and Warrant Purchase Price. SECTION 1.03 Purchase and Sale of the Aurora Preferred Stock to WCAS CP II. (a) Subject to the terms and conditions set forth herein, on the Closing Date Aurora shall issue and sell to WCAS CP II, and WCAS CP II shall purchase from Aurora, 33,000 shares of Aurora Preferred Stock (such shares, together with the shares included in the Units being purchased by the Purchasers pursuant to Section 1.02 above, being herein referred to collectively as the "Aurora Preferred Shares") in consideration for the surrender by WCAS CP II of $10,000,000 principal amount of CP II Notes (together with accrued interest thereon). Aurora shall issue and deliver to WCAS CP II a stock certificate or certificates in definitive form, registered in the name of WCAS CP II, evidencing the Aurora Preferred Shares being purchased by it hereunder. (b) As payment in full for the Aurora Preferred Shares being purchased by it hereunder, and against delivery of the stock certificate or certificates therefor as aforesaid, WCAS CP II shall surrender to Aurora the CP II Notes, duly endorsed for transfer, with all signatures guaranteed. SECTION 1.04 Closing Date. The closing of the transactions contemplated hereby shall take place at the offices of Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York 10111, at 10 a.m., New York time, on the Effective Date of the Merger, or at such other date and time prior to the Merger as may be mutually agreed upon among the majority of the Participants and Aurora (such date and time of closing being herein called the "Closing Date"). 6 10 ARTICLE II. REPRESENTATIONS AND WARRANTIES OF AURORA Aurora represents and warrants to, and agrees with, the Participants as follows: SECTION 2.01 Organization and Qualification. Aurora is a corporation validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to own or lease and operate its properties and assets and to carry on its business as it is now being conducted. Aurora is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction in which the character of its properties owned or leased or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not have a material adverse effect on the properties, assets, financial condition, prospects, operating results or business of Aurora and its subsidiaries, taken as a whole (a "Material Adverse Effect"). SECTION 2.02 Subsidiaries. (a) Except as set forth on Schedule 2.02 hereto, neither Aurora nor any of its subsidiaries owns of record or beneficially, directly or indirectly, (i) any shares of outstanding capital stock or securities convertible into capital stock of any other corporation or (ii) any participating interest in any partnership, joint venture or other non-corporate business enterprise. Each subsidiary of Aurora is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation and has all requisite corporate power and authority to own or lease and operate its properties and assets and to carry on its business as it is now being conducted. Each subsidiary of Aurora is duly qualified as a foreign corporation to do business, and is in good standing, in each jurisdiction in which the character of its properties owned or leased or the nature of its activities makes such qualification necessary, except where the failure to be so qualified would not have a Material Adverse Effect. All the outstanding shares of capital stock of Aurora's subsidiaries are duly authorized, validly issued, fully paid and nonassessable and, except as set forth on Schedule 2.02, are owned by Aurora or by a wholly-owned subsidiary of Aurora, free and clear of any liens, claims, charges, restrictions, rights of others, security interests, prior assignments or other encumbrances (collectively, "Claims"), and there are no proxies, voting or transfer agreements or understandings outstanding with respect to any such shares. (b) For purposes of this Agreement, the term "subsidiary", when used with respect to Aurora, shall mean any corporation or other business entity, a majority of whose outstanding equity securities is at the time owned, directly or indirectly, by Aurora and/or one or more other subsidiaries of Aurora. 7 11 SECTION 2.03 Capitalization. (a) The authorized capital stock of Aurora consists of (i) 50,000,000 shares of Common Stock and (ii) 1,000,000 shares of Preferred Stock, $.01 par value ("Preferred Stock"), of Aurora of which 400,000 shares have been designated Convertible Preferred Stock, 25,000 shares have been designated Series B Convertible Preferred Stock, 25,000 shares have been designated Series C Convertible Preferred Stock and 20,000 shares have been designated Series D Convertible Preferred Stock. As of the date hereof, 6,847,583 shares of Common Stock, 400,000 shares of Convertible Preferred Stock, 25,000 shares of Series B Convertible Preferred Stock, 25,000 shares of Series C Convertible Preferred Stock and 20,000 shares of Series D Convertible Preferred Stock are issued and outstanding, all of which were duly authorized and validly issued and are fully paid and nonassessable. (b) Upon the filing with the Secretary of State of the State of Delaware of a Certificate of Designations in the form attached hereto as Exhibit B and a Certificate of Amendment in the form attached hereto as Exhibit C, 213,000 shares of Preferred Stock shall be designated as authorized Senior Convertible Preferred Stock, and the authorized Aurora Common Stock shall be 300 million shares. (c) Except as set forth in Aurora's SEC Filings or on Schedule 2.03 hereto, as of the date hereof, no subscription, warrant, option, convertible security, stock appreciation or other right (contingent or other) to purchase or acquire any shares of any class of capital stock of Aurora or any of its subsidiaries is authorized or outstanding and (except as otherwise expressly contemplated by this Agreement) there is not any commitment of Aurora or any of its subsidiaries to issue any shares, warrants, options or other such rights or to distribute to holders of any class of its capital stock any evidences of indebtedness or assets. Schedule 2.03 sets forth a complete and correct list of the number of warrants or options, including a listing of the vesting schedules thereof, held by each person with respect to the outstanding capital stock of Aurora. (d) Except as set forth on Schedule 2.03, neither Aurora nor any of its subsidiaries has any obligation (contingent or other) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. SECTION 2.04 Authorization of Agreements, Etc. (a) Each of (i) the execution and delivery by Aurora of this Agreement, (ii) the performance by Aurora of its obligations hereunder, (iii) the issuance, sale and delivery by Aurora of the Aurora Preferred Shares and the Aurora Senior Subordinated Notes, 8 12 and (iv) the issuance and delivery of the shares of Aurora Common Stock issuable upon the conversion of the Aurora Preferred Shares (collectively, the "Conversion Shares") have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or By-laws of Aurora, or, subject to the receipt of required consents from the lenders under the Existing Aurora Credit Agreement, any provision of any indenture, agreement or other instrument to which Aurora or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any Claim in favor of any third person upon any of the assets of Aurora or any of its subsidiaries. (b) The Aurora Preferred Shares have been duly authorized by Aurora and, when sold and paid for in accordance with this Agreement, will be validly issued, fully paid and nonassessable shares of Aurora Preferred Stock. The Conversion Shares, when issued and delivered upon the conversion of the Aurora Preferred Shares, will be duly authorized, validly issued, fully paid and nonassessable shares of Aurora Common Stock. Neither the issuance, sale and delivery of the Aurora Preferred Shares to the Participants hereunder, nor the issuance and delivery of the Conversion Shares, is subject to any preemptive rights of stockholders of Aurora or to any right of first refusal or other similar right in favor of any person. SECTION 2.05 Validity. This Agreement has been duly executed and delivered by Aurora and constitutes the legal, valid and binding obligation of Aurora, enforceable against Aurora in accordance with its terms. SECTION 2.06 SEC Filings. Aurora has filed all forms, reports and documents required to be filed with the SEC since September 30, 1992, and Aurora has made available to the Participants, as filed with the SEC, complete and accurate copies of (i) the Annual Report of Aurora on Form 10-K for the year ended September 30, 1997, and (ii) all other reports, statements and registration statements (including Current Reports on Form 8-K) filed by Aurora with the SEC since September 30, 1992, in each case including all amendments and supplements (collectively, "Aurora's SEC Filings"). Aurora's SEC Filings (including, without limitation, any financial statements or schedules included therein) (i) were prepared in compliance with the requirements of the Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act, and the rules and regulations thereunder, as the case may be, and (ii) did not at the time of filing (or if amended, supplemented or superseded by a filing prior to the date hereof, on the date of that filing) contain any untrue statement of a material fact or omit to state a material fact required to 9 13 be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. SECTION 2.07 Actions Pending. Except (i) for any actions, suits, investigations or proceedings which individually do not involve claims against Aurora or any of its subsidiaries for more than $25,000, or (ii) as set forth in Aurora's SEC Filings, there is no action, suit, investigation or proceeding pending or, to the best knowledge of Aurora, threatened against or affecting Aurora, or any of its properties or rights, before any court or by or before any governmental body or arbitration board or tribunal. There is no judgment, decree, injunction or order of any court, governmental department, commission, agency, instrumentality or arbitrator outstanding against Aurora. SECTION 2.08 Compliance with Law. Neither Aurora nor any of its subsidiaries is in default in any respect under any order or decree of any court, governmental authority, arbitrator or arbitration board or tribunal or under any laws, ordinances, governmental rules or regulations to which Aurora or any of such subsidiaries or any of their respective properties or assets is subject, except where such default would not have a Material Adverse Effect. SECTION 2.09 Brokers. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by Aurora directly with the Participants, without the intervention of any other person on behalf of Aurora in such manner as to give rise to any valid claim by any other person against the Participants for a finder's fee, brokerage commission or similar payment. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE PARTICIPANTS Each Participant represents and warrants to, and agrees with, Aurora as follows: SECTION 3.01 Authorization. The execution, delivery and performance by such Participant of this Agreement and the purchase and receipt by such Participant of the Aurora Preferred Shares and the Aurora Senior Subordinated Notes, as the case may be, being acquired by it hereunder, have been duly authorized by all requisite action on the part of such Participant, and will not violate any provision of law, any order of any court or other agency of government, the charter or other governing documents of such Participant, or any provision of any indenture, agreement or other instrument by which such Participant or any of such Participant's properties or assets are bound, or conflict with, 10 14 result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in any Claim upon any of the properties or assets of such Participant. SECTION 3.02 Validity. This Agreement has been duly executed and delivered by such Participant and constitutes the legal, valid and binding obligation of such Participant, enforceable against such Participant in accordance with its terms. SECTION 3.03 Investment Representations. (a) Such Participant is acquiring the Bridge Notes or the Units, as the case may be, being purchased by such Participant hereunder for such Participant's own account, for investment, and not with a view toward the resale or distribution thereof. (b) Such Participant understands that he, she or it, as the case may be, must bear the economic risk of such Participant's investment for an indefinite period of time. (c) Such Participant is able to fend for itself in the transactions contemplated by this Agreement and such Participant has the ability to bear the economic risks of the investment in the Bridge Notes or the Units, as the case may be, being purchased hereunder for an indefinite period of time. Such Participant further acknowledges that he, she or it, as the case may be, has received copies of Aurora SEC Filings and has had the opportunity to ask questions of, and receive answers from, officers of Aurora with respect to the business and financial condition of Aurora and the terms and conditions of the offering of the Bridge Notes or the Units, as the case may be, and to obtain additional information necessary to verify such information or can acquire it without unreasonable effort or expense. (d) Such Participant has such knowledge and experience in financial and business matters that such Participant is capable of evaluating the merits and risks of its investment in the Bridge Notes or the Units, as the case may be. Such Participant further represents that such Participant that is a limited partnership has not been formed solely for the purpose of purchasing the Bridge Notes or the Units, as the case may be. (e) If such Participant is a limited partnership, such Participant represents that it has been organized and is existing as a limited partnership under the laws of the State of Delaware. 11 15 ARTICLE IV. CONDITIONS PRECEDENT SECTION 4.01 Conditions Precedent to the Obligations of the Participants. The obligations of the Participants hereunder are, at their option, subject to the satisfaction, on or before the Closing Date, and, in the case of paragraphs (d) and (e) below, the obligations of WCAS VII on each Drawdown Date, of the following conditions: (a) Consummation of Merger. The Merger shall have become effective under the General Corporation Law of the State of Delaware. (b) Certificate of Designations. The Certificate of Amendment and the Certificate of Designations shall have become legally effective with the Secretary of State of the State of Delaware. (c) New Senior Loan. Aurora shall have obtained at least $17,000,000 of proceeds from the New Senior Loan on terms reasonably acceptable to WCAS VII, as determined in good faith by WCAS VII. (d) Opinion of Counsel. The Participants shall have received from Hughes & Luce L.L.P., counsel for Aurora, an opinion dated the Closing Date, in the form annexed hereto as Exhibit E. (e) No Order. No governmental entity (including a federal or state court) of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which materially restricts, prevents or prohibits consummation of any transaction contemplated by this Agreement; provided, however, that the parties shall use their reasonable best efforts to cause any such decree, judgment, injunction or other order to be vacated or lifted. SECTION 4.02 Condition Precedent to the Obligations of Aurora. The obligations of Aurora hereunder on the Closing Date are subject to the due filing with the Secretary of State of the State of Delaware and the legal effectiveness of the Certificate of Incorporation and the Certificate of Designations on or prior to the Closing Date. 12 16 ARTICLE V. TERMINATION AND ABANDONMENT SECTION 5.01 Termination and Abandonment. This Agreement may be terminated and the transactions contemplated hereby may be abandoned by a majority in interest of the Participants (i) if the Effective Time of the Merger shall not have occurred on or prior to June 30, 1998 and (ii) if the Merger Agreement has terminated. SECTION 5.02 Effect of Termination. In the event of termination of this Agreement pursuant to this Article V, this Agreement shall forthwith become void, without liability on the part of any party hereto, except that nothing herein shall relieve any party from liability for any breach of this Agreement. ARTICLE VI. MISCELLANEOUS SECTION 6.01 Expenses, Etc. Aurora shall reimburse the Participants or pay on their behalf any reasonable fees and expenses incurred by them or any of them in connection with the negotiation and preparation of this Agreement and the related documents contemplated hereby. For purposes hereof, the "fees and expenses incurred by the Participants" shall include, without limitation, the fees, disbursements and expenses of counsel, accountants, financial advisors and other experts retained by the Participants in connection with this Agreement and the transactions contemplated hereby. SECTION 6.02 Survival of Agreements. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the issuance, sale and delivery of the Aurora Preferred Shares pursuant hereto, notwithstanding any investigation made at any time by or on behalf of any party hereto. All statements contained in any certificate or other instrument delivered by Aurora hereunder shall be deemed to constitute representations and warranties made by Aurora. SECTION 6.03 Parties in Interest. All covenants and agreements contained in this Agreement by or on behalf of any party hereto shall bind and inure to the benefit of the respective successors and assigns of such party hereto whether so expressed or not. SECTION 6.04 Notices. Any notice or other communications required or permitted hereunder shall be deemed to be 13 17 sufficient if contained in a written instrument delivered in person or duly sent by first class certified mail, postage prepaid, by nationally recognized overnight courier, or by telecopy addressed to such party at the address or telecopy number set forth below or such other address or telecopy number as may hereafter be designated in writing by the addressee to the addressor listing all parties: if to Aurora, to: Aurora Electronics, Inc. 9477 Waples Street, Suite 150 San Diego, California 92121 Telecopy Number: (619) 552-8942 Attention: President with a copy to: Hughes & Luce, L.L.P. 1717 Main Street Dallas, Texas 75201 Telecopy Number: (214) 939-6100 Attention: Alan J. Bogdanow, Esq. Kenneth G. Hawari, Esq. if to any Participant, to: Welsh, Carson, Anderson & Stowe 320 Park Avenue, Suite 2500 New York, New York 10022-6815 Telecopy Number: (212) 893-9575 Attention: Richard H. Stowe Thomas E. McInerney with a copy to: Reboul, MacMurray, Hewitt, Maynard & Kristol 45 Rockefeller Plaza New York, New York 10111 Telecopy Number: (212) 841-5725 Attention: William J. Hewitt, Esq. Othon A. Prounis, Esq. or, in any case, at such other address or addresses as shall have been furnished in writing by such party to the other parties hereto. All such notices, requests, consents and other communications shall be deemed to have been received (a) in the case of personal delivery, on the date of such delivery, (b) in the case of mailing, on the fifth business day following the date of such mailing, (c) in the case of delivery by overnight courier, on the business day following the date of delivery to such courier, and (d) in the case of telecopy, when received. 14 18 SECTION 6.05 Entire Agreement; Assignment. This Agreement (including the Schedules and Exhibits hereto) and the Registration Rights Agreement constitute the entire agreement of the parties with respect to the subject matter hereof and may not be amended or modified nor any provisions waived except in a writing signed by Aurora and the Participants. This Agreement shall not be assigned by operation of law of otherwise without the consent of the other parties hereto. SECTION 6.06 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 6.07 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 15 19 IN WITNESS WHEREOF, Aurora and the Participants have executed this Agreement as of the day and year first above written. AURORA ELECTRONICS, INC. By /s/ JIM C. COWART --------------------------------- WELSH, CARSON, ANDERSON & STOWE VII, L.P. By WCAS VII Partners, L.P., General Partner By /s/ LAURA VANBUREN -------------------------------- General Partner WCAS CAPITAL PARTNERS II, L.P. By WCAS CP II Partners, General Partner By /s/ LAURA VANBUREN -------------------------------- General Partner WCAS INFORMATION PARTNERS, L.P. By WCAS Info Partners, General Partner By /s/ LAURA VANBUREN -------------------------------------- Attorney-in-fact Bruce K. Anderson Russell L. Carson Anthony J. de Nicola Thomas E. McInerney James B. Hoover Robert A. Minicucci Andrew M. Paul Paul B. Queally Richard H. Stowe Laura M. VanBuren Patrick J. Welsh By /s/ LAURA VANBUREN ---------------------------------------- Laura M. VanBuren Individually and as Attorney-in-Fact 20 Annex I -------
=============================================================================================================================== MAXIMUM PRINCIPAL AMOUNT OF MAXIMUM NUMBER OF AGGREGATE MAXIMUM AURORA SENIOR SHARES OF AURORA PURCHASE PRICE PRINCIPAL AMOUNT NAME OF PURCHASER NUMBER OF UNITS SUBORDINATED NOTES PREFERRED STOCK OF UNITS OF DEMAND NOTE - ------------------------------------------------------------------------------------------------------------------------------- Welsh, Carson, Anderson & 14,253.2 $14,253,200 171,040 $31,357,200 $2,660,600 Stowe VII, L.P. - ------------------------------------------------------------------------------------------------------------------------------- WCAS Information Partners, 194.5 194,500 2,334 427,900 36,300 L.P. - ------------------------------------------------------------------------------------------------------------------------------- Patrick J. Welsh 77.7 77,700 932 170,900 14,500 - ------------------------------------------------------------------------------------------------------------------------------- Russell L. Carson 116.8 116,800 1,401 256,900 21,800 - ------------------------------------------------------------------------------------------------------------------------------- Bruce K. Anderson 116.8 116,800 1,401 256,900 21,800 - ------------------------------------------------------------------------------------------------------------------------------- Richard H. Stowe 58.4 58,400 701 128,500 10,900 - ------------------------------------------------------------------------------------------------------------------------------- Andrew M. Paul 39.1 39,100 469 86,000 7,300 - ------------------------------------------------------------------------------------------------------------------------------- Thomas E. McInerney 68.0 68,000 816 149,600 12,700 - ------------------------------------------------------------------------------------------------------------------------------- Laura VanBuren 3.7 3,700 45 8,200 700 - ------------------------------------------------------------------------------------------------------------------------------- James B. Hoover 19.3 19,300 231 42,400 3,600 - ------------------------------------------------------------------------------------------------------------------------------- Robert A. Minicucci 31.1 31,100 373 68,400 5,800 - ------------------------------------------------------------------------------------------------------------------------------- Anthony J. de Nicola 15.5 15,500 186 34,100 2,900 - ------------------------------------------------------------------------------------------------------------------------------- Paul B. Queally 5.9 5,900 71 13,000 - ------------------------------------------------------------------------------------------------------------------------------- TOTAL 15,000.0 $15,000,000 180,000 $33,000,000 $2,800,000 ===============================================================================================================================
EX-99.7 9 FORM OF 10% SENIOR SUBORDINATED BRIDGE NOTE 1 EXHIBIT 99.7 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AURORA ELECTRONICS, INC. 10% Senior Subordinated Bridge Note $[ ] , 1998 AURORA ELECTRONICS, INC., a Delaware corporation (hereinafter called the "Company"), for value received, hereby promises to pay to [WELSH, CARSON ANDERSON & STOWE VII, L.P. ("WCAS VII")] or registered assigns, the principal sum of [ ] DOLLARS ($[ ]) ON ANY DATE ON OR AFTER JULY 1, 1998 ON DEMAND (subject to applicable restrictions set forth in Section 14 hereof), and to pay interest (computed on the basis of a 360-day year consisting of twelve 30-day months) from the date hereof on the unpaid principal amount hereof at the rate of 10% per annum semi-annually in arrears on June 30 and December 31 of each year (each said day being an "Interest Payment Date"), commencing on June 30, 1998, until the principal amount hereof shall have become due and payable, whether on demand or by acceleration or otherwise, and thereafter at the rate of 12% per annum on any overdue principal amount and (to the extent permitted by applicable law) on any overdue interest until paid. All payments of principal and interest on this Note shall be in such coin or currency of the United States of America as at the time of payment shall be legal tender for payment of public and private debts. If any payment on this Note is due on a day which is not a Business Day, it shall be due on the next succeeding Business Day. For purposes of this Note, "Business Day" shall mean any day other than a Saturday, Sunday or a legal holiday or day on which banks are authorized or required to be closed in Chicago or New York. 1. The Note. This Note is issued pursuant to and is subject to the terms and provisions of the Securities Purchase and Exchange Agreement dated as of January 30, 1998 (the "Purchase Agreement"), among the Company, WCAS VII, WCAS Capital Partners II, L.P.("WCAS CP II") and the several purchasers named on Schedule I thereto and the terms of this Note include those stated in the Purchase Agreement. As used herein, the term "Note" or "Notes" includes this 10% Senior Subordinated Bridge Note of the Company, 2 any additional 10% Senior Subordinated Bridge Note or Notes issued pursuant to the Purchase Agreement and any 10% Senior Subordinated Bridge Note or Notes subsequently issued upon exchange or transfer hereof or thereof. 2. Transfer, Etc. of Notes. The Company shall keep at its office or agency maintained as provided in paragraph (a) of Section 8 a register in which the Company shall provide for the registration of this Note and for the registration of transfer and exchange of this Note. The holder of this Note may, at its option, and either in person or by its duly authorized attorney, surrender the same for registration of transfer or exchange at the office or agency of the Company maintained as provided in Section 8 and, without expense to such holder (except for taxes or governmental charges imposed in connection therewith), receive in exchange therefor a Note or Notes each in such denomination or denominations (in integral multiples of $100,000) as such holder may request, dated as of the date to which interest has been paid on the Note or Notes so surrendered for transfer or exchange, for the same aggregate principal amount as the then unpaid principal amount of the Note or Notes so surrendered for transfer or exchange, and registered in the name of such person or persons as may be designated by such holder. Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed, or shall be accompanied by a written instrument of transfer, satisfactory in form to the Company, duly executed by the holder of such Note or its attorney duly authorized in writing. Every Note so made and delivered in exchange for such Note shall in all other respects be in the same form and have the same terms as such Note. No transfer or exchange of any Note shall be valid (x) unless made in the foregoing manner at such office or agency and (y) unless registered under the Securities Act of 1933, as amended, or any applicable state securities laws or unless an exemption from such registration is available. 3. Loss, Theft, Destruction or Mutilation of Note. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of any such loss, theft or destruction, upon receipt of an affidavit of loss and an indemnity reasonably acceptable in form and substance to the Company from the holder thereof, or, in the case of any such mutilation, upon surrender and cancellation of this Note, the Company will make and deliver, in lieu of this Note, a new Note of like tenor and unpaid principal amount and dated as of the date to which interest has been paid on this Note. 4. Persons Deemed Owners; Holders. The Company may deem and treat the person in whose name this Note is registered as the owner and holder of this Note for the purpose of receiving payment of principal of and interest on this Note and for all other purposes whatsoever, whether or not this Note shall be overdue. With respect to any Note at any time outstanding, the term 2 3 "holder," as used herein, shall be deemed to mean the person in whose name such Note is registered as aforesaid at such time. 5. Prepayments. (a) Optional Prepayment. Subject to any applicable restrictions contained in the Credit Agreement (as hereinafter defined), upon notice given as provided in Section 5(b), the Company may, at its option, prepay this Note, without premium or penalty, as a whole at any time or in part from time to time in principal amounts which shall be integral multiples of $100,000, together with any accrued and unpaid interest thereon through the date of such prepayment. (b) Notice of Prepayment. The Company shall give written notice of any prepayment of this Note or any portion hereof pursuant to Section 5(a) not less than 20 nor more than 60 days prior to the date fixed for such prepayment. Such notice of prepayment and all other notices to be given to the holder of this Note shall be given by registered or certified mail to the person in whose name this Note is registered at its address designated on the register maintained by the Company on the date of mailing such notice of prepayment or other notice. Upon notice of prepayment being given as aforesaid, the Company covenants and agrees that it will prepay, on the date therein fixed for prepayment, this Note or the portion hereof, as the case may be, so called for prepayment, at the prepayment price determined in accordance with Section 5(a) hereof. A prepayment of less than all of the outstanding principal amount of this Note shall not relieve the Company of its obligation to make scheduled payments of interest payable in respect of the principal remaining outstanding on the Interest Payment Dates. (c) Allocation of All Payments. In the event of any partial payment of less than all of the interest then due on the Notes then outstanding or any prepayment, purchase, redemption or retirement of less than all of the outstanding Notes, the Company will allocate the amount of interest so to be paid and the principal amount so to be prepaid, purchased, redeemed or retired to each Note in proportion, as nearly as may be, to the aggregate principal amount of all Notes then outstanding. (d) Interest After Date Fixed for Prepayment. If this Note or a portion hereof is called for prepayment as herein provided, this Note or such portion shall cease to bear interest on and after the date fixed for such prepayment unless, upon presentation for such purpose, the Company shall fail to pay this Note or such portion, as the case may be, in which event this Note or such portion, as the case may be, and, so far as may be lawful, any overdue installment of interest, shall bear interest on and after the date fixed for such prepayment and until paid at the rate per annum provided herein. 3 4 (e) Surrender of Note; Notation Thereon. Upon any prepayment of a portion of the principal amount of this Note, the holder hereof, at its option, may require the Company to execute and deliver at the expense of the Company (other than for transfer taxes, if any), upon surrender of this Note, a new Note registered in the name of such person or persons as may be designated by such holder for the principal amount of this Note then remaining unpaid, dated as of the date to which the interest has been paid on the principal amount of this Note then remaining unpaid, or may present this Note to the Company for notation hereon of the payment of the portion of the principal amount of this Note so prepaid. 6. Offer to Repurchase Upon a Change of Control. Subject to any applicable restrictions in the Credit Agreement with respect to paragraph (a) below: (a) Upon the occurrence of a Change of Control (as hereinafter defined), the holder of this Note shall have the right, at such holder's option, to require the Company to repurchase all or any part of such holder's Note in amounts which shall be in multiples of $100,000 (pursuant to the offer described below) of the Notes outstanding, in any such event, at a purchase price equal to 101% of the principal amount thereof so to be repurchased, plus accrued and unpaid interest, if any, to the date of purchase (a "Change of Control Payment"). Within 10 Business Days after the Company knows, or reasonably should know, of the occurrence of any Change of Control, the Company shall make an irrevocable, unconditional offer (except that such offer may be conditioned upon the closing of the transaction constituting the Change of Control) (a "Change of Control Offer") to all holders of the Notes to purchase all of the Notes for cash in an amount equal to the Change of Control Payment by sending written notice (the "Change of Control Notice") of such Change of Control Offer to each holder by registered or certified mail to the person in whose name the Note is registered at its address maintained by the Company on the date of the mailing of such notice. The Change of Control Notice shall contain all instructions and materials required by applicable law and shall contain or make available to the holder other information material to such holder's decision to tender this Note pursuant to the Change of Control Offer. The Change of Control Notice, which shall govern the terms of the Change of Control Offer, shall state: (i) that the Change of Control Offer is being made pursuant to this Section 6, and that all Notes validly tendered will be accepted for payment; (ii) the Change of Control Payment (including the amount of accrued and unpaid interest) and the purchase date, which will be no later than 30 days from the date such notice is mailed (the "Change of Control Payment Date"); 4 5 (iii) that any Note not validly tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the Change of Control Payment, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that holders electing to have a Note, or portion thereof, purchased pursuant to a Change of Control Offer will be required to surrender the Note to the Company at the address specified in the notice not later than the close of business on the Business Day prior to the Change of Control Payment Date; (vi) that holders will be entitled to withdraw their election if the Company receives, not later than the close of business on the second Business Day prior to the Change of Control Payment Date, a telegram, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Note delivered for purchase and a statement that such holder is withdrawing its election to have such principal amount of Note purchased; and (vii) that holders whose Notes are being purchased only in part will be issued a new Note equal in principal amount to the unpurchased portion of the Note surrendered, which unpurchased portion must be equal to $100,000 in principal amount or an integral multiple thereof. On or before the Change of Control Payment Date, the Company shall (i) accept for payment the Notes or portions thereof validly tendered pursuant to the Change of Control Offer prior to the close of business on the Change of Control Payment Date, (ii) promptly mail to the holders of Notes so accepted payment in an amount equal to the Change of Control Payment (including accrued and unpaid interest) for such Notes, and the Company shall promptly mail or deliver to such holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided, that each such new Note will be in a principal amount of $100,000 or an integral multiple thereof. Any Notes not so accepted shall be promptly mailed or delivered by the Company to the holder thereof. (b) In the event of a Change of Control, the Company will promptly but in no event later than 30 days after the Change of Control, in good faith, (i) obtain any required consent of the holders of any Senior Indebtedness (as defined herein) to permit the Change of Control Offer and the Change of Control Payment contemplated by this Section 6, or (ii) repay some or all of such Senior Indebtedness to the extent necessary (including, if necessary, payment in full of such Senior Indebtedness and payment 5 6 of any prepayment premiums, fees, expenses or penalties) to permit the Change of Control Offer and the Change of Control Payment contemplated hereby without such consent. Failure to comply with the foregoing shall not relieve the Company from its obligations pursuant to paragraph (a) above. (c) For purposes of this Note "Change of Control" means (i) the sale, lease or transfer, whether direct or indirect, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, in one transaction or a series of related transactions, to any "person" or "group" (other than the WCAS Group), (ii) the liquidation or dissolution of the Company or the adoption of a plan of liquidation or dissolution of the Company, (iii) the acquisition of "beneficial ownership" by any "person" or "group" (other than the WCAS Group) of voting stock of the Company representing more than 50% of the voting power of all outstanding shares of such voting stock, whether by way of merger or consolidation or otherwise, or (iv) during any period of two consecutive years, the failure of those individuals who at the beginning of such period constituted the Company's Board of Directors (together with any new directors whose election or appointment by such Board or whose nomination for election or appointment by the shareholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) to constitute a majority of the Company's Board of Directors then in office; provided, however, that in no event shall a foreclosure on any collateral pledged by the Company in respect of obligations arising under or in connection with the Credit Agreement constitute a Change of Control. For purposes of this Section 6 and Section 7, (i) the terms "person" and "group" shall have the meaning set forth in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not applicable, (ii) the term "beneficial owner" shall have the meaning set forth in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable, except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time or upon the occurrence of certain events, (iii) any "person" or "group" will be deemed to beneficially own any voting stock of the Company so long as such person or group beneficially owns, directly or indirectly, in the aggregate a majority of the voting stock of a registered holder of the voting stock of the Company, and (iv) the term "WCAS Group" shall mean WCAS VII, WCAS CP II, any general partners thereof and any other investment limited partnerships or other investment entities under common control therewith. 6 7 7. Special Mandatory Prepayments. (a) Subject to any applicable restrictions contained in the Credit Agreement, within 5 days after the consummation of: (i) any sale, transfer, lease, sale and leaseback or other disposition by the Company to any person of all or any part of its property or assets, in any case in a single transaction or a series of related transactions (other than any of the foregoing for fair value of property that (x) is of inventory in the ordinary course of business or (y) is of worn-out or obsolete assets); or (ii) the issuance (other than by dividend) of any capital stock or other ownership interest of the Company pursuant to offerings registered under the Securities Act of 1933, as amended (the "Securities Act"); the Company shall be required to prepay the indebtedness outstanding under the Notes in an amount equal to 100% of the gross cash proceeds received by the Company from such transaction less all legal expenses, customary commissions and other fees and expenses incurred and all federal, state, local and foreign taxes assessed in connection therewith. (b) Subject to any applicable restrictions contained in the Credit Agreement, if there shall exist any Excess Cash Flow (as defined in paragraph (c) hereof) for any fiscal year, a mandatory prepayment (an "Excess Cash Flow Prepayment") of the indebtedness outstanding under the Notes shall be made on the date (the "Excess Cash Flow Prepayment Date") which is 105 days after the end of such fiscal year, in an amount equal to one hundred percent (100%) of such Excess Cash Flow. (c) "Excess Cash Flow" means, for any fiscal period of the Company, an amount which, on a combined basis in conformity with GAAP, is equal to: (i) the excess of the sum (without duplication) of the following amounts: (A) net income for such fiscal period; (B) expenses for such fiscal period for depreciation, amortization and other similar non-cash charges, to the extent that the same are deducted from net revenues in determining net income for such fiscal period; (C) the difference between (1) the amount of taxes imposed on the Company deducted from net revenues to determine net income for such fiscal period and (2) the 7 8 amount of taxes actually paid by the Company during such fiscal period; and (D) the difference between (1) any extraordinary or non-recurring items of expense deducted from net revenues to determine net income for such fiscal period and (2) the aggregate amount of all cash payments made by the Company during such period on account of extraordinary or non-recurring items of expense, whether or not accrued in such period; over the sum (without duplication) of the following amounts: (1) the aggregate amount during such fiscal period of scheduled payments of principal on (x) the Notes, (y) the indebtedness under the Credit Agreement and (z) any indebtedness permitted under the Credit Agreement; (2) the amount of actual payments by the Company in cash during such fiscal period for capital expenditures; and (3) the difference between (1) any extraordinary or non-recurring items of income added to net revenues to determine net income and (2) the aggregate amount of all cash receipts received by the Company during such period on account of extraordinary or non-recurring items of income, whether or not accrued in such period; (ii) plus (in the case of a decrease) or minus (in the case of an increase) the change in the amount of working capital as at the end of such fiscal period as compared with the amount of working capital as at the end of the immediately preceding fiscal period. Each of the foregoing items shall be computed in accordance with GAAP consistently applied. 8. Covenants Relating to the Notes. Unless approved by its Board of Directors including the affirmative vote of a director designated by WCAS VII, the Company covenants and agrees that so long as the Notes shall be outstanding and, in the case of paragraphs (k) through (n) below, so long as five million dollars ($5,000,000) of aggregate principal amount of the Notes is outstanding: (a) Maintenance of Office. The Company will maintain an office or agency in such place in the United States of America as the Company may designate in writing to the registered holder of 8 9 this Note, where this Note may be presented for registration of transfer and for exchange as herein provided, where notices and demands to or upon the Company in respect of this Note may be served and where this Note may be presented for payment. Until the Company otherwise notifies the holder hereof, said office shall be the principal office of the Company located at 9477 Waples Street, San Diego, California 92121. (b) Payment of Taxes. The Company will promptly pay and discharge or cause to be paid and discharged, before the same shall become in default, all material lawful taxes and assessments imposed upon the Company or any of its subsidiaries or upon the income and profits of the Company or any of its subsidiaries, or upon any property, real, personal or mixed, belonging to the Company or any of its subsidiaries, or upon any part thereof by the United States or any State thereof, as well as all material lawful claims for labor, materials and supplies which, if unpaid, would become a lien or charge upon such property or any part thereof; provided, however, that neither the Company nor any of its subsidiaries shall be required to pay and discharge or to cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as both (x) the Company has established adequate reserves for such tax, assessment, charge, levy or claim and (y)(i) the Company or a subsidiary shall be contesting the validity thereof in good faith by appropriate proceedings or (ii) the Company shall, in its good faith judgment, deem the validity thereof to be questionable and the party to whom such tax, assessment, charge, levy or claim is allegedly owed shall not have made written demand for the payment thereof. (c) Corporate Existence. The Company will do or cause to be done all things necessary and lawful to preserve and keep in full force and effect (i) its corporate existence and the corporate existence of each of its subsidiaries and (ii) the material rights and franchises of the Company and each of its subsidiaries under the laws of the United States or any state thereof, or, in the case of subsidiaries organized and existing outside the United States, under the laws of the applicable jurisdiction; provided, however, that nothing in this paragraph (c) shall prevent the abandonment or termination of any rights or franchises of the Company, or the liquidation or dissolution of, or a sale, transfer or disposition (whether through merger, consolidation, sale or otherwise) of all or any substantial part of the property and assets of, any subsidiary or the abandonment or termination of the corporate existence, rights and franchises of any subsidiary if such abandonment, termination, liquidation, dissolution, sale, transfer or disposition is, in the good faith business judgment of the Company, in the best interests of the Company and not disadvantageous to the holder of this Note. (d) Maintenance of Property. The Company will at all times maintain and keep, or cause to be maintained and kept, in 9 10 good repair, working order and condition (reasonable wear and tear excepted) all significant properties of the Company and its subsidiaries used in the conduct of the Business, and will from time to time make or cause to be made all needful and proper repairs, renewals, replacements, betterments and improvements thereto, so that the Business may be conducted at all times in the ordinary course consistent with past practice. (e) Insurance. The Company will, and will cause each of its subsidiaries to, (i) keep adequately insured, by financially sound and reputable insurers, all property of a character usually insured by corporations engaged in the same or a similar business similarly situated against loss or damage of the kinds customarily insured against by such corporations and (ii) carry, with financially sound and reputable insurers, such other insurance (including without limitation liability insurance) in such amounts as are available at reasonable expense and to the extent believed advisable in the good faith business judgment of the Company. (f) Keeping of Books. The Company will at all times keep, and cause each of its subsidiaries to keep, proper books of record and account in which proper entries will be made of its transactions in accordance with generally accepted accounting principles consistently applied. (g) Transactions with Affiliates. The Company shall not enter into, or permit any of its subsidiaries to enter into, any transaction with any of its or any subsidiary's officers, directors, employees or any person related by blood or marriage to any such person or any entity in which any such person owns any beneficial interest, except for (i) normal employment arrangements, benefit programs and employee incentive option programs on reasonable terms, (ii) any transaction approved by the Board of Directors of the Company in accordance with the provisions of Section 144 of the Delaware General Corporation Law, or otherwise permitted by such Section, (iii) customer transactions in the ordinary course of business and on arm's length terms and (iv) the transactions contemplated by the Purchase Agreement. (h) Notice of Certain Events. The Company shall, immediately after it becomes aware of the occurrence of (i) any Event of Default (as hereinafter defined) or any event which, upon notice or lapse of time or both, would constitute such an Event of Default, or (ii) any action, suit or proceeding at law or in equity or by or before any governmental instrumentality or agency which, if adversely determined, would materially impair the right of the Company to carry on its business substantially as now or then conducted, or would have a material adverse effect on the properties, assets, financial condition, prospects, operating results or business of the Company and its subsidiaries taken as a whole, give notice to the holder of this Note, specifying the nature of such event. 10 11 (i) Payment of Principal and Interest on the Note. The Company will use its best efforts, subject to the provisions of applicable credit arrangements (including the Credit Agreement), contractual obligations of the Company and/or its subsidiaries and any applicable law restricting the same, to provide funds from its subsidiaries to the Company, by dividend, advance or otherwise, sufficient to permit payment by the Company of the principal of and interest on this Note in accordance with its terms. Subject to any applicable provisions in the Credit Agreement and documents executed and delivered in connection therewith, the Company will not, and will not permit any subsidiary to, directly or indirectly create or otherwise cause to exist any encumbrance or restriction on the ability of any subsidiary to pay dividends or make any other distributions to the Company or any wholly-owned subsidiary of the Company in respect of its capital stock. (j) Consolidation, Merger and Sale. The Company will not consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of its property in one or more related transactions to, any other corporation or other entity, unless: (i) The Company is the surviving corporation or the entity formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale or other disposition shall have been made is a corporation organized or existing under the laws of the United States of any state thereof or the District of Columbia; (ii) the surviving corporation or other entity (if other than the Company) shall expressly and effectively assume in writing the due and punctual payment of the principal of and interest on this Note, according to its tenor, and the due and punctual performance and observance of all the terms, covenants, agreements and conditions of this Note to be performed or observed by the Company to the same extent as if such surviving corporation had been the original maker of this Note; (iii) the Company or such other corporation or other entity shall not otherwise be in default in the performance or observance of any covenant, agreement or condition of this Note or the Purchase Agreement; and (iv) the holder of this Note shall have received, in connection therewith, an opinion of counsel for the Company (or other counsel satisfactory to the holder), in form and substance satisfactory to the holder, to the effect that any such consolidation, merger, sale or conveyance and any such assumption complies with the provisions of this paragraph (j). 11 12 Notwithstanding anything to the contrary herein, in no event shall a foreclosure on any collateral pledged by the Company in respect of obligations arising under or in connection with the Credit Agreement be deemed to constitute a violation of the Company's obligations pursuant to this paragraph (j). (k) Limitation on Indebtedness and Disqualified Stock. The Company will not, and will not permit any of its subsidiaries to, (i) incur or permit to remain outstanding any indebtedness for money borrowed ("Indebtedness"), except (A) Senior Indebtedness (as defined in Section 14), (B) Indebtedness existing on the date of original issuance of this Note, (C) Indebtedness permitted to be incurred under the Credit Agreement as in effect from time to time after the original issuance of this Note (other than Indebtedness that is subordinate or junior in right of payment (to any extent) to any Senior Indebtedness and senior or pari passu in right of payment (to any extent) to the Notes), or (D) in the event that the Credit Agreement has terminated, Indebtedness permitted to be incurred under any successor credit agreement of the Company with respect to Senior Indebtedness, or if there exists no such credit agreement, such Indebtedness as may be mutually agreed upon by the Company and the holders of a majority of the aggregate principal amount of the Notes then outstanding, or (ii) issue any capital stock ("Disqualified Stock") of the Company or any of its subsidiaries (other than the Convertible Preferred Stock (as hereinafter defined)) which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures, or is mandatorily redeemable, whether pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to December 31, 2005. (l) Restricted Payments. The Company will not, and will not permit any of its subsidiaries to: (i) declare or pay any dividends on, or make any other distribution or payment on account of, or redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of any class of stock of the Company, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash, property or in obligations of the Company or any of its subsidiaries, except for (X) distributions of shares of the same class or of a different class of stock pro rata to all holders of shares of a class of stock, (Y) the payment of cash dividends on account of the Company's 7% Senior Cumulative Convertible Preferred Stock, $.01 par value (the "Convertible Preferred Stock"), or (Z) dividends, distributions or payments by any subsidiary to the Company or to any wholly-owned subsidiary of the Company, or (ii), except as permitted under the Credit Agreement, make any payments of principal of, or retire, redeem, purchase or otherwise acquire any Indebtedness other than any Senior Indebtedness or the Notes (such declarations, payments, purchases, redemptions, retirements, 12 13 acquisitions or distributions being herein called "Restricted Payments"). (m) Limitation on Liens. The Company shall not, and shall not permit any of its subsidiaries to, directly or indirectly, create, incur, assume or otherwise cause or suffer to exist any lien, pledge , charge, security interest or encumbrance (collectively, "Liens") on any asset now owned or hereafter acquired, or on any income or profits therefrom or assign or convey any right to receive income therefrom, except for (i) Liens permitted under the Credit Agreement, (ii) liens for current taxes not yet due, (iii) landlord's liens, (iv) purchase money liens and (v) workman's, materialman's, warehouseman's and similar liens arising by law or statute. (n) Inspection of Property. The Company will permit the holder hereof to visit and inspect any of the properties of the Company and any other subsidiaries and their books and records and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and such subsidiaries and their independent public accountants, all at such reasonable times and as often as such holders may reasonably request. 9. Modification by Holders; Waiver. The Company may, with the written consent of the holders of not less than a majority in principal amount of the Notes then outstanding, modify the terms and provisions of this Note or the rights of the holders of this Note or the obligations of the Company hereunder, and the observance by the Company of any term or provision of this Note may be waived with the written consent of the holders of not less than a majority in principal amount of the Notes then outstanding. Any such modification or waiver shall apply equally to each holder of the Notes and shall be binding upon them, upon each future holder of any Note and upon the Company, whether or not such Note shall have been marked to indicate such modification or waiver, but any Note issued thereafter shall bear a notation referring to any such modification or waiver. Promptly after obtaining the written consent of the holders as herein provided, the Company shall transmit a copy of such modification or waiver to the holders of the Notes at the time outstanding. 10. Events of Default. If any one or more of the following events, herein called "Events of Default," shall occur (for any reason whatsoever, and whether such occurrence shall, on the part of the Company or any of its subsidiaries, be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of a court of competent jurisdiction or any order, rule or regulation of any administrative or other governmental authority) and such Event of Default shall be continuing: 13 14 (i) default shall be made in the payment of the principal of this Note when and as the same shall become due and payable, whether on demand (to the extent demand is permitted to be made under Section 14 hereof) or at a date fixed for prepayment or repurchase (including default of any optional prepayment in accordance with the requirements of Section 5, any Change of Control Payment in accordance with the requirements of Section 6 or any special mandatory prepayment in accordance with the requirements of Section 7, as the case may be) or by acceleration or otherwise; or (ii) default shall be made in the payment of any installment of interest on this Note according to its terms when and as the same shall become due and payable; or (iii) default shall be made in the due observance or performance of any covenant, condition or agreement on the part of the Company contained herein in Section 8(j); or (iv) default shall be made in the due observance or performance of any other covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof or of the Purchase Agreement, and such default shall continue for 10 days after written notice thereof, specifying such default and requesting that the same be remedied; or (v) any representation or warranty made by or on behalf of the Company herein or in the Purchase Agreement shall prove to have been false or incorrect in any material respect on the date on or as of which made; or (vi) the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of the Company or any of its subsidiaries in any involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar laws, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or any of its subsidiaries for any substantial part of any of their property or ordering the winding-up or liquidation of any of their affairs and the continuance of any such decree or order unstayed and in effect for a period of 30 consecutive days; or (vii) the commencement by the Company or any of its subsidiaries of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar laws, or the consent by any of them to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) 14 15 of the Company or any of its subsidiaries for any substantial part of any of their property, or the making by any of them of any general assignment for the benefit of creditors, or the failure of the Company or of any of its subsidiaries generally to pay its debts as such debts become due, or the taking of corporate action by the Company or any of its subsidiaries in furtherance of or which might reasonably be expected to result in any of the foregoing; or (viii) a default or an event of default as defined in any instrument evidencing or under which the Company or any of its subsidiaries has outstanding at the time any Indebtedness in excess of $500,000 in aggregate principal amount shall occur and as a result thereof the maturity of any such Indebtedness shall have been accelerated so that the same shall have become due and payable prior to the date on which the same would otherwise have become due and payable and such acceleration shall not have been rescinded or annulled within 20 days; or (ix) final judgment (not reimbursed by insurance policies of the Company or any of its subsidiaries) for the payment of money in excess of $500,000 shall be rendered against the Company or any of its subsidiaries and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed; then the holders of at least 33-1/3% in aggregate principal amount of the Notes at the time outstanding may, at their option, by a notice in writing to the Company declare this Note to be, and this Note shall thereupon be and become immediately due and payable together with interest accrued thereon, without diligence, presentment, demand, protest or further notice of any kind, all of which are expressly waived by the Company to the extent permitted by law. At any time after any declaration of acceleration has been made as provided in this Section 10, the holders of a majority in principal amount of the Notes then outstanding may, by notice to the Company, rescind such declaration and its consequences, provided, however, that no such rescission shall extend to or affect any subsequent default or Event of Default or impair any right consequent thereon. Without limiting the foregoing, the Company hereby waives any right to trial by jury in any legal proceeding related in any way to this Note and agrees that any such proceeding may, if the holder so elects, be brought and enforced in the Supreme Court of the State of New York for New York County or the United States District Court for the Southern District of New York and the Company hereby waives any objection to jurisdiction or venue in any such proceeding commenced in such court. The Company further agrees that any process required to be served on it for purposes of 15 16 any such proceeding may be served on it, with the same effect as personal service on it within the State of New York, by registered mail addressed to it at its office or agency set forth in paragraph (a) of Section 8 for purposes of notices hereunder. 11. Suits for Enforcement. Subject to the provisions of Section 14 of this Note, in case any one or more of the Events of Default specified in Section 10 of this Note shall happen and be continuing (subject to any applicable cure period expressly set forth herein), the holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law and/or by other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note, or may proceed to enforce the payment of this Note or to enforce any other legal or equitable right of the holder of this Note. In case of any default under this Note, the Company will pay to the holder hereof reasonable collection costs and reasonable attorneys' fees, to the extent actually incurred. 12. Remedies Cumulative. No remedy herein conferred upon the holder of this Note is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. 13. Remedies Not Waived. No course of dealing between the Company and the holder of this Note or any delay on the part of the holder hereof in exercising any rights hereunder shall operate as a waiver of any right of the holder of this Note. 14. Subordination. (a) Anything contained in this Note to the contrary notwithstanding, the indebtedness evidenced by the Notes shall be subordinate and junior, to the extent set forth in the following paragraphs (A), (B), (C) and (D), to all Senior Indebtedness of the Company. "Senior Indebtedness" shall mean the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all reasonable fees, reimbursement and indemnity obligations, and all other obligations arising in connection with, any indebtedness for borrowed money of the Company, contingent or otherwise, now outstanding or created, incurred, issued, assumed or guaranteed in the future, for which, in the case of any particular indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such indebtedness shall not be subordinate in right of payment to any other indebtedness of the Company. Without limiting the generality of the foregoing, Senior Indebtedness shall include all 16 17 Obligations (under and as defined in the Credit Agreement); notwithstanding the foregoing, Senior Indebtedness shall include only such Obligations until such time as the same are paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated. For purposes of this Note, "Credit Agreement" shall mean, collectively, (i) the Credit Agreement, dated as of March 29, 1996, as amended or otherwise modified, among the Company and other Guarantors named therein, the Lenders named therein and The Chase Manhattan Bank N.A., as Agent (the "Agent"), and (ii) the senior credit facility contemplated by Section 4.01(c) of the Purchase Agreement, together with any agreement entered into in connection with the restatement, renewal, extension, restructuring, refunding or refinancing of the obligations under such credit agreements. (A) In the event of any insolvency, bankruptcy, liquidation, reorganization or other similar proceedings, or any receivership proceedings in connection therewith, relative to the Company or its creditors or its property, and in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy proceedings, then all Senior Indebtedness shall first be paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated, before any payment, whether on account of principal, interest or otherwise, is made upon the Notes. (B) In any of the proceedings referred to in paragraph (A) above, any payment or distribution of any kind or character, whether in cash, property, stock or obligations which may be payable or deliverable in respect of the Notes shall be paid or delivered directly to the holders of Senior Indebtedness for application in payment thereof, unless and until all Senior Indebtedness shall have been paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated. (C) No payment shall be made, directly or indirectly, on account of the Notes (i) upon maturity of any Senior Indebtedness obligation, by lapse of time, acceleration (unless waived), or otherwise, unless and until all principal thereof and interest thereon and all other obligations in respect thereof shall first be paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated, or (ii) upon the happening of any default in payment of any principal of, premium, if any, or interest on or any other amounts payable in respect of Senior Indebtedness when the same becomes due and payable whether at maturity or at a date fixed for prepayment or by declaration or otherwise (a "Senior Payment Default"), unless and until 17 18 such Senior Payment Default shall have been cured or waived or shall have ceased to exist. (D) Upon the happening of an event of default with respect to any Senior Indebtedness permitting (after notice or lapse of time or both) one or more holders of such Senior Indebtedness (or, in the case of the Credit Agreement, the Agent) to declare such Senior Indebtedness due and payable prior to the date on which it is otherwise due and payable (a "Nonmonetary Default"), upon the occurrence of (i) receipt by the holders of the Notes of written notice from the holders of said Senior Indebtedness (or, in the case of the Credit Agreement, the Agent) of a Nonmonetary Default (any such notice, a "Blockage Notice"), or (ii) if such Nonmone- tary Default results from the acceleration of the Notes, the date of such acceleration; then (x) the Company will not make, directly or indirectly, to the holder of the Notes any payment of any kind of or on account of all or any part of the Notes; (y) the holders of the Notes will not accept from the Company any payment of any kind of or on account of all or any part of the Notes and (z) the holders of the Notes may not take, demand, receive, sue for, accelerate or commence any remedial proceedings with respect to any amount payable under the Notes, unless and until in each case described in clauses (x), (y) and (z) all such Senior Indebtedness shall have been paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated; provided, however, that if such Nonmonetary Default shall have occurred and be continuing for a period (a "Blockage Period") commencing on the earlier of the date of receipt of such Blockage Notice or the date of the acceleration of the Notes and ending 179 days thereafter (it being understood that not more than one Blockage Period may be commenced with respect to the Notes during any period of 360 consecutive days), and during such Blockage Period (i) such Nonmonetary Default shall not have been cured or waived, (ii) the holder of such Senior Indebtedness (or, in the case of the Credit Agreement, the Agent) shall not have made a demand for payment and commenced an action, suit or other proceeding against the Company and (iii) none of the events described in subsection (A) above shall have occurred, then (to the extent not otherwise prohibited by subsections (A), (B) or (C) above) the Company may, not less than 10 days after receipt by the holders of such Senior Indebtedness or the Agent, as the case may be, of written notice to such effect from the holders of the Notes, make and the holders of the Notes may accept from the Company all past due and current payments of any kind of or on account of the Notes, and such holder may demand, receive, retain, sue for or otherwise seek enforcement or collection of all amounts payable on account of principal of or interest on the Notes. 18 19 (b) Subject to the payment in full in cash of all Senior Indebtedness as aforesaid and the termination of all obligations to provide financial accommodations under the Credit Agreement, the holders of the Notes shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of any kind or character, whether in cash, property, stock or obligations, which may be payable or deliverable to the holders of Senior Indebtedness, until the principal of, and interest on, the Notes shall be paid in full in cash, and, as between the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, no such payment or distribution made to the holders of Senior Indebtedness by virtue of this Section 14 which otherwise would have been made to the holder of the Notes shall be deemed a payment by the Company on account of the Senior Indebtedness, it being understood that the provisions of this Section 14 are and are intended solely for the purposes of defining the relative rights of the holders of the Notes, on the one hand, and the holder of the Senior Indebtedness, on the other hand. Subject to the rights, if any, under this Section 14 of holders of Senior Indebtedness to receive cash, property, stock or obligations otherwise payable or deliverable to the holders of the Notes, nothing herein shall either impair, as between the Company and the holder of the Notes, the obligation of the Company, which is unconditional and absolute, to pay to the holder thereof the principal thereof and interest thereon in accordance with its terms or prevent (except as otherwise specified therein) the holders of the Notes from exercising all remedies otherwise permitted by applicable law or hereunder upon default hereunder. (c) If any payment or distribution of any character or any security, whether in cash, securities or other property, shall be received by any holders of the Notes in contravention of any of the terms hereof or before all the Senior Indebtedness obligations have been paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated, such payment or distribution or security shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the holders of the Senior Indebtedness at the time outstanding in accordance with the priorities then existing among such holders for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all such Senior Indebtedness in full in cash. In the event of the failure of any such holder to endorse or assign any such payment, distribution or security, each holder of any Senior Indebtedness is hereby irrevocably authorized to endorse or assign the name. (d) The rights under these subordination provisions of the holders of any Senior Indebtedness as against any holders of the Notes shall remain in full force and effect without regard to, and shall not be impaired or affected by: 19 20 (i) any act or failure to act on the part of the Company; or (ii) any extension or indulgence in respect of any payment or prepayment of any Senior Indebtedness or any part thereof or in respect of any other amount payable to any holder of any Senior Indebtedness; or (iii) any amendment, modification or waiver of, or addition or supplement to, or deletion from, or compromise, release, consent or other action in respect of, any of the terms of any Senior Indebtedness or any other agreement which may be made relating to any Senior Indebtedness; or (iv) any exercise or non-exercise by the holder of any Senior Indebtedness of any right, power, privilege or remedy under or in respect of such Senior Indebtedness or these subordination provisions or any waiver of any such right, power, privilege or remedy or of any default in respect of such Senior Indebtedness or these subordination provisions or any receipt by the holder of any Senior Indebtedness of any security, or any failure by such holder to perfect a security interest in, or any release by such holder of, any security for the payment of such Senior Indebtedness; or (v) any merger or consolidation of the Company or any of its subsidiaries into or with any other person, or any sale, lease or transfer of any or all of the assets of the Company or any of its subsidiaries to any other person; or (vi) absence of any notice to, or knowledge by, any holder of any claim hereunder of the existence or occurrence of any of the matters or events set forth in the foregoing clauses (i) through (v); or (vii) any other circumstance. (e) The holders of the Notes unconditionally waive (i) notice of any of the matters referred to in Section 14(d); (ii) all notices which may be required, whether by statute, rule of law or otherwise, to preserve intact any rights of any holder of any Senior Indebtedness, including, without limitation, any demand, presentment and protest, proof of notice of nonpayment under any Senior Indebtedness or the Credit Agreement, and notice of any failure on the part of the Company to perform and comply with any covenant, agreement, term or condition of any Senior Indebtedness, (iii) any right to the enforcement, assertion or exercise by any holder of any Senior Indebtedness of any right, power, privilege or remedy conferred in such Senior Indebtedness or otherwise, (iv) any requirements of diligence on the part of any holder of any of the Senior Indebtedness, (v) any requirement on the part of any holder of any Senior Indebtedness to mitigate damages resulting from any 20 21 default under such Senior Indebtedness and (vi) any notice of any sale, transfer or other disposition of any Senior Indebtedness by any holder thereof. (f) The obligations of the holder under these subordination provisions shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Indebtedness, or any other payment to any holder of any Senior Indebtedness in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Indebtedness upon the occurrence of any proceeding referred to in paragraph 14(a)(A) or upon or as a result of the appoint of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any substantial part of its property or otherwise, all as though such payment had not been made. (g) Notwithstanding anything to the contrary herein, the Company shall not at any time offer (and the holder hereof shall not at any time accept) (i) any pledge of collateral or (ii) any guaranty by any parent or subsidiary of the Company, in each case with respect to the obligations of the Company under this Note. 15. Covenants Bind Successors and Assigns. All the covenants, stipulations, promises and agreements in this Note contained by or on behalf of the Company shall bind its successors and assigns, whether so expressed or not. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York. 17. Headings. The headings of the sections and paragraphs of this Note are inserted for convenience only and do not constitute a part of this Note. 18. Third Party Beneficiaries. The provisions of Section 14 are intended to be for the benefit of, and shall be enforceable directly by each holder of, the Senior Indebtedness. 21 22 IN WITNESS WHEREOF, Aurora Electronics, Inc. has caused this Note to be signed in its corporate name by one of its officers thereunto duly authorized and to be dated as of the day and year first above written. AURORA ELECTRONICS, INC. By: -------------------------------- Name: Title: EX-99.8 10 10% SENIOR SUBORDINATED NOTE DUE 12/31/00 1 EXHIBIT 99.8 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AURORA ELECTRONICS, INC. 10% Senior Subordinated Note Due December 31, 2004 $[ ] , 1998 AURORA ELECTRONICS, INC., a Delaware corporation (hereinafter called the "Company"), for value received, hereby promises to pay to [WELSH, CARSON ANDERSON & STOWE VII, L.P. ("WCAS VII")] or registered assigns, the principal sum of [ ] DOLLARS ($[ ]) as follows: on each of December 31, 2002, 2003 and 2004, the lesser of [ ] and the aggregate principal amount hereof then outstanding. In addition, the Company hereby promises to pay to WCAS VII, or registered assigns, interest (computed on the basis of a 360-day year consisting of twelve 30-day months) from the date hereof on the unpaid principal amount hereof at the rate of 10% per annum semi-annually in arrears on June 30 and December 31 of each year (each said day being an "Interest Payment Date"), commencing on June 30, 1998, until the principal amount hereof shall have become due and payable, whether at maturity or by acceleration or otherwise, and thereafter at the rate of 12% per annum on any overdue principal amount and (to the extent permitted by applicable law) on any overdue interest until paid. All payments of principal and interest on this Note shall be in such coin or currency of the United States of America as at the time of payment shall be legal tender for payment of public and private debts. If any payment on this Note is due on a day which is not a Business Day, it shall be due on the next succeeding Business Day. For purposes of this Note, "Business Day" shall mean any day other than a Saturday, Sunday or a legal holiday or day on which banks are authorized or required to be closed in Chicago or New York. 1. The Note. This Note is issued pursuant to and is subject to the terms and provisions of the Securities Purchase and Exchange Agreement dated as of January 30, 1998 (the "Purchase Agreement"), among the Company, WCAS VII, WCAS Capital Partners II, L.P.("WCAS CP II") and the several purchasers named on Schedule I 2 thereto and the terms of this Note include those stated in the Purchase Agreement. As used herein, the term "Note" or "Notes" includes the 10% Senior Subordinated Note due December 31, 2005 of the Company originally so issued and any 10% Senior Subordinated Note or Notes due December 31, 2004 subsequently issued upon exchange or transfer thereof. 2. Transfer, Etc. of Notes. The Company shall keep at its office or agency maintained as provided in paragraph (a) of Section 8 a register in which the Company shall provide for the registration of this Note and for the registration of transfer and exchange of this Note. The holder of this Note may, at its option, and either in person or by its duly authorized attorney, surrender the same for registration of transfer or exchange at the office or agency of the Company maintained as provided in Section 8 and, without expense to such holder (except for taxes or governmental charges imposed in connection therewith), receive in exchange therefor a Note or Notes each in such denomination or denominations (in integral multiples of $100,000) as such holder may request, dated as of the date to which interest has been paid on the Note or Notes so surrendered for transfer or exchange, for the same aggregate principal amount as the then unpaid principal amount of the Note or Notes so surrendered for transfer or exchange, and registered in the name of such person or persons as may be designated by such holder. Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed, or shall be accompanied by a written instrument of transfer, satisfactory in form to the Company, duly executed by the holder of such Note or its attorney duly authorized in writing. Every Note so made and delivered in exchange for such Note shall in all other respects be in the same form and have the same terms as such Note. No transfer or exchange of any Note shall be valid (x) unless made in the foregoing manner at such office or agency and (y) unless registered under the Securities Act of 1933, as amended, or any applicable state securities laws or unless an exemption from such registration is available. 3. Loss, Theft, Destruction or Mutilation of Note. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of any such loss, theft or destruction, upon receipt of an affidavit of loss and an indemnity reasonably acceptable in form and substance to the Company from the holder thereof, or, in the case of any such mutilation, upon surrender and cancellation of this Note, the Company will make and deliver, in lieu of this Note, a new Note of like tenor and unpaid principal amount and dated as of the date to which interest has been paid on this Note. 4. Persons Deemed Owners; Holders. The Company may deem and treat the person in whose name this Note is registered as the owner and holder of this Note for the purpose of receiving payment of principal of and interest on this Note and for all other 2 3 purposes whatsoever, whether or not this Note shall be overdue. With respect to any Note at any time outstanding, the term "holder," as used herein, shall be deemed to mean the person in whose name such Note is registered as aforesaid at such time. 5. Prepayments. (a) Optional Prepayment. Subject to any applicable restrictions contained in the Credit Agreement (as hereinafter defined), upon notice given as provided in Section 5(b), the Company may, at its option, prepay this Note, without premium or penalty, as a whole at any time or in part from time to time in principal amounts which shall be integral multiples of $100,000, together with any accrued and unpaid interest thereon through the date of such prepayment. Such prepayments shall be applied in inverse order of maturity. (b) Notice of Prepayment. The Company shall give written notice of any prepayment of this Note or any portion hereof pursuant to Section 5(a) not less than 20 nor more than 60 days prior to the date fixed for such prepayment. Such notice of prepayment and all other notices to be given to the holder of this Note shall be given by registered or certified mail to the person in whose name this Note is registered at its address designated on the register maintained by the Company on the date of mailing such notice of prepayment or other notice. Upon notice of prepayment being given as aforesaid, the Company covenants and agrees that it will prepay, on the date therein fixed for prepayment, this Note or the portion hereof, as the case may be, so called for prepayment, at the prepayment price determined in accordance with Section 5(a) hereof. A prepayment of less than all of the outstanding principal amount of this Note shall not relieve the Company of its obligation to make scheduled payments of interest payable in respect of the principal remaining outstanding on the Interest Payment Dates. (c) Allocation of All Payments. In the event of any partial payment of less than all of the interest then due on the Notes then outstanding or any prepayment, purchase, redemption or retirement of less than all of the outstanding Notes, the Company will allocate the amount of interest so to be paid and the principal amount so to be prepaid, purchased, redeemed or retired to each Note in proportion, as nearly as may be, to the aggregate principal amount of all Notes then outstanding. (d) Interest After Date Fixed for Prepayment. If this Note or a portion hereof is called for prepayment as herein provided, this Note or such portion shall cease to bear interest on and after the date fixed for such prepayment unless, upon presentation for such purpose, the Company shall fail to pay this Note or such portion, as the case may be, in which event this Note or such portion, as the case may be, and, so far as may be lawful, any overdue installment of interest, shall bear interest on and after 3 4 the date fixed for such prepayment and until paid at the rate per annum provided herein. (e) Surrender of Note; Notation Thereon. Upon any prepayment of a portion of the principal amount of this Note, the holder hereof, at its option, may require the Company to execute and deliver at the expense of the Company (other than for transfer taxes, if any), upon surrender of this Note, a new Note registered in the name of such person or persons as may be designated by such holder for the principal amount of this Note then remaining unpaid, dated as of the date to which the interest has been paid on the principal amount of this Note then remaining unpaid, or may present this Note to the Company for notation hereon of the payment of the portion of the principal amount of this Note so prepaid. 6. Offer to Repurchase Upon a Change of Control. Subject to any applicable restrictions in the Credit Agreement with respect to paragraph (a) below: (a) Upon the occurrence of a Change of Control (as hereinafter defined), the holder of this Note shall have the right, at such holder's option, to require the Company to repurchase all or any part of such holder's Note in amounts which shall be in multiples of $100,000 (pursuant to the offer described below) of the Notes outstanding, in any such event, at a purchase price equal to 101% of the principal amount thereof so to be repurchased, plus accrued and unpaid interest, if any, to the date of purchase (a "Change of Control Payment"). Within 10 Business Days after the Company knows, or reasonably should know, of the occurrence of any Change of Control, the Company shall make an irrevocable, unconditional offer (except that such offer may be conditioned upon the closing of the transaction constituting the Change of Control) (a "Change of Control Offer") to all holders of the Notes to purchase all of the Notes for cash in an amount equal to the Change of Control Payment by sending written notice (the "Change of Control Notice") of such Change of Control Offer to each holder by registered or certified mail to the person in whose name the Note is registered at its address maintained by the Company on the date of the mailing of such notice. The Change of Control Notice shall contain all instructions and materials required by applicable law and shall contain or make available to the holder other information material to such holder's decision to tender this Note pursuant to the Change of Control Offer. The Change of Control Notice, which shall govern the terms of the Change of Control Offer, shall state: (i) that the Change of Control Offer is being made pursuant to this Section 6, and that all Notes validly tendered will be accepted for payment; (ii) the Change of Control Payment (including the amount of accrued and unpaid interest) and the purchase date, which 4 5 will be no later than 30 days from the date such notice is mailed (the "Change of Control Payment Date"); (iii) that any Note not validly tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the Change of Control Payment, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that holders electing to have a Note, or portion thereof, purchased pursuant to a Change of Control Offer will be required to surrender the Note to the Company at the address specified in the notice not later than the close of business on the Business Day prior to the Change of Control Payment Date; (vi) that holders will be entitled to withdraw their election if the Company receives, not later than the close of business on the second Business Day prior to the Change of Control Payment Date, a telegram, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Note delivered for purchase and a statement that such holder is withdrawing its election to have such principal amount of Note purchased; and (vii) that holders whose Notes are being purchased only in part will be issued a new Note equal in principal amount to the unpurchased portion of the Note surrendered, which unpurchased portion must be equal to $100,000 in principal amount or an integral multiple thereof. On or before the Change of Control Payment Date, the Company shall (i) accept for payment the Notes or portions thereof validly tendered pursuant to the Change of Control Offer prior to the close of business on the Change of Control Payment Date, (ii) promptly mail to the holders of Notes so accepted payment in an amount equal to the Change of Control Payment (including accrued and unpaid interest) for such Notes, and the Company shall promptly mail or deliver to such holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided, that each such new Note will be in a principal amount of $100,000 or an integral multiple thereof. Any Notes not so accepted shall be promptly mailed or delivered by the Company to the holder thereof. (b) In the event of a Change of Control, the Company will promptly but in no event later than 30 days after the Change of Control, in good faith, (i) obtain any required consent of the holders of any Senior Indebtedness (as defined herein) to permit the Change of Control Offer and the Change of Control Payment 5 6 contemplated by this Section 6, or (ii) repay some or all of such Senior Indebtedness to the extent necessary (including, if necessary, payment in full of such Senior Indebtedness and payment of any prepayment premiums, fees, expenses or penalties) to permit the Change of Control Offer and the Change of Control Payment contemplated hereby without such consent. Failure to comply with the foregoing shall not relieve the Company from its obligations pursuant to paragraph (a) above. (c) For purposes of this Note "Change of Control" means (i) the sale, lease or transfer, whether direct or indirect, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, in one transaction or a series of related transactions, to any "person" or "group" (other than the WCAS Group), (ii) the liquidation or dissolution of the Company or the adoption of a plan of liquidation or dissolution of the Company, (iii) the acquisition of "beneficial ownership" by any "person" or "group" (other than the WCAS Group) of voting stock of the Company representing more than 50% of the voting power of all outstanding shares of such voting stock, whether by way of merger or consolidation or otherwise, or (iv) during any period of two consecutive years, the failure of those individuals who at the beginning of such period constituted the Company's Board of Directors (together with any new directors whose election or appointment by such Board or whose nomination for election or appointment by the shareholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) to constitute a majority of the Company's Board of Directors then in office; provided, however, that in no event shall a foreclosure on any collateral pledged by the Company in respect of obligations arising under or in connection with the Credit Agreement constitute a Change of Control. For purposes of this Section 6 and Section 7, (i) the terms "person" and "group" shall have the meaning set forth in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not applicable, (ii) the term "beneficial owner" shall have the meaning set forth in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable, except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time or upon the occurrence of certain events, (iii) any "person" or "group" will be deemed to beneficially own any voting stock of the Company so long as such person or group beneficially owns, directly or indirectly, in the aggregate a majority of the voting stock of a registered holder of the voting stock of the Company, and (iv) the term "WCAS Group" shall mean WCAS VII, WCAS CP II, any general partners thereof and any other investment limited partnerships or other investment entities under common control therewith. 6 7 7. Special Mandatory Prepayments. (a) Subject to any applicable restrictions contained in the Credit Agreement, within 5 days after the consummation of: (i) any sale, transfer, lease, sale and leaseback or other disposition by the Company to any person of all or any part of its property or assets, in any case in a single transaction or a series of related transactions (other than any of the foregoing for fair value of property that (x) is of inventory in the ordinary course of business or (y) is of worn-out or obsolete assets); or (ii) the issuance (other than by dividend) of any capital stock or other ownership interest of the Company pursuant to offerings registered under the Securities Act of 1933, as amended (the "Securities Act"); the Company shall be required to prepay the indebtedness outstanding under the Notes in an amount equal to 100% of the gross cash proceeds received by the Company from such transaction less all legal expenses, customary commissions and other fees and expenses incurred and all federal, state, local and foreign taxes assessed in connection therewith. Partial prepayments of the Notes pursuant to this paragraph (a) shall be applied to the then remaining installments of principal in inverse order of maturity. (b) Subject to any applicable restrictions contained in the Credit Agreement, if there shall exist any Excess Cash Flow (as defined in paragraph (c) hereof) for any fiscal year, a mandatory prepayment (an "Excess Cash Flow Prepayment") of the indebtedness outstanding under the Notes shall be made on the date (the "Excess Cash Flow Prepayment Date") which is 105 days after the end of such fiscal year, in an amount equal to one hundred percent (100%) of such Excess Cash Flow. Partial prepayments of indebtedness pursuant to this paragraph (b) shall be applied in inverse order of maturity (c) "Excess Cash Flow" means, for any fiscal period of the Company, an amount which, on a combined basis in conformity with GAAP, is equal to: (i) the excess of the sum (without duplication) of the following amounts: (A) net income for such fiscal period; (B) expenses for such fiscal period for depreciation, amortization and other similar non-cash charges, to 7 8 the extent that the same are deducted from net revenues in determining net income for such fiscal period; (C) the difference between (1) the amount of taxes imposed on the Company deducted from net revenues to determine net income for such fiscal period and (2) the amount of taxes actually paid by the Company during such fiscal period; and (D) the difference between (1) any extraordinary or non-recurring items of expense deducted from net revenues to determine net income for such fiscal period and (2) the aggregate amount of all cash payments made by the Company during such period on account of extraordinary or non-recurring items of expense, whether or not accrued in such period; over the sum (without duplication) of the following amounts: (1) the aggregate amount during such fiscal period of scheduled payments of principal on (x) the Notes, (y) the indebtedness under the Credit Agreement and (z) any indebtedness permitted under the Credit Agreement; (2) the amount of actual payments by the Company in cash during such fiscal period for capital expenditures; and (3) the difference between (1) any extraordinary or non-recurring items of income added to net revenues to determine net income and (2) the aggregate amount of all cash receipts received by the Company during such period on account of extraordinary or non-recurring items of income, whether or not accrued in such period; (ii) plus (in the case of a decrease) or minus (in the case of an increase) the change in the amount of working capital as at the end of such fiscal period as compared with the amount of working capital as at the end of the immediately preceding fiscal period. Each of the foregoing items shall be computed in accordance with GAAP consistently applied. 8. Covenants Relating to the Notes. Unless approved by its Board of Directors including the affirmative vote of a director designated by WCAS VII, the Company covenants and agrees that so long as the Notes shall be outstanding and, in the case of paragraphs (k) through (n) below, so long as five million dollars 8 9 ($5,000,000) of aggregate principal amount of the Notes is outstanding: (a) Maintenance of Office. The Company will maintain an office or agency in such place in the United States of America as the Company may designate in writing to the registered holder of this Note, where this Note may be presented for registration of transfer and for exchange as herein provided, where notices and demands to or upon the Company in respect of this Note may be served and where this Note may be presented for payment. Until the Company otherwise notifies the holder hereof, said office shall be the principal office of the Company located at 9477 Waples Street, San Diego, California 92121. (b) Payment of Taxes. The Company will promptly pay and discharge or cause to be paid and discharged, before the same shall become in default, all material lawful taxes and assessments imposed upon the Company or any of its subsidiaries or upon the income and profits of the Company or any of its subsidiaries, or upon any property, real, personal or mixed, belonging to the Company or any of its subsidiaries, or upon any part thereof by the United States or any State thereof, as well as all material lawful claims for labor, materials and supplies which, if unpaid, would become a lien or charge upon such property or any part thereof; provided, however, that neither the Company nor any of its subsidiaries shall be required to pay and discharge or to cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as both (x) the Company has established adequate reserves for such tax, assessment, charge, levy or claim and (y)(i) the Company or a subsidiary shall be contesting the validity thereof in good faith by appropriate proceedings or (ii) the Company shall, in its good faith judgment, deem the validity thereof to be questionable and the party to whom such tax, assessment, charge, levy or claim is allegedly owed shall not have made written demand for the payment thereof. (c) Corporate Existence. The Company will do or cause to be done all things necessary and lawful to preserve and keep in full force and effect (i) its corporate existence and the corporate existence of each of its subsidiaries and (ii) the material rights and franchises of the Company and each of its subsidiaries under the laws of the United States or any state thereof, or, in the case of subsidiaries organized and existing outside the United States, under the laws of the applicable jurisdiction; provided, however, that nothing in this paragraph (c) shall prevent the abandonment or termination of any rights or franchises of the Company, or the liquidation or dissolution of, or a sale, transfer or disposition (whether through merger, consolidation, sale or otherwise) of all or any substantial part of the property and assets of, any subsidiary or the abandonment or termination of the corporate existence, rights and franchises of any subsidiary if such abandonment, termination, liquidation, dissolution, sale, transfer 9 10 or disposition is, in the good faith business judgment of the Company, in the best interests of the Company and not disadvantageous to the holder of this Note. (d) Maintenance of Property. The Company will at all times maintain and keep, or cause to be maintained and kept, in good repair, working order and condition (reasonable wear and tear excepted) all significant properties of the Company and its subsidiaries used in the conduct of the Business, and will from time to time make or cause to be made all needful and proper repairs, renewals, replacements, betterments and improvements thereto, so that the Business may be conducted at all times in the ordinary course consistent with past practice. (e) Insurance. The Company will, and will cause each of its subsidiaries to, (i) keep adequately insured, by financially sound and reputable insurers, all property of a character usually insured by corporations engaged in the same or a similar business similarly situated against loss or damage of the kinds customarily insured against by such corporations and (ii) carry, with financially sound and reputable insurers, such other insurance (including without limitation liability insurance) in such amounts as are available at reasonable expense and to the extent believed advisable in the good faith business judgment of the Company. (f) Keeping of Books. The Company will at all times keep, and cause each of its subsidiaries to keep, proper books of record and account in which proper entries will be made of its transactions in accordance with generally accepted accounting principles consistently applied. (g) Transactions with Affiliates. The Company shall not enter into, or permit any of its subsidiaries to enter into, any transaction with any of its or any subsidiary's officers, directors, employees or any person related by blood or marriage to any such person or any entity in which any such person owns any beneficial interest, except for (i) normal employment arrangements, benefit programs and employee incentive option programs on reasonable terms, (ii) any transaction approved by the Board of Directors of the Company in accordance with the provisions of Section 144 of the Delaware General Corporation Law, or otherwise permitted by such Section, (iii) customer transactions in the ordinary course of business and on arm's length terms and (iv) the transactions contemplated by the Purchase Agreement. (h) Notice of Certain Events. The Company shall, immediately after it becomes aware of the occurrence of (i) any Event of Default (as hereinafter defined) or any event which, upon notice or lapse of time or both, would constitute such an Event of Default, or (ii) any action, suit or proceeding at law or in equity or by or before any governmental instrumentality or agency which, if adversely determined, would materially impair the right of the 10 11 Company to carry on its business substantially as now or then conducted, or would have a material adverse effect on the properties, assets, financial condition, prospects, operating results or business of the Company and its subsidiaries taken as a whole, give notice to the holder of this Note, specifying the nature of such event. (i) Payment of Principal and Interest on the Note. The Company will use its best efforts, subject to the provisions of applicable credit arrangements (including the Credit Agreement), contractual obligations of the Company and/or its subsidiaries and any applicable law restricting the same, to provide funds from its subsidiaries to the Company, by dividend, advance or otherwise, sufficient to permit payment by the Company of the principal of and interest on this Note in accordance with its terms. Subject to any applicable provisions in the Credit Agreement and documents executed and delivered in connection therewith, the Company will not, and will not permit any subsidiary to, directly or indirectly create or otherwise cause to exist any encumbrance or restriction on the ability of any subsidiary to pay dividends or make any other distributions to the Company or any wholly-owned subsidiary of the Company in respect of its capital stock. (j) Consolidation, Merger and Sale. The Company will not consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of its property in one or more related transactions to, any other corporation or other entity, unless: (i) the Company is the surviving corporation or the entity formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale or other disposition shall have been made is a corporation organized or existing under the laws of the United States of any state thereof or the District of Columbia; (ii) the surviving corporation or other entity (if other than the Company) shall expressly and effectively assume in writing the due and punctual payment of the principal of and interest on this Note, according to its tenor, and the due and punctual performance and observance of all the terms, covenants, agreements and conditions of this Note to be performed or observed by the Company to the same extent as if such surviving corporation had been the original maker of this Note; (iii) the Company or such other corporation or other entity shall not otherwise be in default in the performance or observance of any covenant, agreement or condition of this Note or the Purchase Agreement; and (iv) the holder of this Note shall have received, in connection therewith, an opinion of counsel for the Company 11 12 (or other counsel satisfactory to the holder), in form and substance satisfactory to the holder, to the effect that any such consolidation, merger, sale or conveyance and any such assumption complies with the provisions of this paragraph (j). Notwithstanding anything to the contrary herein, in no event shall a foreclosure on any collateral pledged by the Company in respect of obligations arising under or in connection with the Credit Agreement be deemed to constitute a violation of the Company's obligations pursuant to this paragraph (j). (k) Limitation on Indebtedness and Disqualified Stock. The Company will not, and will not permit any of its subsidiaries to, (i) incur or permit to remain outstanding any indebtedness for money borrowed ("Indebtedness"), except (A) Senior Indebtedness (as defined in Section 14), (B) Indebtedness existing on the date of original issuance of this Note, (C) Indebtedness permitted to be incurred under the Credit Agreement as in effect from time to time after the original issuance of this Note (other than Indebtedness that is subordinate or junior in right of payment (to any extent) to any Senior Indebtedness and senior or pari passu in right of payment (to any extent) to the Notes), or (D) in the event that the Credit Agreement has terminated, Indebtedness permitted to be incurred under any successor credit agreement of the Company with respect to Senior Indebtedness, or if there exists no such credit agreement, such Indebtedness as may be mutually agreed upon by the Company and the holders of a majority of the aggregate principal amount of the Notes then outstanding, or (ii) issue any capital stock ("Disqualified Stock") of the Company or any of its subsidiaries (other than the Convertible Preferred Stock (as hereinafter defined)) which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures, or is mandatorily redeemable, whether pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to December 31, 2005. (l) Restricted Payments. The Company will not, and will not permit any of its subsidiaries to: (i) declare or pay any dividends on, or make any other distribution or payment on account of, or redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of any class of stock of the Company, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash, property or in obligations of the Company or any of its subsidiaries, except for (X) distributions of shares of the same class or of a different class of stock pro rata to all holders of shares of a class of stock, (Y) the payment of cash dividends on account of the Company's 7% Senior Cumulative Convertible Preferred Stock, $.01 par value (the "Convertible Preferred Stock"), or (Z) dividends, distributions or payments by any subsidiary to the Company or to any wholly-owned subsidiary of the Company, or (ii), 12 13 except as permitted under the Credit Agreement, make any payments of principal of, or retire, redeem, purchase or otherwise acquire any Indebtedness other than any Senior Indebtedness or the Notes (such declarations, payments, purchases, redemptions, retirements, acquisitions or distributions being herein called "Restricted Payments"). (m) Limitation on Liens. The Company shall not, and shall not permit any of its subsidiaries to, directly or indirectly, create, incur, assume or otherwise cause or suffer to exist any lien, pledge , charge, security interest or encumbrance (collectively, "Liens") on any asset now owned or hereafter acquired, or on any income or profits therefrom or assign or convey any right to receive income therefrom, except for (i) Liens permitted under the Credit Agreement, (ii) liens for current taxes not yet due, (iii) landlord's liens, (iv) purchase money liens and (v) workman's, materialman's, warehouseman's and similar liens arising by law or statute. (n) Inspection of Property. The Company will permit the holder hereof to visit and inspect any of the properties of the Company and any other subsidiaries and their books and records and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and such subsidiaries and their independent public accountants, all at such reasonable times and as often as such holders may reasonably request. 9. Modification by Holders; Waiver. The Company may, with the written consent of the holders of not less than a majority in principal amount of the Notes then outstanding, modify the terms and provisions of this Note or the rights of the holders of this Note or the obligations of the Company hereunder, and the observance by the Company of any term or provision of this Note may be waived with the written consent of the holders of not less than a majority in principal amount of the Notes then outstanding. Any such modification or waiver shall apply equally to each holder of the Notes and shall be binding upon them, upon each future holder of any Note and upon the Company, whether or not such note shall have been marked to indicate such modification or waiver, but any Note issued thereafter shall bear a notation referring to any such modification or waiver. Promptly after obtaining the written consent of the holders as herein provided, the Company shall transmit a copy of such modification or waiver to the holders of the Notes at the time outstanding. 10. Events of Default. If any one or more of the following events, herein called "Events of Default," shall occur (for any reason whatsoever, and whether such occurrence shall, on the part of the Company or any of its subsidiaries, be voluntary or involuntary or come about or be effected by operation of law or 13 14 pursuant to or in compliance with any judgment, decree or order of a court of competent jurisdiction or any order, rule or regulation of any administrative or other governmental authority) and such Event of Default shall be continuing: (i) default shall be made in the payment of the principal of this Note when and as the same shall become due and payable, whether at maturity or at a date fixed for prepayment or repurchase (including default of any optional prepayment in accordance with the requirements of Section 5, any Change of Control Payment in accordance with the requirements of Section 6 or any special mandatory prepayment in accordance with the requirements of Section 7, as the case may be) or by acceleration or otherwise; or (ii) default shall be made in the payment of any installment of interest on this Note according to its terms when and as the same shall become due and payable; or (iii) default shall be made in the due observance or performance of any covenant, condition or agreement on the part of the Company contained herein in Section 8(j); or (iv) default shall be made in the due observance or performance of any other covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof or of the Purchase Agreement, and such default shall continue for 10 days after written notice thereof, specifying such default and requesting that the same be remedied; or (v) any representation or warranty made by or on behalf of the Company herein or in the Purchase Agreement shall prove to have been false or incorrect in any material respect on the date on or as of which made; or (vi) the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of the Company or any of its subsidiaries in any involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar laws, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or any of its subsidiaries for any substantial part of any of their property or ordering the winding-up or liquidation of any of their affairs and the continuance of any such decree or order unstayed and in effect for a period of 30 consecutive days; or (vii) the commencement by the Company or any of its subsidiaries of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other 14 15 applicable federal or state bankruptcy, insolvency or other similar laws, or the consent by any of them to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or any of its subsidiaries for any substantial part of any of their property, or the making by any of them of any general assignment for the benefit of creditors, or the failure of the Company or of any of its subsidiaries generally to pay its debts as such debts become due, or the taking of corporate action by the Company or any of its subsidiaries in furtherance of or which might reasonably be expected to result in any of the foregoing; or (viii) a default or an event of default as defined in any instrument evidencing or under which the Company or any of its subsidiaries has outstanding at the time any Indebtedness in excess of $500,000 in aggregate principal amount shall occur and as a result thereof the maturity of any such Indebtedness shall have been accelerated so that the same shall have become due and payable prior to the date on which the same would otherwise have become due and payable and such acceleration shall not have been rescinded or annulled within 20 days; or (ix) final judgment (not reimbursed by insurance policies of the Company or any of its subsidiaries) for the payment of money in excess of $500,000 shall be rendered against the Company or any of its subsidiaries and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed; then the holders of at least 33-1/3% in aggregate principal amount of the Notes at the time outstanding may, at their option, by a notice in writing to the Company declare this Note to be, and this Note shall thereupon be and become immediately due and payable together with interest accrued thereon, without diligence, presentment, demand, protest or further notice of any kind, all of which are expressly waived by the Company to the extent permitted by law. At any time after any declaration of acceleration has been made as provided in this Section 10, the holders of a majority in principal amount of the Notes then outstanding may, by notice to the Company, rescind such declaration and its consequences, provided, however, that no such rescission shall extend to or affect any subsequent default or Event of Default or impair any right consequent thereon. Without limiting the foregoing, the Company hereby waives any right to trial by jury in any legal proceeding related in any way to this Note and agrees that any such proceeding may, if the holder so elects, be brought and enforced in the Supreme Court of the State of New York for New York County or the United States 15 16 District Court for the Southern District of New York and the Company hereby waives any objection to jurisdiction or venue in any such proceeding commenced in such court. The Company further agrees that any process required to be served on it for purposes of any such proceeding may be served on it, with the same effect as personal service on it within the State of New York, by registered mail addressed to it at its office or agency set forth in paragraph (a) of Section 8 for purposes of notices hereunder. 11. Suits for Enforcement. Subject to the provisions of Section 14 of this Note, in case any one or more of the Events of Default specified in Section 10 of this Note shall happen and be continuing (subject to any applicable cure period expressly set forth herein), the holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law and/or by other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note, or may proceed to enforce the payment of this Note or to enforce any other legal or equitable right of the holder of this Note. In case of any default under this Note, the Company will pay to the holder hereof reasonable collection costs and reasonable attorneys' fees, to the extent actually incurred. 12. Remedies Cumulative. No remedy herein conferred upon the holder of this Note is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. 13. Remedies Not Waived. No course of dealing between the Company and the holder of this Note or any delay on the part of the holder hereof in exercising any rights hereunder shall operate as a waiver of any right of the holder of this Note. 14. Subordination. (a) Anything contained in this Note to the contrary notwithstanding, the indebtedness evidenced by the Notes shall be subordinate and junior, to the extent set forth in the following paragraphs (A), (B), (C) and (D), to all Senior Indebtedness of the Company. "Senior Indebtedness" shall mean the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all reasonable fees, reimbursement and indemnity obligations, and all other obligations arising in connection with, any indebtedness for borrowed money of the Company, contingent or otherwise, now outstanding or created, incurred, issued, assumed or guaranteed in the future, for which, in the case of any particular indebtedness, the instrument creating or evidencing the same or 16 17 pursuant to which the same is outstanding expressly provides that such indebtedness shall not be subordinate in right of payment to any other indebtedness of the Company. Without limiting the generality of the foregoing, Senior Indebtedness shall include all Obligations (under and as defined in the Credit Agreement); notwithstanding the foregoing, Senior Indebtedness shall include only such Obligations until such time as the same are paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated. For purposes of this Note, "Credit Agreement" shall mean, collectively, (i) the Credit Agreement, dated as of March 29, 1996, as amended or otherwise modified, among the Company and other Guarantors named therein, the Lenders named therein and The Chase Manhattan Bank N.A., as Agent (the "Agent"), and (ii) the senior credit facility contemplated by Section 4.01(c) of the Purchase Agreement, together with any agreement entered into in connection with the restatement, renewal, extension, restructuring, refunding or refinancing of the obligations under such credit agreements. (A) In the event of any insolvency, bankruptcy, liquidation, reorganization or other similar proceedings, or any receivership proceedings in connection therewith, relative to the Company or its creditors or its property, and in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy proceedings, then all Senior Indebtedness shall first be paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated, before any payment, whether on account of principal, interest or otherwise, is made upon the Notes. (B) In any of the proceedings referred to in paragraph (A) above, any payment or distribution of any kind or character, whether in cash, property, stock or obligations which may be payable or deliverable in respect of the Notes shall be paid or delivered directly to the holders of Senior Indebtedness for application in payment thereof, unless and until all Senior Indebtedness shall have been paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated. (C) No payment shall be made, directly or indirectly, on account of the Notes (i) upon maturity of any Senior Indebtedness obligation, by lapse of time, acceleration (unless waived), or otherwise, unless and until all principal thereof and interest thereon and all other obligations in respect thereof shall first be paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated, or (ii) upon the happening of any default in payment of any principal of, premium, if any, or interest on or any other amounts payable in respect of Senior 17 18 Indebtedness when the same becomes due and payable whether at maturity or at a date fixed for prepayment or by declaration or otherwise (a "Senior Payment Default"), unless and until such Senior Payment Default shall have been cured or waived or shall have ceased to exist. (D) Upon the happening of an event of default with respect to any Senior Indebtedness permitting (after notice or lapse of time or both) one or more holders of such Senior Indebtedness (or, in the case of the Credit Agreement, the Agent) to declare such Senior Indebtedness due and payable prior to the date on which it is otherwise due and payable (a "Nonmonetary Default"), upon the occurrence of (i) receipt by the holders of the Notes of written notice from the holders of said Senior Indebtedness (or, in the case of the Credit Agreement, the Agent) of a Nonmonetary Default (any such notice, a "Blockage Notice"), or (ii) if such Nonmone- tary Default results from the acceleration of the Notes, the date of such acceleration; then (x) the Company will not make, directly or indirectly, to the holder of the Notes any payment of any kind of or on account of all or any part of the Notes; (y) the holders of the Notes will not accept from the Company any payment of any kind of or on account of all or any part of the Notes and (z) the holders of the Notes may not take, demand, receive, sue for, accelerate or commence any remedial proceedings with respect to any amount payable under the Notes, unless and until in each case described in clauses (x), (y) and (z) all such Senior Indebtedness shall have been paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated; provided, however, that if such Nonmonetary Default shall have occurred and be continuing for a period (a "Blockage Period") commencing on the earlier of the date of receipt of such Blockage Notice or the date of the acceleration of the Notes and ending 179 days thereafter (it being understood that not more than one Blockage Period may be commenced with respect to the Notes during any period of 360 consecutive days), and during such Blockage Period (i) such Nonmonetary Default shall not have been cured or waived, (ii) the holder of such Senior Indebtedness (or, in the case of the Credit Agreement, the Agent) shall not have made a demand for payment and commenced an action, suit or other proceeding against the Company and (iii) none of the events described in subsection (A) above shall have occurred, then (to the extent not otherwise prohibited by subsections (A), (B) or (C) above) the Company may, not less than 10 days after receipt by the holders of such Senior Indebtedness or the Agent, as the case may be, of written notice to such effect from the holders of the Notes, make and the holders of the Notes may accept from the Company all past due and current payments of any kind of or on account of the Notes, and such holder may demand, receive, retain, sue 18 19 for or otherwise seek enforcement or collection of all amounts payable on account of principal of or interest on the Notes. (b) Subject to the payment in full in cash of all Senior Indebtedness as aforesaid and the termination of all obligations to provide financial accommodations under the Credit Agreement, the holders of the Notes shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of any kind or character, whether in cash, property, stock or obligations, which may be payable or deliverable to the holders of Senior Indebtedness, until the principal of, and interest on, the Notes shall be paid in full in cash, and, as between the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, no such payment or distribution made to the holders of Senior Indebtedness by virtue of this Section 14 which otherwise would have been made to the holder of the Notes shall be deemed a payment by the Company on account of the Senior Indebtedness, it being understood that the provisions of this Section 14 are and are intended solely for the purposes of defining the relative rights of the holders of the Notes, on the one hand, and the holder of the Senior Indebtedness, on the other hand. Subject to the rights, if any, under this Section 14 of holders of Senior Indebtedness to receive cash, property, stock or obligations otherwise payable or deliverable to the holders of the Notes, nothing herein shall either impair, as between the Company and the holder of the Notes, the obligation of the Company, which is unconditional and absolute, to pay to the holder thereof the principal thereof and interest thereon in accordance with its terms or prevent (except as otherwise specified therein) the holders of the Notes from exercising all remedies otherwise permitted by applicable law or hereunder upon default hereunder. (c) If any payment or distribution of any character or any security, whether in cash, securities or other property, shall be received by any holders of the Notes in contravention of any of the terms hereof or before all the Senior Indebtedness obligations have been paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated, such payment or distribution or security shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the holders of the Senior Indebtedness at the time outstanding in accordance with the priorities then existing among such holders for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all such Senior Indebtedness in full in cash. In the event of the failure of any such holder to endorse or assign any such payment, distribution or security, each holder of any Senior Indebtedness is hereby irrevocably authorized to endorse or assign the name. (d) The rights under these subordination provisions of the holders of any Senior Indebtedness as against any holders of 19 20 the Notes shall remain in full force and effect without regard to, and shall not be impaired or affected by: (i) any act or failure to act on the part of the Company; or (ii) any extension or indulgence in respect of any payment or prepayment of any Senior Indebtedness or any part thereof or in respect of any other amount payable to any holder of any Senior Indebtedness; or (iii) any amendment, modification or waiver of, or addition or supplement to, or deletion from, or compromise, release, consent or other action in respect of, any of the terms of any Senior Indebtedness or any other agreement which may be made relating to any Senior Indebtedness; or (iv) any exercise or non-exercise by the holder of any Senior Indebtedness of any right, power, privilege or remedy under or in respect of such Senior Indebtedness or these subordination provisions or any waiver of any such right, power, privilege or remedy or of any default in respect of such Senior Indebtedness or these subordination provisions or any receipt by the holder of any Senior Indebtedness of any security, or any failure by such holder to perfect a security interest in, or any release by such holder of, any security for the payment of such Senior Indebtedness; or (v) any merger or consolidation of the Company or any of its subsidiaries into or with any other person, or any sale, lease or transfer of any or all of the assets of the Company or any of its subsidiaries to any other person; or (vi) absence of any notice to, or knowledge by, any holder of any claim hereunder of the existence or occurrence of any of the matters or events set forth in the foregoing clauses (i) through (v); or (vii) any other circumstance. (e) The holders of the Notes unconditionally waive (i) notice of any of the matters referred to in Section 14(d); (ii) all notices which may be required, whether by statute, rule of law or otherwise, to preserve intact any rights of any holder of any Senior Indebtedness, including, without limitation, any demand, presentment and protest, proof of notice of nonpayment under any Senior Indebtedness or the Credit Agreement, and notice of any failure on the part of the Company to perform and comply with any covenant, agreement, term or condition of any Senior Indebtedness, (iii) any right to the enforcement, assertion or exercise by any holder of any Senior Indebtedness of any right, power, privilege or remedy conferred in such Senior Indebtedness or otherwise, (iv) any 20 21 requirements of diligence on the part of any holder of any of the Senior Indebtedness, (v) any requirement on the part of any holder of any Senior Indebtedness to mitigate damages resulting from any default under such Senior Indebtedness and (vi) any notice of any sale, transfer or other disposition of any Senior Indebtedness by any holder thereof. (f) The obligations of the holder under these subordination provisions shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Indebtedness, or any other payment to any holder of any Senior Indebtedness in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Indebtedness upon the occurrence of any proceeding referred to in paragraph 14(a)(A) or upon or as a result of the appoint of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any substantial part of its property or otherwise, all as though such payment had not been made. (g) Notwithstanding anything to the contrary herein, the Company shall not at any time offer (and the holder hereof shall not at any time accept) (i) any pledge of collateral or (ii) any guaranty by any parent or subsidiary of the Company, in each case with respect to the obligations of the Company under this Note. 15. Covenants Bind Successors and Assigns. All the covenants, stipulations, promises and agreements in this Note contained by or on behalf of the Company shall bind its successors and assigns, whether so expressed or not. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York. 17. Headings. The headings of the sections and paragraphs of this Note are inserted for convenience only and do not constitute a part of this Note. 18. Third Party Beneficiaries. The provisions of Section 14 are intended to be for the benefit of, and shall be enforceable directly by each holder of, the Senior Indebtedness. 21 22 IN WITNESS WHEREOF, Aurora Electronics, Inc. has caused this Note to be signed in its corporate name by one of its officers thereunto duly authorized and to be dated as of the day and year first above written. AURORA ELECTRONICS, INC. By:____________________ Name: Title: EX-99.9 11 CERTIFICATE OF DESIGNATIONS 1 EXHIBIT 99.9 CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SENIOR CUMULATIVE CONVERTIBLE PREFERRED STOCK OF AURORA ELECTRONICS, INC. (Pursuant to Section 151 of the Delaware General Corporation Law) ------------------------------------------- AURORA ELECTRONICS, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies that, pursuant to authority vested in the Board of Directors of the Corporation by Article Fourth of the Restated Certificate of Incorporation, as amended, of the Corporation, the following resolution was adopted as of by the Board of Directors of the Corporation pursuant to Section 141 of the Delaware General Corporation Law: "RESOLVED that, pursuant to authority vested in the Board of Directors of the Corporation by Article Fourth of the Corporation's Restated Certificate of Incorporation, as amended, of the total authorized number of 1,000,000 shares of Preferred Stock, par value $.01 per share, of the Corporation, there shall be designated a series of 213,000 shares which shall be issued in and constitute a single series to be known as "7% Senior Cumulative Convertible Preferred Stock" (hereinafter called the "Senior Preferred Stock"). The shares of Senior Preferred Stock shall have the voting powers, designations, preferences and other special rights, and qualifications, limitations and restrictions thereof set forth below: 1. Dividends. (a) The holders of shares of Senior Preferred Stock shall be entitled to receive, out of funds legally available for such purpose, cash dividends at the rate of $7.00 per share per annum, and no more, payable as provided herein. Such dividends shall be cumulative and shall accrue from and after the date of issue whether or not declared and whether or not there are any funds of the Corporation legally available for the payment of dividends. Accrued but unpaid dividends shall not bear interest. The Board of Directors of the Corporation may fix a record date for the determination of holders of Senior Preferred Stock entitled to receive payment of a dividend de- clared 2 thereon, which record date shall be no more than 60 days prior to the date fixed for the payment thereof. (b) As long as any shares of Senior Preferred Stock shall remain outstanding, in no event shall any dividend be declared or paid upon, nor shall any distribution be made upon, any Junior Capital Stock (as defined herein), other than a dividend or distribution payable solely in shares of common stock of the Corporation, nor shall any shares of Junior Capital Stock be purchased or redeemed by the Corporation, nor shall any moneys be paid to or made available for a sinking fund for the purchase or redemption of shares of any Junior Capital Stock, unless, in each such case, (i) full cumulative dividends on the outstanding shares of Senior Preferred Stock shall have been declared and paid and (ii) any arrears or defaults in any redemption of shares of Senior Preferred Stock shall have been cured. The term "Junior Capital Stock" as used herein means any shares of capital stock of the Corporation, including the Corporation's Common Stock, par value $.03 per share (the "Common Stock"), and the Corporation's Convertible Preferred Stock (including Series B, Series C and Series D thereof), par value $.01 per share (the "Junior Preferred Stock"), other than shares of the Corporation's capital stock permitted to rank on a parity with or senior to the Senior Preferred Stock pursuant to paragraph 6 hereof. 2. Redemption. The shares of Senior Preferred Stock shall be redeemable as follows: (a) Mandatory Redemption. (1) Except as and to the extent expressly prohibited by applicable law, the Corporation shall redeem (i) one half of the outstanding shares of Senior Preferred Stock on December 31, 2006 and (ii) all of the remaining shares of Senior Preferred Stock on December 31, 2007 (in the manner and with the effect provided in subparagraphs 2(c) through 2(e) below). (b) Redemption at the Option of the Holder. Upon the occurrence of any of the following (each a "Change of Control"): (i) the sale, lease or transfer, whether direct or indirect, of all or substantially all the assets of the Corporation and its subsidiaries, taken as a whole, in one transaction or a series of related transactions, to any person or group other than the WCAS Group (as hereinafter defined), or (ii) the acquisition of beneficial ownership by any person or group other than the WCAS Group, of voting stock of the Corporation representing more than 50% of the voting power of all outstanding shares of such voting stock, whether by way of merger or consolidation or otherwise, 2 3 then each holder of any share or shares of Senior Preferred Stock shall have the right, at such holder's option, to require the Corporation to redeem (a "Redemption at the Option of the Holder"), any or all of such holder's shares of Senior Preferred Stock (any such redemption of less than all a holder's shares to be in integral multiples of 1,000 shares) on or prior to the effective date of such Change of Control, at a redemption price of $100 plus all accrued but unpaid dividends to which the holders of the Senior Preferred Stock are then entitled pursuant to paragraph 1 above as of such date. Such option shall be exercised by written notice to the Corporation given within fifteen days of the date of receipt of the Redemption Notice (as defined herein) to be delivered pursuant to paragraph 2(c) below. For purposes of this Certificate of Designations: (i) the terms "person" and "group" shall have the meaning set forth in paragraph 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not applicable, (ii) the term "beneficial owner" shall have the meaning set forth in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable, except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time or upon the occurrence of certain events, (iii) any "person" or "group" will be deemed to beneficially own any voting stock of the Corporation so long as such person or group beneficially owns, directly or indirectly, in the aggregate a majority of the voting stock of a registered holder of the voting stock of the Corporation, and (iv) the term "WCAS Group" shall mean Welsh, Carson, Anderson & Stowe VII, L.P., a Delaware limited partnership ("WCAS VII"), WCAS Capital Partners II, L.P., a Delaware limited partnership ("WCAS CP II"), any general partners thereof and any other investment limited partnerships or other investment entities under common control therewith. Any date on which any shares of Senior Preferred Stock are to be redeemed as provided in this paragraph 2 is hereinafter called a "Senior Preferred Redemption Date." The price at which any shares of Senior Preferred Stock are to be redeemed as herein provided is hereinafter called the "Senior Preferred Redemption Price." (c) Notice of Redemption. At least 20 days (and not more than 60 days) prior to any Senior Preferred Redemption Date (which in the case of any Redemption at the Option of the Holder shall be prior to the effective date of any Change of Control), written notice thereof (a "Senior Preferred Redemption Notice") shall be mailed, by first class or registered mail, postage prepaid, to each holder of record of Senior Preferred Stock, at his, her or its address last shown on the records of the transfer agent of the Senior Preferred Stock (or the records of the 3 4 Corporation, if it serves as its own transfer agent). The Senior Preferred Redemption Notice shall set forth (i) the Senior Preferred Redemption Date, (ii) the Senior Preferred Redemption Price, (iii) in the case of a Mandatory Redemption, the total number of shares to be redeemed from all holders and the number of shares to be redeemed from such holder, and (iv) in the case of a Redemption at the Option of the Holder, a description of the events which will, upon the occurrence thereof, constitute a Change of Control, including a summary description of the terms thereof, and such holder's right to exercise its option to require a redemption under paragraph 2(b) hereof. In the case of a Mandatory Redemption, the Senior Preferred Redemption Notice shall call upon such holder to surrender to the Corporation, in the manner and at the place designated, his, her or its certificate or certificates representing any shares of Senior Preferred Stock to be redeemed. (d) Redeemed or Otherwise Acquired Shares to be Retired. On or prior to a Senior Preferred Redemption Date, all holders of shares of Senior Preferred Stock to be redeemed shall surrender their certificates representing such shares to the Corporation, in the manner and at the place designated in the Senior Preferred Redemption Notice, and against such surrender the Senior Preferred Redemption Price of such shares shall be paid to the order of the person whose name appears on each such certificate as the owner thereof. Each surrendered certificate shall be canceled. From and after the Senior Preferred Redemption Date, unless there shall have been a default in payment of the Senior Preferred Redemption Price, all rights of the holders of the shares of redeemed Senior Preferred Stock as holders of such shares of Senior Preferred Stock (except the right to receive the Senior Preferred Redemption Price without interest against surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation (or its transfer agent, if any) or be deemed to be outstanding for any purpose whatsoever. (e) Shares to be Redeemed or Purchased. If the funds of the Corporation legally available for redemption of Senior Preferred Stock on any Senior Preferred Redemption Date are insufficient, after redemption of any other shares ranking senior thereto, to redeem the full number of shares of Senior Preferred Stock to be redeemed on such date, those funds which are legally available shall be used to redeem the maximum possible number of such shares of Senior Preferred Stock ratably from each holder whose shares are otherwise required to be redeemed. At any time thereafter when additional funds of the Corporation become legally available for the redemption of Senior Preferred Stock, such funds will be used, at the end of the next succeeding fiscal quarter, to redeem the balance of the shares which the Corporation 4 5 was theretofore obligated to redeem, ratably on the basis set forth in the preceding sentence. 3. Liquidation, Dissolution or Winding Up. (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Senior Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Corporation available for distribution to its stockholders, before any payment shall be made to the holders of any shares of Junior Capital Stock by reason of their ownership thereof, an amount equal to $100 per share of Senior Preferred Stock, plus all accrued but unpaid dividends to which the holders of the Senior Preferred Stock are then entitled pursuant to paragraph 1 above as of such date, and no more. If upon any such liquidation, dissolution or winding up of the Corporation the remaining assets of the Corporation available for distribution to its stockholders (after making all distributions to which holders of capital stock ranking senior to the Senior Preferred Stock shall be entitled) shall be insufficient to pay the holders of shares of Senior Preferred Stock the full amount to which they shall be entitled pursuant to this paragraph 3(a), the holders of shares of Senior Preferred Stock, and any other shares ranking on a parity therewith, shall share ratably in any distribution of the remaining assets and funds of the Corporation in proportion to the respective amounts which would otherwise be payable in respect of the shares of Senior Preferred Stock held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. (b) After the payment of all amounts required to be paid pursuant to paragraph 3(a) to the holders of shares of Senior Preferred Stock, and any other shares ranking on a parity therewith, upon the dissolution, liquidation or winding up of the Corporation, the holders of shares of Junior Capital Stock then outstanding shall share in any distribution of the remaining assets and funds of the Corporation in the manner provided by law, in the Restated Certificate of Incorporation of the Corporation, as amended, or as provided in any pertinent Certificate of Designations of the Corporation, as the case may be. (c) No Change of Control shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this paragraph 3. 4. Conversion. The shares of Senior Preferred Stock shall be convertible as follows: (a) Right to Convert. Subject to the terms and conditions of this paragraph 4, the holder of any share or shares of Senior Preferred Stock shall have the right, at his, her or its option, at any time, to convert any such shares of Senior Preferred Stock (except that upon any liquidation of the Corporation 5 6 the right of conversion shall terminate as to all shares at the close of business 15 days after notice thereof has been given to the holders of Senior Preferred Stock as provided in paragraph 4(h) hereof) into such number of fully paid and nonassessable whole shares of Common Stock as is obtained by (i) multiplying the number of shares of Senior Preferred Stock so to be converted by $100, (ii) adding the Additional Conversion Amount (as defined in paragraph 4(c) herein), if any, and (iii) dividing the result by the conversion price of $0.25 or, if there has been an adjustment of the conversion price, by the conversion price as last adjusted and in effect at the date any share or shares of Senior Preferred Stock are surrendered for conversion (such price, or such price as last adjusted, being referred to herein as the "Senior Preferred Conversion Price"). Such right of conversion shall be exercised by the holder thereof by giving written notice that the holder elects to convert a stated number of shares of Senior Preferred Stock into Common Stock and by surrender of a certificate or certificates for the shares so to be converted to the Corporation at its principal office (or such other office or agency of the Corporation as the Corporation may designate by notice in writing to the holder or holders of the Senior Preferred Stock) at any time during its usual business hours on the date set forth in such notice, together with a statement of the name or names (with address), subject to compliance with applicable laws to the extent such designation shall involve a transfer, in which the certificate or certificates for shares of Common Stock shall be issued. (b) Issuance of Certificates; Time Conversion Effected. Promptly after the receipt by the Corporation of the written notice referred to in paragraph 4(a) above and surrender of the certificate or certificates for the share or shares of the Senior Preferred Stock to be converted, the Corporation shall issue and deliver, or cause to be issued and delivered, to the holder, registered in such name or names as such holder may direct, subject to compliance with applicable laws to the extent such designation shall involve a transfer, a certificate or certificates for the number of whole shares of Common Stock issuable upon the conversion of such share or shares of Senior Preferred Stock. To the extent permitted by law, such conversion shall be deemed to have been effected and the Senior Preferred Conversion Price shall be determined as of the close of business on the date on which such written notice shall have been received by the Corporation and the certificate or certificates for such share or shares shall have been surrendered as aforesaid, and at such time the rights of the holder of such share or shares of Senior Preferred Stock shall cease, and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. 6 7 (c) Fractional Shares; Dividends; Partial Conversion. (i) No fractional shares shall be issued upon conversion of the Senior Preferred Stock into Common Stock and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. If any fractional interest in a share of Common Stock would, except for the provisions of this paragraph 4(c), be deliverable upon any such conversion, the Corporation, in lieu of delivering the fractional share thereof, shall pay to the holder surrendering the Senior Preferred Stock for conversion an amount in cash equal to the current fair market value of such fractional interest as determined in good faith by the Board of Directors of the Corporation. (ii) Upon the conversion of any shares of Senior Preferred Stock, the Corporation will pay the holder thereof, out of funds legally available for such purpose, any accrued but unpaid dividends thereon to the date of such conversion. In the event that the Corporation is for any reason unable to pay some or all of such accrued but unpaid dividends, any amount not so paid shall (for purposes of paragraph 4(a) hereof) constitute the "Additional Conversion Amount." No other payment or adjustment shall be made upon any conver- sion on account of the Senior Preferred Stock so converted or the Common Stock issued upon such conversion. (iii) In case the number of shares of Senior Preferred Stock represented by the certificate or certificates surrendered pursuant to paragraph 4(a) exceeds the number of shares converted, the Corporation shall, upon such conversion, execute and deliver to the holder thereof, at the expense of the Corporation, a new certificate or certificates for the number of shares of Senior Preferred Stock represented by the certificate or certificates surrendered which are not to be converted. (d) Adjustment of Price Upon Issuance of Common Shares. Except as provided in paragraph 4(e) hereof, if and whenever (after the date the shares of Senior Preferred Stock shall have been issued and be outstanding) the Corporation shall issue or sell, or is, in accordance with subparagraphs (d)(i) through (d)(vii), deemed to have issued or sold, any shares of its Common Stock without consideration or for a consideration per share less than the Senior Preferred Conversion Price in effect immediately prior to the time of such issue or sale, then, forthwith upon such issue or sale, the Senior Preferred Conversion Price shall be adjusted to the price (calculated to the nearest cent) determined by dividing (x) an amount equal to the sum of (A) the number of shares of Common Stock outstanding immediately prior to such issue or sale (including as outstanding all shares of Common Stock issuable upon conversion of outstanding 7 8 Senior Preferred Stock or upon conversion of outstanding Convertible Securities (as defined in subparagraph (i) below)) multiplied by the then existing Senior Preferred Conversion Price, and (B) the consideration, if any, received by the Corporation upon such issue or sale, by (y) the total number of shares of Common Stock outstanding immediately after such issue or sale (including as outstanding all shares of Common Stock issuable upon conversion of outstanding Senior Preferred Stock or outstanding Convertible Securities, in each case without giving effect to any adjustment in the number of shares so issuable by reason of such issue and sale). No adjustment of the Senior Preferred Conversion Price, however, shall be made in an amount less than $.01 per share, and any such lesser adjustment shall be carried forward and shall be made at the time and together with the next subsequent adjustment which together with any adjustments so carried forward shall amount to $.01 per share or more. For purposes of this paragraph 4(d), the following subparagraphs (i) through (vii) shall also be applicable: (i) Issuance of Rights or Options. Subject to paragraph 4(e) hereof, in case at any time the Corporation shall in any manner grant (whether directly or by assumption in a merger or otherwise) any rights to subscribe for or to purchase, or any options for the purchase of, Common Stock or any stock (other than shares of Senior Preferred Stock) or securities convertible into or exchangeable for Common Stock (such rights or options being herein called "Options" and such convertible or exchangeable stock or securities being herein called "Convertible Securities") whether or not such Options or the right to convert or exchange any such Convertible Securities are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities (determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon the exercise of all such Options, plus, in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable upon the issue or sale of such Convertible Securities and upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options) shall be less than the Senior Preferred Conversion Price in effect immediately prior to the time of the granting of such Options, then the total maximum number of shares 8 9 of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum amount of such Convertible Securities issuable upon the exercise of such Options shall be deemed to have been issued for such price per share as of the date of granting of such Options and thereafter shall be deemed to be outstanding. Except as otherwise provided in subparagraph (iii) below, no adjustment of the Senior Preferred Conversion Price shall be made upon the actual issue of such Common Stock or of such Convertible Securities upon exercise of such Options or upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities. (ii) Issuance of Convertible Securities. Subject to paragraph 4(e) hereof, in case the Corporation shall in any manner issue (whether directly or by assumption in a merger or otherwise) or sell any Convertible Securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange (determined by dividing (A) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (B) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities) shall be less than the Senior Preferred Conversion Price in effect immediately prior to the time of such issue or sale, then the total maximum number of shares of Common Stock issuable upon conversion or exchange of all such Convertible Securities shall be deemed to have been issued for such price per share as of the date of the issue or sale of such Convertible Securities and thereafter shall be deemed to be outstanding, provided that (x) except as otherwise provided in subparagraph (iii) below, no adjustment of the Senior Preferred Conversion Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such Convertible Securities, and (y) if any such issue or sale of such Convertible Securities is made upon exercise of any Option to purchase any such Convertible Securities for which adjustments of the Senior Preferred Conversion Price have been or are to be made pursuant to other provisions of this paragraph 4(d), no further adjustment of the Senior Preferred Conversion Price shall be made by reason of such issue or sale. (iii) Change in Option Price or Conversion Rate. Upon the happening of any of the following events, namely, if the purchase price provided for in any Option referred to in subparagraph (i), the additional consideration, if any, payable upon the conversion or exchange of any Convertible 9 10 Securities referred to in subparagraph (i) or (ii), or the rate at which any Convertible Securities referred to in subparagraph (i) or (ii) are convertible into or exchangeable for Common Stock shall change at any time (in each case other than under or by reason of provisions designed to protect against dilution), the Senior Preferred Conversion Price in effect at the time of such event shall forthwith be readjusted to the Senior Preferred Conversion Price which would have been in effect at such time had such Options or Convertible Securities still outstanding provided for such changed purchase price, additional consideration or conversion rate, as the case may be, at the time initially granted, issued or sold; and on the expiration of any such Option or the termination of any such right to convert or exchange such Convertible Securities, the Senior Preferred Conversion Price then in effect hereunder shall forthwith be increased to the Senior Preferred Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Securities, to the extent outstanding immediately prior to such expiration or termination, never been issued, and the Common Stock issuable thereunder shall no longer be deemed to be outstanding. If the purchase price provided for in any such Option referred to in subparagraph (i) or the rate at which any Convertible Securities referred to in subparagraph (i) or (ii) are convertible into or exchangeable for Common Stock shall be reduced at any time under or by reason of provisions with respect thereto designed to protect against dilution, then, in case of the delivery of Common Stock upon the exercise of any such Option or upon conversion or exchange of any such Convertible Securities, the Senior Preferred Conversion Price then in effect hereunder shall forthwith be adjusted to such respective amount as would have been obtained had such Option or Convertible Securities never been issued as to such Common Stock and had adjustments been made upon the issuance of the shares of Common Stock delivered as aforesaid, but only if as a result of such adjustment the Senior Preferred Conversion Price then in effect hereunder is thereby reduced. (iv) Stock Dividends. In case the Corporation shall declare a dividend or make any other distribution upon the Common Stock of the Corporation payable in Common Stock, Options or Convertible Securities, the Senior Preferred Conversion Price shall be reduced as if the Corporation had subdivided its outstanding shares of Common Stock into a greater number of shares, as provided in subparagraph 4(d)(v) hereof. (v) Subdivision or Combination of Stock. In case the Corporation shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the 10 11 Senior Preferred Conversion Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Corporation shall be combined into a smaller number of shares, the Conversion Price in effect immediately prior to such combination shall be proportionately increased. (vi) Consideration for Stock. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for cash, the consideration received therefor shall be deemed to be the amount received by the Corporation therefor, without deduction therefrom of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. In case any shares of Common Stock, Options or Convertible Securities shall be issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Corporation, without deduction of any expenses incurred or any underwriting commissions or concessions paid or allowed by the Corporation in connection therewith. The amount of consideration deemed to be received by the Corporation pursuant to the foregoing provisions of this subparagraph (vi) upon any issuance and/or sale of shares of Common Stock, Options or Convertible Securities, pursuant to an established compensation plan of the Corporation, to directors, officers or employees of the Corporation in connection with their employment shall be increased by the amount of any tax benefit realized by the Corporation as a result of such issuance and/or sale, the amount of such tax benefit being the amount by which the Federal and/or state income or other tax liability of the Corporation shall be reduced by reason of any deduction or credit in respect of such issuance and/or sale. In case any Options shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such Options by the parties thereto, such Options shall be deemed to have been issued without consideration. (vii) Record Date. In case the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities, or (B) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such 11 12 other distribution or the date of the granting of such right of subscription or purchase, as the case may be. (e) Certain Issues of Stock Excepted. Anything herein to the contrary notwithstanding, the Corporation shall not make any adjustment of the Senior Preferred Conversion Price in the case of (i) the issuance of shares of Common Stock upon conversion of Senior Preferred Stock; (ii) the issuance of Options or shares of Common Stock to employees of the Corporation or its subsidiaries, either directly or pursuant to Options, pursuant to plans or arrangements approved by the Board of Directors of the Corporation; (iii) the issuance of shares of Common Stock in respect of any Convertible Securities or Options issued by the Corporation prior to the date of this Certificate of Designations; (iv) the issuance of Common Stock or Options or Convertible Securities as consideration in the acquisition by assumption or otherwise by the Corporation of substantially all of the assets of any other entity or more than 50% of the voting power of any other entity, including by way of merger or consolidation; or (v) the issuance of Options or Convertible Securities (or the shares of Common Stock issuable upon conversion or exercise thereof) to banks or other lenders as consideration for providing debt financing to the Corporation. (f) Reorganization or Reclassification. If any capital reorganization or reclassification of the capital stock of the Corporation (a "Reorganization") shall be effected in such a way (including, without limitation, by way of consolidation or merger) that holders of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such Reorganization, lawful and adequate provision (in form satisfactory to the holders of a majority of the then outstanding shares of Senior Preferred Stock) shall be made whereby each holder of a share or shares of Senior Preferred Stock shall thereafter have the right to re- ceive, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock of the Corporation immediately theretofore receivable upon the conversion of such share or shares of the Senior Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore so receivable had such Reorganization not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of such holder to the end that the provisions hereof (including without limitation provisions for adjustments of the Senior Preferred Conversion Price) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise of such conversion rights (including an immediate adjustment, by reason of such Reorganization, of the Senior Preferred Conversion Price to the value for the Common 12 13 Stock reflected by the terms of such Reorganization if the value so reflected is less than the Senior Preferred Conversion Price in effect immediately prior to such Reorganization). In the event of a merger or consolidation of the Corporation as a result of which a greater or lesser number of shares of common stock (or other equity interests, of the case may be) of the surviving corporation or business entity are issuable to holders of Common Stock of the Corporation outstanding immediately prior to such merger or consolidation, the Senior Preferred Conversion Price in effect immediately prior to such merger or consolidation shall be adjusted in the same manner as though there were a subdivision or combination of the outstanding shares of Common Stock of the Corporation. The Corporation will not effect any Change of Control unless prior to the consummation thereof the acquiring corporation or other business entity, or successor corporation or other business entity (if other than the Corporation) resulting from such Change of Control, as the case may be, shall assume by written instrument (in form reasonably satisfactory to the holders of a majority of the shares of Senior Preferred Stock at the time outstanding) executed and mailed or delivered to each holder of a share or shares of Senior Preferred Stock at the last address of such holder appearing on the books of the Corporation (or its transfer agent, if any), the obligation to deliver to such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to receive. (g) Notice of Adjustment. Upon any adjustment of the Senior Preferred Conversion Price, then and in each such case the Corporation shall give written notice thereof, by first class mail, postage prepaid, addressed to each holder of shares of Senior Preferred Stock at the address of such holder as shown on the books of the Corporation (or its transfer agent, if any), which notice shall state the Senior Preferred Conversion Price resulting from such adjustment, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. (h) Other Notices. In case at any time: (i) the Corporation shall declare any dividend upon its Common Stock payable in cash or stock or make any other distribution to the holders of its Common Stock; (ii) the Corporation shall offer for subscription pro rata to the holders of its Common Stock any additional shares of stock of any class or other rights; (iii) there shall be any Reorganization or Change of Control or the Corporation shall become aware of any event or events that could reasonably be expected to result in a Reorganization or Change of Control; or 13 14 (iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then, in any one or more of said cases, the Corporation shall give, by first class mail, postage prepaid, addressed to each holder of any shares of Senior Preferred Stock at the address of such holder as shown on the books of the Corporation (or its transfer agent, if any), (A) at least 15 days' prior written notice of the date on which the books of the Corporation (or its transfer agent) shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such Reorganization or Change of Control, and (B) in the case of any such Reorganization or Change of Control, at least 15 days' prior written notice of the date when the same shall take place. Such notice in accordance with the foregoing clause (A) shall also specify, in the case of any such dividend, distribution or subscription rights, the date on which the holders of Common Stock shall be entitled thereto, and such notice in accordance with the foregoing clause (B) shall also specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon such Reorganization or Change of Control, as the case may be. (i) Conversion at Corporation's Option. All outstanding shares of Senior Preferred Stock shall, on or after June 30, 1999, at the option of the Corporation, be automatically converted into Common Stock if at any time (i) the Corporation shall effect a firm commitment public offering of Common Stock or Convertible Securities registered pursuant to the Securities Act of 1933, as amended, resulting in proceeds to the Corporation and/or selling stockholders of not less than $20,000,000, after deduction of underwriting discounts and commissions but before deduction of other expenses of issuance, and in which the offering price to the public (or, in the case of a sale of Convertible Securities, the price per share of Common Stock payable upon conversion thereof) is greater than the Senior Preferred Conversion Price or (ii) the average closing sales price of Common Stock on one or more national securities exchanges on which the Common Stock is listed or quoted by NASDAQ or the OTC Bulletin Board over any period of twenty consecutive trading days equals or exceeds 300% of the Senior Preferred Conversion Price and the average daily trading volume for the Common Stock over such period equals or exceeds 10,000,000 shares per week (as adjusted for stock splits, stock dividends and other recapitalizations after the date of the first issuance of Senior Preferred Stock). Such conversion shall be effected at the time of and subject to the closing of the sale of such shares of Common Stock or on the first trading day succeeding such trading period, as the case may be. 14 15 (j) Stock to be Reserved. The Corporation will at all times reserve and keep available out of its authorized but unissued Common Stock, solely for the purpose of issuance upon the conversion of the Senior Preferred Stock as herein provided, such number of shares of Common Stock as shall then be issuable upon the conversion of all outstanding shares of Senior Preferred Stock. All shares of Common Stock which shall be so issued shall be duly and validly issued and fully paid and nonassessable and free from all taxes, liens and charges arising out of or by reason of the issue thereof, and, without limiting the generality of the foregoing, the Corporation covenants that it will from time to time take all such action as may be requisite to assure that the par value per share of the Common Stock is at all times equal to or less than the effective Senior Preferred Conversion Price. The Corporation will take all such action within its control as may be necessary on its part to assure that all such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock of the Corporation may be listed. The Corporation will not take any action which results in any adjustment of the Senior Preferred Conversion Price if after such action the total number of shares of Common Stock issued and outstanding and thereafter issuable upon exercise of all options and conversion of Convertible Securities, including upon conversion of the Senior Preferred Stock, would exceed the total number of shares of Common Stock then authorized by the Corporation's Restated Certificate of Incorporation. (k) No Reissuance of Senior Preferred Stock. Shares of Senior Preferred Stock that are converted into shares of Common Stock as provided herein shall not be reissued. (l) Issue Tax. The issuance of certificates for shares of Common Stock upon conversion of the Senior Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respect thereof, provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the holder of the Senior Preferred Stock which is being converted. (m) Closing of Books. The Corporation will at no time close its transfer books against the transfer of any Senior Preferred Stock or of any shares of Common Stock issued or issuable upon the conversion of any shares of Senior Preferred Stock in any manner which interferes with the timely conversion of such Senior Preferred Stock. (n) Definition of Common Stock. As used in this paragraph 4, the term "Common Stock" shall mean and include the Corporation's authorized Common Stock, par value $.03 per share, 15 16 as constituted on the date of filing of this Certificate of Designations and shall also include any capital stock of any class of the Corporation thereafter authorized that shall not be limited to a fixed sum or percentage of par value in respect of the rights of the holders thereof to participate in dividends or in the distribution of assets upon the voluntary or involuntary liquidation, dissolution or winding up of the Corporation; provided, however, that such term, when used to describe the securities receivable upon conversion of shares of the Senior Preferred Stock of the Corporation, shall include only shares designated as Common Stock of the Corporation on the date of filing of this Certificate of Designations, any shares resulting from any combination or subdivision thereof referred to in subparagraph (v) of paragraph 4(d), or in case of any reorganization or reclassification of the outstanding shares thereof, the stock, securities or assets provided for in paragraph 4(f). 5. Voting. Except as otherwise provided by law or in paragraph 6 below, the holders of Senior Preferred Stock shall vote together with the holders of Common Stock on all matters to be voted on by the stockholders of the Corporation, and each holder of Senior Preferred Stock shall be entitled to one vote for each share of Common Stock that would be issuable to such holder upon the conversion of all the shares of Senior Preferred Stock held by such holder on the record date for the determination of stockholders entitled to vote. 6. Restrictions. So long as any shares of Senior Preferred Stock are outstanding (except, with respect to clause (i) below, so long as at least 25,000 shares of Senior Preferred Stock are outstanding), without the consent of the holders of a majority of the Senior Preferred Stock at the time outstanding given in person or by proxy, either in writing or at a special meeting called for that purpose at which the holders of the Senior Preferred Stock shall vote separately as a class, the Corporation may not (i) effect, validate or permit a Change of Control; (ii) effect or validate the amendment, alteration or repeal of any provision hereof which would amend or repeal the dividend, voting, conversion, redemption or liquidation rights of the Senior Preferred Stock set forth herein; (iii) effect or validate the amendment, alteration or repeal of any provision of the Restated Certificate of Incorporation or the By- laws of the Corporation; or (iv) (A) create or authorize any additional class or series of stock ranking senior to or on a parity with the Senior Preferred Stock as to dividends or as to rights upon redemption, liquidation, dissolution or winding up, or (B) increase the authorized number of shares of the Senior Preferred Stock or of any other class or series of capital stock of the Corporation ranking senior to or on a parity with the Senior Preferred Stock as to dividends or as to rights upon redemption, liquidation, dissolution or winding up, whether any such creation or authorization or increase shall be by means of amendment 16 17 hereof, amendment of the Restated Certificate of Incorporation of the Corporation, Certificate of Designations or amendment thereof, merger, consolidation or otherwise. 7. Reacquired Shares. Any shares of Senior Preferred Stock, which are redeemed or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof and the number of authorized shares of Senior Preferred Stock shall be reduced accordingly. IN WITNESS WHEREOF, this Certificate of Designations has been executed by the Corporation by its Chairman and Chief Executive Officer this ____ day of __________, 1998. AURORA ELECTRONICS, INC. By -------------------------- Chairman and Chief Executive Officer EX-99.10 12 CERTIFICATE OF AMENDMENT 1 EXHIBIT 99.10 CERTIFICATE OF AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION OF AURORA ELECTRONICS, INC. --------------------------- AURORA ELECTRONICS, INC., a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: That the following resolutions were duly adopted by the Board of Directors of the Corporation, setting forth a proposed amendment to the Restated Certificate of Incorporation of the Corporation, declaring such amendment to be advisable and directing that such amendment be submitted to the stockholders of the Corporation for their approval. The resolutions are as follows: "RESOLVED, that as further contemplated by the Merger Agreement, there is hereby adopted an amendment to the Corporation's Restated Certificate of Incorporation pursuant to which the authorized capital stock of the Corporation shall be changed from 51,000,000 shares, consisting of 50,000,000 shares of Common Stock, $.03 par value ("Common Stock"), and 1,000,000 shares of Preferred Stock, $.01 par value ("Preferred Stock"), to 301,000,000 shares, consisting of 300,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock, and, in connection with such change, paragraph (A) of Article FOURTH of the Corporation's Restated Certificate of Incorporation shall be amended to read in its entirety as follows: '(A) The total number of shares of all classes of stock which the Corporation shall have authority to issue is 301,000,000 shares, consisting of 300,000,000 shares of Common Stock, $.03 par value and 1,000,000 shares of Preferred Stock, $.01 par value.' FURTHER RESOLVED, that the Board of Directors of the Corporation hereby declares that the foregoing amendment to 2 the Corporation's Restated Certificate of Incorporation is desirable and in the best interests of the Corporation, and hereby recommends that the amendment be submitted to the stockholders of the Corporation for their approval pursuant to Section 242(b) of the General Corporation Law of the State of Delaware." SECOND: That thereafter the amendment to the Restated Certificate of Incorporation of the Corporation effected by this Certificate was duly authorized by the written consent of the holders of not less than a majority of the outstanding shares of capital stock of the Corporation entitled to vote thereon, after having been declared advisable by the Board of Directors of the Corporation, all in accordance with the provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware. 2 3 IN WITNESS WHEREOF, AURORA ELECTRONICS, INC. has caused this Certificate to be signed by Lary McTavish, its Chief Executive Officer, who hereby acknowledges under penalties of perjury that the facts herein stated are true and that this Certificate is his act and deed, as of the day of 1998. AURORA ELECTRONICS, INC. By --------------------------- Name: Title: EX-99.11 13 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 99.11 AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT , 1998 To the several persons named in Schedules I and II hereto Ladies and Gentlemen: This Amended and Restated Registration Rights Agreement amends and restates in its entirety the Registration Rights Agreement, dated as of March 29, 1996 (as amended from time to time, the "Original Registration Rights Agreement"), among Aurora Electronics, Inc., a Delaware corporation (the "Company"), and the several persons named therein. This will confirm that (a) with respect to the several persons named as Purchasers in the Securities Purchase Agreement dated as of February 21, 1996, as amended (the "Original Purchase Agreement"), among the Company, Welsh, Carson, Anderson & Stowe VII, L.P., a Delaware limited partnership ("WCAS VII"), WCAS Capital Partners II, L.P., a Delaware limited partnership ("WCAS CP II"), and the several persons named therein, in consideration of (i) the purchase by WCAS VII and the several persons (other than WCAS CP II) named in Schedule I hereto (collectively, the "Original Preferred Share Purchasers") from the Company of 400,000 shares (the "Original Preferred Shares") of Convertible Preferred Stock, $.01 par value ("Original Convertible Preferred Stock"), of the Company, and (ii) the purchase by WCAS CP II of (x) the Company's 10% Senior Subordinated Note due September 30, 2001, in the principal amount of $10,000,000, and (y) 607,211 shares (the "Original Common Shares") of Common Stock, $.03 par value ("Common Stock"), of the Company, all on the terms and subject to the conditions set forth in the Original Purchase Agreement, (b) with respect to each of WCAS VII and WCAS CP II only (sometimes collectively referred to as the "Guarantors"), in consideration of the issuance, on behalf of Aurora Electronics Group, Inc., a California corporation and wholly-owned subsidiary of the Company ("AEG"), of certain guarantees which have been amended and restated pursuant to the Amended and Restated Guarantee, dated as of December 23, 1997, among the Guarantors and The Chase Manhattan Bank N.A. (formerly known as Chemical Bank), a New York banking corporation, 2 as agent, and in connection with the issuance to the Guarantors of warrants to purchase Common Stock (the "WCAS Warrants"), pursuant to such guarantees and the Amended and Restated Financial Support Agreement, dated as of July 31, 1997 among the Company, AEG, and the Guarantors, (c) with respect to those certain Original Preferred Share Purchasers party, together with the Company, to the Series B Convertible Preferred Stock Purchase Agreement, dated as of August 14, 1997, the Series C Convertible Preferred Stock Purchase Agreement, dated as of October 2, 1997, and the Series D Convertible Preferred Stock Purchase Agreement, dated as of October 24, 1997 (collectively, the "Subsequent Preferred Share Purchase Agreements"), in consideration of the purchase by such certain Original Preferred Share Purchasers of (i) 25,000 shares (the "Series B Preferred Shares") of Series B Convertible Preferred Stock, $.01 par value ("Series B Convertible Preferred Stock"), of the Company, (ii) 25,000 shares (the "Series C Preferred Shares") of Series C Convertible Preferred Stock, $.01 par value ("Series C Convertible Preferred Stock"), of the Company, and (iii) 20,000 shares (the "Series D Preferred Shares") of Series D Convertible Preferred Stock, $.01 par value ("Series D Convertible Preferred Stock"), of the Company, each such purchase on the terms and subject to the conditions set forth in the respective Subsequent Preferred Share Purchase Agreement, all of which Series B Preferred Shares, Series C Preferred Shares, and Series D Preferred Shares, have been converted, together with the Original Preferred Shares, into an aggregate [ ] shares of Common Stock (the "Subsequent Common Shares") pursuant to the provisions of the Stockholders Agreement dated as of January 30, 1998 among WCAS VII, the Company and The Cerplex Group, Inc., a Delaware corporation ("Cerplex"), (d) with respect to WCAS CP II and those certain Original Preferred Share Purchasers party, together with the Company, to the Securities Purchase and Exchange Agreement, dated as of January 30, 1998 (the "Securities Purchase and Exchange Agreement"), in consideration of the purchase by WCAS CP II and such certain Original Preferred Share Purchasers of an aggregate 213,000 shares (the "Senior Preferred Shares") of Senior Convertible Preferred Stock, $.01 par value ("Senior Preferred Stock"), of the Company, on the terms and subject to the conditions set forth in the Securities Purchase and Exchange Agreement, (e) with respect to WCAS VII, in consideration of your agreement to exchange certain warrants to purchase 1,500,096 shares of common stock, $.001 par value ("Cerplex Common Stock"), of Cerplex, for warrants to purchase [ ] shares of Common Stock from the Company (such warrants, 3 together with the WCAS Warrants, are hereinafter referred to collectively as, the "Warrants"), all on the terms and subject to the conditions set forth in the Agreement and Plan of Merger, dated as of January 30, 1998 (the "Merger Agreement"), among the Company, Holly Acquisition Corp., a Delaware corporation and wholly-owned subsidiary of the Company, and Cerplex, and (f) with respect to the several persons named in Schedule II hereto (collectively, the "Schedule II Holders"), in consideration of (i) the Schedule II Holders' agreement to exchange [ ] shares of Cerplex Common Stock for an aggregate [ ] shares of Common Stock (the "Schedule II Common Shares") from the Company, all on the terms and subject to the conditions set forth in the Merger Agreement, (ii) the Schedule II Holders' consent to the transactions contemplated by the Merger Agreement and (iii) the Schedule II Holders' irrevocable waiver hereby of any and all rights granted to them pursuant to the Registration Rights Agreement, dated as of November 19, 1993, among Cerplex and the investors and the stockholders of Cerplex listed therein, as amended from time to time (the "Cerplex Registration Rights Agreement"), and the Schedule II Holders' termination hereby of the Cerplex Registration Rights Agreement, the Company hereby covenants and agrees with each of you, and with each subsequent holder of Covered Stock (as defined herein) as follows: 1. Certain Definitions. As used herein, the following terms shall have the following respective meanings: "Commission" means the Securities and Exchange Commission, or any other federal agency at the time administering the Securities Act. "Common Shares" means the Original Common Shares, the Subsequent Common Shares and the Schedule II Common Shares. "Conversion Shares" means the shares of Common Stock issuable upon conversion of any of the Senior Preferred Shares or upon exercise of any of the Warrants. "Covered Stock" means the Restricted Stock and the Schedule II Common Shares. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. 3 4 "Registration Expenses" means the expenses so described in Section 8 hereof. "Restricted Stock" means the shares of capital stock of the Company, the certificates for which are required to bear the legend set forth in Section 2 hereof; provided, however, that Restricted Stock shall not include any Schedule II Common Shares. "Securities Act" means the Securities Act of 1933, as amended, or any similar federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" means the expenses so described in Section 8 hereof. 2. Restrictive Legend. Each certificate representing the Common Shares, each certificate representing the Senior Preferred Shares, each certificate representing the Conversion Shares, each certificate representing the Warrants, and each certificate issued upon exchange, adjustment or transfer of any of the foregoing, other than in a public sale or as otherwise permitted by the last paragraph of Section 3 hereof, shall be stamped or otherwise imprinted with a legend substantially in the following form: "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE." 3. Notice of Proposed Transfer. Prior to any proposed transfer of any Covered Stock (other than under the circumstances described in Sections 4, 5 or 6 hereof), the holder thereof shall give written notice to the Company of its intention to effect such transfer. Each such notice shall describe the manner of the proposed transfer and, if requested by the Company, shall be accompanied by an opinion of counsel reasonably satisfactory to the Company (it being agreed that Reboul, MacMurray, Hewitt, Maynard & Kristol is and shall be satisfactory) to the effect that the proposed transfer of Covered Stock may be effected without registration under the Securities Act, whereupon the holder of such Covered Stock shall be entitled to transfer such Covered Stock in accordance with the terms of its notice. Each certificate for Covered Stock transferred as above provided shall bear the legend set forth in Section 2, unless (i) such transfer is in accordance with the provisions of Rule 144 (or any other rule permitting public sale without registration under the Securities Act) or (ii) the opinion of counsel referred to above is to the further effect that the transferee and any subsequent 4 5 transferee (other than an affiliate of the Company) would be entitled to transfer such securities in a public sale without registration under the Securities Act. The foregoing restrictions on transferability of Covered Stock shall terminate as to any particular shares of Covered Stock when such shares shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition by the seller or sellers thereof set forth in the registration statement concerning such shares. Whenever a holder of Covered Stock is able to demonstrate to the Company (and its counsel) that the provisions of Rule 144(k) of the Securities Act are available to such holder without limitation, such holder of Covered Stock shall be entitled to receive from the Company, without expense, a new certificate not bearing the restrictive legend set forth in Section 2. 4. Required Registration. (a) Subject to the provisions of paragraph (e) below, at any time the holders of Restricted Stock constituting at least a majority of the Restricted Stock outstanding at such time may request the Company to register under the Securities Act all or any portion of the Restricted Stock held by such requesting holder or holders for sale in the manner specified in such notice; provided, however, that the only securities which the Company shall be required to register pursuant hereto shall be shares of Common Stock; and provided, further, however, that, in any underwritten public offering contemplated by Section 4, 5 or 6 hereof, the holders of the Warrants shall be entitled to sell such Warrants to the underwriters for exercise and the sale of the shares of Common Stock issued upon such exercise. For the purposes of calculating the number of outstanding shares of Restricted Stock for purposes of this Section 4(a) and Section 13(d) hereof, holders of Senior Preferred Shares and the Warrants shall be treated as the holders of the number of Conversion Shares then issuable upon conversion of the Senior Preferred Shares and exercise of the Warrants. (b) Promptly following receipt of any notice under this Section 4, the Company shall notify any holders of Restricted Stock from whom notice has not been received and all other holders of Covered Stock, and shall use its best efforts to register under the Securities Act, for public sale in accordance with the method of disposition specified in such notice from such requesting holders, the number of shares of Restricted Stock specified in such notice (and the number of shares of Covered Stock specified in any notices received from other such holders of Covered Stock within 30 days after their receipt of such notice from the Company); provided, however, that if the proposed method of disposition specified by the requesting holders of Restricted Stock shall be an underwritten public offering, the 5 6 number of shares of Covered Stock to be included in such an offering may be reduced (first, pro rata among the requesting holders of Schedule II Common Shares based on the number of Schedule II Common Shares so requested to be registered, and second, pro rata among the requesting holders of Restricted Stock based on the number of shares of Restricted Stock so requested to be registered) if and to the extent that the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the Covered Stock to be sold. If such method of disposition shall be an underwritten public offering, the Company may designate the managing underwriter of such offering, subject to the approval of the selling holders of a majority of the Restricted Stock included in the offering, which approval shall not be unreasonably withheld. Notwithstanding anything to the contrary contained herein, the obligation of the Company under this Section 4 shall be deemed satisfied only when a registration statement covering all shares of Covered Stock specified in notices received as aforesaid, for sale in accordance with the method of disposition specified by the requesting holders of Restricted Stock, shall have become effective and, if such method of disposition is a firm commitment underwritten public offering, all such shares shall have been sold pursuant thereto. (c) In the event that the Board of Directors of the Company determines in good faith that the filing of a registration statement pursuant hereto would be detrimental to the Company, the Board of Directors may defer such filing for a period not to exceed sixty (60) days. The Board of Directors may not effect more than one such deferral during any twelve-month period. The Board of Directors agrees to promptly notify all holders of Covered Stock of any such deferral, and shall provide to such holders a reasonably complete explanation therefor. (d) The Company shall be entitled to include in any registration statement referred to in this Section 4, for sale in accordance with the method of disposition specified by the requesting holders, shares of Common Stock to be sold by the Company for its own account, except to the extent that, in the opinion of the managing underwriter (if such method of disposition shall be an underwritten public offering), such inclusion would adversely affect the marketing of the Covered Stock to be sold. Except as provided in this paragraph (d), the Company will not effect any other registration of its Common Stock, whether for its own account or that of other holders, from the date of receipt of a notice from requesting holders of Restricted Stock pursuant to this Section 4 until the completion of the period of distribution of the registration contemplated thereby. (e) Notwithstanding anything to the contrary contained herein, the Company shall be obligated to register Restricted Stock (and, to the extent specified in notices by the holders of Schedule II Common Shares, in accordance with the provisions of 6 7 paragraph (b) above, Schedule II Common Shares) pursuant to this Section 4 on two occasions only. 5. Form S-3 Registration. (a) If the Company shall receive from any holder or holders of Restricted Stock a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to Restricted Stock owned by such holder or holders, the reasonably anticipated aggregate price to the public of which would exceed $1,000,000, the Company will: (i) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other holders of Covered Stock; and (ii) as soon as is reasonably practicable, use its best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other government requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such holder's or holders' Restricted Stock as is specified in such request, together with all or such portion of the Covered Stock of any holder or holders joining in such request as are specified in a written request given within 30 days after receipt of such written notice from the Company; provided, however that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 5 (A) more than once in any 180-day period, or (B) if the Company is not entitled to use Form S-3; and provided, further, that the only securities which the Company shall be required to register pursuant hereto shall be shares of Common Stock. Subject to the foregoing, the Company shall file a registration statement covering the Covered Stock so requested to be registered as soon as is reasonably practicable after receipt of the request or requests of the holders of the Restricted Stock. (b) Notwithstanding anything to the contrary contained herein, the Company shall be obligated to register Restricted Stock (and, to the extent specified in notices by the holders of Schedule II Common Shares in accordance with the provisions of paragraph (a)(ii) above, Schedule II Common Shares) pursuant to this Section 5 on two occasions only. 6. Incidental Registration. If the Company at any time (other than pursuant to Section 4 or 5 hereof) proposes to 7 8 register any of its Common Stock under the Securities Act for sale to the public, whether for its own account or for the account of other security holders or both (except with respect to registration statements on Form S-4 or Form S-8 or another form not available for registering the Covered Stock for sale to the public), it will give written notice at such time to all holders of outstanding Covered Stock of its intention to do so. Upon the written request of any such holder, given within 30 days after receipt of any such notice by the Company, to register any of its Covered Stock (which request shall state the intended method of disposition thereof), the Company will use its best efforts to cause the Covered Stock as to which registration shall have been so requested to be included in the securities to be covered by the registration statement proposed to be filed by the Company, all to the extent requisite to permit the sale or other disposition by the holder (in accordance with its written request) of such Covered Stock so registered; provided that nothing herein shall prevent the Company from abandoning or delaying such registration at any time; provided, further, that the only securities which the Company shall be required to register shall be shares of Common Stock. In the event that any registration pursuant to this Section 6 shall be, in whole or in part, an underwritten public offering of Common Stock, any request by a holder pursuant to this Section 6 to register Covered Stock shall specify that either (i) such Covered Stock is to be included in the underwriting on the same terms and conditions as the shares of Common Stock otherwise being sold through underwriters in connection with such registration or (ii) such Covered Stock is to be sold in the open market without any underwriting, on terms and conditions comparable to those normally applicable to offerings of common stock in reasonably similar circumstances. The number of shares of Covered Stock to be included in an underwriting in accordance with clause (i) above may be reduced pro rata among the requesting holders of Covered Stock based upon the number of shares of Covered Stock so requested to be registered, if and to the extent that the managing underwriter shall be of the opinion that such inclusion would adversely affect the marketing of the securities to be sold by the Company therein; provided, however, that if any shares are to be included in such underwriting for the account of any person other than the Company, the shares to be so included shall be subject first to reduction before the shares of Covered Stock are reduced pro rata. Notwithstanding anything to the contrary contained in this Section 6, in the event that there is a firm commitment underwritten public offering of securities of the Company pursuant to a registration covering Covered Stock and a holder of Covered Stock does not elect to sell his Covered Stock to the underwriters of the Company's securities in connection with such offering, such holder shall refrain from selling such Covered Stock so registered pursuant to this Section 6 during the period of distribution of the Company's securities by such underwriters 8 9 and the period in which the underwriting syndicate participates in the after market; provided, however, that such holder shall, in any event, be entitled to sell its Covered Stock commencing on the 90th day after the effective date of such registration statement or, if later, on such date (but in no event later than the 180th day after such effective date) as contractual "lock-up" restrictions imposed by the underwriters shall expire or be released. 7. Registration Procedures. If and whenever the Company is required by the provisions of Section 4, 5 or 6 hereof to use its best efforts to effect the registration of any of the Covered Stock under the Securities Act, the Company will, as expeditiously as possible: (a) prepare (and afford counsel for the selling holders reasonable opportunity to review and comment thereon) and file with the Commission a registration statement on the most appropriate form adequate for the purposes thereof with respect to such securities and use its best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby (to be determined as hereinafter provided); (b) prepare (and afford counsel for the selling holders reasonable opportunity to review and comment thereon) and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for the period specified in paragraph (a) above and to comply with the provisions of the Securities Act with respect to the disposition of all Covered Stock covered by such registration statement in accordance with the sellers' intended method of disposition set forth in such registration statement for such period; (c) furnish to each seller and to each underwriter such number of copies of the registration statement and the prospectus included therein (including each preliminary prospectus) as such persons may reasonably request in order to facilitate the public sale or other disposition of the Covered Stock covered by such registration statement; (d) use its best efforts to register or qualify the Covered Stock covered by such registration statement under the securities or blue sky laws of such jurisdictions as the sellers of Covered Stock or, in the case of an underwritten public offering, the managing underwriter, shall reasonably request (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this paragraph (d), (ii) subject itself to taxation in any 9 10 such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (e) immediately notify each seller under such registration statement and each underwriter, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus contained in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing (following which notification the sellers agree to discontinue sales of their Covered Stock covered by such registration statement until such misstatement or omission shall have been remedied); (f) use all reasonable efforts (if the offering is underwritten) to furnish, at the request of any seller, on the date that Covered Stock is delivered to the underwriters for sale pursuant to such registration: (i) an opinion of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such seller and dated such date, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (B) the registration statement, the related prospectus, and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder (except that such counsel need express no opinion as to financial statements, the notes thereto, and the financial schedules and other financial and statistical data contained therein), and (C) to such other effects as may reasonably be requested by counsel for the underwriters or by such seller or its counsel and which are customary in underwritings of the type being undertaken, and (ii) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to the registration in respect of which such letter 10 11 is being given as such underwriters or seller may reasonably request; and (g) make available for inspection by each seller, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement and permit such seller, attorney, accountant or agent to participate in the preparation of such registration statement. For purposes of paragraphs (a) and (b) above and of Section 4(d) hereof, the period of distribution of Covered Stock in a firm commitment underwritten public offering shall be deemed to extend until each underwriter has completed the distribution of all securities purchased by it, and the period of distribution of Covered Stock in any other registration shall be deemed to extend until the earlier of the sale of all Covered Stock covered thereby or six months after the effective date thereof. In connection with each registration hereunder, the selling holders of Covered Stock will furnish to the Company in writing such information with respect to themselves and the proposed distribution by them as shall be reasonably necessary in order to assure compliance with federal and applicable state securities laws. In connection with each registration pursuant to Sections 4, 5 and 6 hereof covering an underwritten public offering, the Company agrees to enter into a written agreement with the managing underwriter selected in the manner herein provided in such form and containing such provisions as are customary in the securities business for such an arrangement between major underwriters and companies of the Company's size and investment stature; provided, however, that such agreement shall not contain any such provision applicable to the Company which is inconsistent with the provisions hereof, and provided, further, that the time and place of the closing under said agreement shall be as mutually agreed upon among the Company, such managing underwriter and the selling holders of Covered Stock. 8. Expenses. All expenses incurred by the Company in complying with Sections 4, 5 and 6 hereof, including without limitation all registration and filing fees, printing expenses, fees and disbursements of counsel and independent public accountants for the Company, fees of the National Association of Securities Dealers, Inc., transfer taxes, fees of transfer agents and registrars and fees and expenses of one counsel for the 11 12 sellers of Covered Stock, but excluding any Selling Expenses, are herein called "Registration Expenses." All underwriting discounts and selling commissions applicable to the sale of Covered Stock are herein called "Selling Expenses." The Company will pay all Registration Expenses in connection with each registration statement filed pursuant to Section 4, 5 or 6 hereof. All Selling Expenses in connection with any registration statement filed pursuant to Section 4, 5 or 6 hereof shall be borne by the participating sellers in proportion to the number of shares sold by each, or by such persons other than the Company (except to the extent the Company shall be a seller) as they may agree. 9. Indemnification. In the event of a registration of any of the Covered Stock under the Securities Act pursuant to Section 4, 5 or 6 hereof, the Company will indemnify and hold harmless each seller of such Covered Stock thereunder and each underwriter of Covered Stock thereunder and each other person, if any, who controls such seller or underwriter within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such seller or underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in any registration statement under which such Covered Stock was registered under the Securities Act pursuant to Section 4, 5 or 6, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse each such seller, each such underwriter and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such seller, such underwriter or such controlling person in writing specifically for use in such registration statement or prospectus. In the event of a registration of any of the Covered Stock under the Securities Act pursuant to Section 4, 5 or 6 hereof, each seller of such Covered Stock thereunder, severally and not jointly, will indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of the Securities Act, each officer of the Company who signs the registration statement, each director of the Company, each 12 13 underwriter and each person who controls any underwriter within the meaning of the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which the Company or such officer, director, underwriter or controlling person may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any untrue statement or alleged untrue statement of any material fact contained in the registration statement under which such Covered Stock was registered under the Securities Act pursuant to Section 4, 5 or 6, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and each such officer, director, underwriter and controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that such seller will be liable hereunder in any such case if and only to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information pertaining to such seller, as such, furnished in writing to the Company by such seller specifically for use in such registration statement or prospectus; and provided, further, that the liability of each seller hereunder shall be limited to the proceeds (net of underwriting discounts and commissions) received by such seller from the sale of Covered Stock covered by such registration statement. Promptly after receipt by an indemnified party hereunder of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party hereunder, notify the indemnifying party in writing thereof, but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party other than under this Section 9. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate in and, to the extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election so to assume and undertake the defense thereof, the indemnifying party shall not be liable to such indemnified party under this Section 9 for any legal expenses subsequently incurred by such indemnified party in connection with the defense thereof other than reasonable costs of investigation and of liaison with counsel so selected; provided, however, that if the defendants in any such action include both the indemnified party and the indemnifying 13 14 party and the indemnified party shall have reasonably concluded that there may be reasonable defenses available to it which are different from or additional to those available to the indemnifying party, or if the interests of the indemnified party reasonably may be deemed to conflict with the interests of the indemnifying party, the indemnified party shall have the right to select a separate counsel and to assume such legal defenses and otherwise to participate in the defense of such action, with the expenses and fees of such separate counsel and other expenses related to such participation to be reimbursed by the indemnifying party as incurred. Notwithstanding the foregoing, any indemnified party shall have the right to retain its own counsel in any such action, but the fees and disbursements of such counsel shall be at the expense of such indemnified party unless (i) the indemnifying party shall have failed to retain counsel for the indemnified person as aforesaid or (ii) the indemnifying party and such indemnified party shall have mutually agreed to the retention of such counsel. It is understood that the indemnifying party shall not, in connection with any action or related actions in the same jurisdiction, be liable for the fees and disbursements of more than one separate firm qualified in such jurisdiction to act as counsel for the indemnified party. The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent, but if settled with such consent, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement. If the indemnification provided for in the first two paragraphs of this Section 9 is unavailable or insufficient to hold harmless an indemnified party under such paragraphs in respect of any losses, claims, damages or liabilities or actions in respect thereof referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or actions in such proportion as appropriate to reflect the relative fault of the Company, on the one hand, and the underwriters and the sellers of such Covered Stock, on the other, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or actions as well as any other relevant equitable considerations, including the failure to give any notice under the third paragraph of this Section 9. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact relates to information supplied by the Company, on the one hand, or the underwriters and the sellers of such Covered Stock, on the other, and to the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and each of you agree that it would not be just and equitable if contributions pursuant 14 15 to this paragraph were determined by pro rata allocation (even if all of the sellers of such Covered Stock were treated as one entity for such purpose) or by any other method of allocation which did not take account of the equitable considerations referred to above in this paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or action in respect thereof, referred to above in this paragraph, shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this paragraph, the sellers of such Covered Stock shall not be required to contribute any amount in excess of the amount, if any, by which the total price at which the Common Stock sold by each of them was offered to the public exceeds the amount of any damages which they would have otherwise been required to pay by reason of such untrue or alleged untrue statement or omission. No person guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of the Securities Act), shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. The indemnification of underwriters provided for in this Section 9 shall be on such other terms and conditions as are at the time customary and reasonably required by such underwriters. In that event, the indemnifica- tion of the sellers of Covered Stock in such underwriting shall at the sellers' request be modified to conform to such terms and conditions. 10. Changes in Common Stock. If, and as often as, there are any changes in the Common Stock by way of stock split, stock dividend, combination or reclassification, or through merger, consolidation, reorganization or recapitalization, or by any other means, appropriate adjustment shall be made in the provisions hereof, as may be required, so that the rights and privileges granted hereby shall continue with respect to the Common Stock as so changed. 11. Representations and Warranties of the Company. The Company represents and warrants to you as follows: (a) The execution, delivery and performance of this Agreement by the Company have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Restated Certificate of Incorporation or By-laws of the Company, or any provision of any indenture, agreement or other instrument to which it or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, 15 16 charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms, subject to consider- ations of public policy in the case of the indemnification provisions hereof. 12. Rule 144 Reporting. The Company agrees with you as follows: (a) The Company shall make and keep public information available, as those terms are understood and defined in Rule 144(c)(1) or (c)(2), whichever is applicable, under the Securities Act, at all times from and after the date it is first required to do so. (b) The Company shall file with the Commission in a timely manner all reports and other documents as the Commission may prescribe under Section 13(a) or 15(d) of the Exchange Act at all times during which the Company is subject to such reporting requirements of the Exchange Act. (c) The Company shall furnish to such holder of Covered Stock forthwith upon request (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after the date it first becomes subject to such reporting requirements) and of the Securities Act and the Exchange Act (at any time during which it is subject to such reporting requirements), (ii) a copy of the most recent annual or quarterly report of the Company and (iii) such other reports and documents so filed as a holder may reasonably request to avail itself of any rule or regulation of the Commission allowing a holder of Covered Stock to sell any such securities without registration. 13. Miscellaneous. (a) All covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. Without limiting the generality of the foregoing, the registration rights conferred herein on the holders of Covered Stock shall inure to the benefit of any and all subsequent holders from time to time of the Covered Stock for so long as the certificates representing the Covered Stock shall be required to bear the legend specified in Section 2 hereof. (b) All notices, requests, consents and other communications hereunder shall be in writing and shall be mailed by 16 17 first class registered mail, postage prepaid, addressed as follows: if to the Company, to it at: Aurora Electronics, Inc. 9477 Waples Street Suite 150 San Diego, California 92121 Attention: President with a copy to: Hughes & Luce L.L.P. 1717 Main Street Suite 2800 Dallas, Texas 75201 Attention: Kenneth G. Hawari, Esq. if to any original holder of Restricted Stock, to such holder at the address as set forth under such holder's name in Annex I to the Original Purchase Agreement; if to any original holder of Schedule II Common Shares, to such holder at the address as set forth under such holder's name in Schedule II hereto; if to any subsequent holder of Covered Stock, to such holder at such address as may have been furnished to the Company in writing by such holder; or, in any case, at such other address or addresses as shall have been furnished in writing to the Company (in the case of a holder of Covered Stock) or to the holders of Covered Stock (in the case of the Company). (c) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (d) This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof. This Agreement may not be modified or amended except in a writing signed by the Company and the holders of not less than a majority of the Covered Stock then outstanding, provided that no modification or amendment shall deprive any holder of Covered Stock of any material right under this Agreement without such holder's consent. The Company will not grant any registration rights to any other person without the written consent of the holders of a majority of the Covered Stock then outstanding if such rights could reasonably be expected to conflict with, or be on a parity with, the rights of holders of Covered Stock granted under this Agreement. 17 18 (e) This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 18 19 Please indicate your acceptance of the foregoing by signing and returning the enclosed counterpart of this letter, whereupon this letter (herein sometimes called "this Agreement") shall be a binding agreement between the Company and you. Very truly yours, AURORA ELECTRONICS, INC. By ------------------------------ Name: Title: AGREED TO AND ACCEPTED as of the date first above written. WELSH, CARSON, ANDERSON & STOWE VII, L.P. By WCAS VII Partners, L.P., General Partner By: ------------------------------ WCAS CAPITAL PARTNERS II, L.P. By WCAS CP II Partners, General Partner By: ------------------------------ WCAS INFORMATION PARTNERS, L.P. By WCAS Info Partners, General Partner By: ------------------------------ 20 THE HARVEY CASH TRUST By: ------------------------------ Trustee - --------------------------------- Jim C. Cowart CHEMICAL EQUITY ASSOCIATES, A California Limited Partnership By Chemical Venture Partners, General Partner By: ------------------------------ Bruce K. Anderson Russell L. Carson Anthony J. de Nicola James B. Hoover Thomas E. McInerney Robert A. Minicucci Andrew M. Paul Paul B. Queally Richard H. Stowe Laura M. VanBuren Patrick J. Welsh By: ------------------------------ Laura M. VanBuren Individually and as Attorney-in-Fact [Add signature blocks for Schedule II holders] 21 SCHEDULE I Welsh, Carson, Anderson & Stowe VII, L.P. WCAS Capital Partners II, L.P. WCAS Information Partners, L.P. The Harvey Cash Trust Jim C. Cowart Chemical Equity Associates Bruce K. Anderson Russell L. Carson Anthony J. de Nicola James B. Hoover Thomas E. McInerney Robert A. Minicucci Andrew M. Paul Paul B. Queally Richard H. Stowe Laura M. VanBuren Patrick J. Welsh 22 SCHEDULE II [NAME] [ADDRESS] EX-99.12 14 10% SENIOR SUBORDINATED BRIDGE NOTE 1 EXHIBIT 99.12 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE. AURORA ELECTRONICS, INC. 10% Senior Subordinated Bridge Note $3,200,000 January 30, 1998 AURORA ELECTRONICS, INC., a Delaware corporation (hereinafter called the "Company"), for value received, hereby promises to pay to WELSH, CARSON ANDERSON & STOWE VII, L.P. ("WCAS VII") or registered assigns, the principal sum of THREE MILLION TWO HUNDRED THOUSAND DOLLARS ($3,200,000) ON ANY DATE ON OR AFTER JULY 1, 1998 ON DEMAND (subject to applicable restrictions set forth in Section 14 hereof), and to pay interest (computed on the basis of a 360-day year consisting of twelve 30-day months) from the date hereof on the unpaid principal amount hereof at the rate of 10% per annum semi-annually in arrears on June 30 and December 31 of each year (each said day being an "Interest Payment Date"), commencing on June 30, 1998, until the principal amount hereof shall have become due and payable, whether on demand or by acceleration or otherwise, and thereafter at the rate of 12% per annum on any overdue principal amount and (to the extent permitted by applicable law) on any overdue interest until paid. All payments of principal and interest on this Note shall be in such coin or currency of the United States of America as at the time of payment shall be legal tender for payment of public and private debts. If any payment on this Note is due on a day which is not a Business Day, it shall be due on the next succeeding Business Day. For purposes of this Note, "Business Day" shall mean any day other than a Saturday, Sunday or a legal holiday or day on which banks are authorized or required to be closed in Chicago or New York. 1. The Note. This Note is issued pursuant to and is subject to the terms and provisions of the Securities Purchase and Exchange Agreement dated as of January 30, 1998 (the "Purchase Agreement"), among the Company, WCAS VII, WCAS Capital Partners II, L.P.("WCAS CP II") and the several purchasers named on Schedule I thereto and the terms of this Note include those stated in the Purchase Agreement. As used herein, the term "Note" or "Notes" includes this 10% Senior Subordinated Bridge Note of the Company, any additional 10% Senior Subordinated Bridge Note or Notes issued 2 pursuant to the Purchase Agreement and any 10% Senior Subordinated Bridge Note or Notes subsequently issued upon exchange or transfer hereof or thereof. 2. Transfer, Etc. of Notes. The Company shall keep at its office or agency maintained as provided in paragraph (a) of Section 8 a register in which the Company shall provide for the registration of this Note and for the registration of transfer and exchange of this Note. The holder of this Note may, at its option, and either in person or by its duly authorized attorney, surrender the same for registration of transfer or exchange at the office or agency of the Company maintained as provided in Section 8 and, without expense to such holder (except for taxes or governmental charges imposed in connection therewith), receive in exchange therefor a Note or Notes each in such denomination or denominations (in integral multiples of $100,000) as such holder may request, dated as of the date to which interest has been paid on the Note or Notes so surrendered for transfer or exchange, for the same aggregate principal amount as the then unpaid principal amount of the Note or Notes so surrendered for transfer or exchange, and registered in the name of such person or persons as may be designated by such holder. Every Note presented or surrendered for registration of transfer or exchange shall be duly endorsed, or shall be accompanied by a written instrument of transfer, satisfactory in form to the Company, duly executed by the holder of such Note or its attorney duly authorized in writing. Every Note so made and delivered in exchange for such Note shall in all other respects be in the same form and have the same terms as such Note. No transfer or exchange of any Note shall be valid (x) unless made in the foregoing manner at such office or agency and (y) unless registered under the Securities Act of 1933, as amended, or any applicable state securities laws or unless an exemption from such registration is available. 3. Loss, Theft, Destruction or Mutilation of Note. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of any such loss, theft or destruction, upon receipt of an affidavit of loss and an indemnity reasonably acceptable in form and substance to the Company from the holder thereof, or, in the case of any such mutilation, upon surrender and cancellation of this Note, the Company will make and deliver, in lieu of this Note, a new Note of like tenor and unpaid principal amount and dated as of the date to which interest has been paid on this Note. 4. Persons Deemed Owners; Holders. The Company may deem and treat the person in whose name this Note is registered as the owner and holder of this Note for the purpose of receiving payment of principal of and interest on this Note and for all other purposes whatsoever, whether or not this Note shall be overdue. With respect to any Note at any time outstanding, the term 2 3 "holder," as used herein, shall be deemed to mean the person in whose name such Note is registered as aforesaid at such time. 5. Prepayments. (a) Optional Prepayment. Subject to any applicable restrictions contained in the Credit Agreement (as hereinafter defined), upon notice given as provided in Section 5(b), the Company may, at its option, prepay this Note, without premium or penalty, as a whole at any time or in part from time to time in principal amounts which shall be integral multiples of $100,000, together with any accrued and unpaid interest thereon through the date of such prepayment. (b) Notice of Prepayment. The Company shall give written notice of any prepayment of this Note or any portion hereof pursuant to Section 5(a) not less than 20 nor more than 60 days prior to the date fixed for such prepayment. Such notice of prepayment and all other notices to be given to the holder of this Note shall be given by registered or certified mail to the person in whose name this Note is registered at its address designated on the register maintained by the Company on the date of mailing such notice of prepayment or other notice. Upon notice of prepayment being given as aforesaid, the Company covenants and agrees that it will prepay, on the date therein fixed for prepayment, this Note or the portion hereof, as the case may be, so called for prepayment, at the prepayment price determined in accordance with Section 5(a) hereof. A prepayment of less than all of the outstanding principal amount of this Note shall not relieve the Company of its obligation to make scheduled payments of interest payable in respect of the principal remaining outstanding on the Interest Payment Dates. (c) Allocation of All Payments. In the event of any partial payment of less than all of the interest then due on the Notes then outstanding or any prepayment, purchase, redemption or retirement of less than all of the outstanding Notes, the Company will allocate the amount of interest so to be paid and the principal amount so to be prepaid, purchased, redeemed or retired to each Note in proportion, as nearly as may be, to the aggregate principal amount of all Notes then outstanding. (d) Interest After Date Fixed for Prepayment. If this Note or a portion hereof is called for prepayment as herein provided, this Note or such portion shall cease to bear interest on and after the date fixed for such prepayment unless, upon presentation for such purpose, the Company shall fail to pay this Note or such portion, as the case may be, in which event this Note or such portion, as the case may be, and, so far as may be lawful, any overdue installment of interest, shall bear interest on and after the date fixed for such prepayment and until paid at the rate per annum provided herein. 3 4 (e) Surrender of Note; Notation Thereon. Upon any prepayment of a portion of the principal amount of this Note, the holder hereof, at its option, may require the Company to execute and deliver at the expense of the Company (other than for transfer taxes, if any), upon surrender of this Note, a new Note registered in the name of such person or persons as may be designated by such holder for the principal amount of this Note then remaining unpaid, dated as of the date to which the interest has been paid on the principal amount of this Note then remaining unpaid, or may present this Note to the Company for notation hereon of the payment of the portion of the principal amount of this Note so prepaid. 6. Offer to Repurchase Upon a Change of Control. Subject to any applicable restrictions in the Credit Agreement with respect to paragraph (a) below: (a) Upon the occurrence of a Change of Control (as hereinafter defined), the holder of this Note shall have the right, at such holder's option, to require the Company to repurchase all or any part of such holder's Note in amounts which shall be in multiples of $100,000 (pursuant to the offer described below) of the Notes outstanding, in any such event, at a purchase price equal to 101% of the principal amount thereof so to be repurchased, plus accrued and unpaid interest, if any, to the date of purchase (a "Change of Control Payment"). Within 10 Business Days after the Company knows, or reasonably should know, of the occurrence of any Change of Control, the Company shall make an irrevocable, unconditional offer (except that such offer may be conditioned upon the closing of the transaction constituting the Change of Control) (a "Change of Control Offer") to all holders of the Notes to purchase all of the Notes for cash in an amount equal to the Change of Control Payment by sending written notice (the "Change of Control Notice") of such Change of Control Offer to each holder by registered or certified mail to the person in whose name the Note is registered at its address maintained by the Company on the date of the mailing of such notice. The Change of Control Notice shall contain all instructions and materials required by applicable law and shall contain or make available to the holder other information material to such holder's decision to tender this Note pursuant to the Change of Control Offer. The Change of Control Notice, which shall govern the terms of the Change of Control Offer, shall state: (i) that the Change of Control Offer is being made pursuant to this Section 6, and that all Notes validly tendered will be accepted for payment; (ii) the Change of Control Payment (including the amount of accrued and unpaid interest) and the purchase date, which will be no later than 30 days from the date such notice is mailed (the "Change of Control Payment Date"); 4 5 (iii) that any Note not validly tendered will continue to accrue interest; (iv) that, unless the Company defaults in the payment of the Change of Control Payment, any Note accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Payment Date; (v) that holders electing to have a Note, or portion thereof, purchased pursuant to a Change of Control Offer will be required to surrender the Note to the Company at the address specified in the notice not later than the close of business on the Business Day prior to the Change of Control Payment Date; (vi) that holders will be entitled to withdraw their election if the Company receives, not later than the close of business on the second Business Day prior to the Change of Control Payment Date, a telegram, facsimile transmission or letter setting forth the name of the holder, the principal amount of the Note delivered for purchase and a statement that such holder is withdrawing its election to have such principal amount of Note purchased; and (vii) that holders whose Notes are being purchased only in part will be issued a new Note equal in principal amount to the unpurchased portion of the Note surrendered, which unpurchased portion must be equal to $100,000 in principal amount or an integral multiple thereof. On or before the Change of Control Payment Date, the Company shall (i) accept for payment the Notes or portions thereof validly tendered pursuant to the Change of Control Offer prior to the close of business on the Change of Control Payment Date, (ii) promptly mail to the holders of Notes so accepted payment in an amount equal to the Change of Control Payment (including accrued and unpaid interest) for such Notes, and the Company shall promptly mail or deliver to such holders a new Note equal in principal amount to any unpurchased portion of the Note surrendered; provided, that each such new Note will be in a principal amount of $100,000 or an integral multiple thereof. Any Notes not so accepted shall be promptly mailed or delivered by the Company to the holder thereof. (b) In the event of a Change of Control, the Company will promptly but in no event later than 30 days after the Change of Control, in good faith, (i) obtain any required consent of the holders of any Senior Indebtedness (as defined herein) to permit the Change of Control Offer and the Change of Control Payment contemplated by this Section 6, or (ii) repay some or all of such Senior Indebtedness to the extent necessary (including, if necessary, payment in full of such Senior Indebtedness and payment 5 6 of any prepayment premiums, fees, expenses or penalties) to permit the Change of Control Offer and the Change of Control Payment contemplated hereby without such consent. Failure to comply with the foregoing shall not relieve the Company from its obligations pursuant to paragraph (a) above. (c) For purposes of this Note "Change of Control" means (i) the sale, lease or transfer, whether direct or indirect, of all or substantially all of the assets of the Company and its subsidiaries, taken as a whole, in one transaction or a series of related transactions, to any "person" or "group" (other than the WCAS Group), (ii) the liquidation or dissolution of the Company or the adoption of a plan of liquidation or dissolution of the Company, (iii) the acquisition of "beneficial ownership" by any "person" or "group" (other than the WCAS Group) of voting stock of the Company representing more than 50% of the voting power of all outstanding shares of such voting stock, whether by way of merger or consolidation or otherwise, or (iv) during any period of two consecutive years, the failure of those individuals who at the beginning of such period constituted the Company's Board of Directors (together with any new directors whose election or appointment by such Board or whose nomination for election or appointment by the shareholders of the Company was approved by a vote of a majority of the directors then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) to constitute a majority of the Company's Board of Directors then in office; provided, however, that in no event shall a foreclosure on any collateral pledged by the Company in respect of obligations arising under or in connection with the Credit Agreement constitute a Change of Control. For purposes of this Section 6 and Section 7, (i) the terms "person" and "group" shall have the meaning set forth in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not applicable, (ii) the term "beneficial owner" shall have the meaning set forth in Rules 13d-3 and 13d-5 under the Exchange Act, whether or not applicable, except that a person shall be deemed to have "beneficial ownership" of all shares that any such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time or upon the occurrence of certain events, (iii) any "person" or "group" will be deemed to beneficially own any voting stock of the Company so long as such person or group beneficially owns, directly or indirectly, in the aggregate a majority of the voting stock of a registered holder of the voting stock of the Company, and (iv) the term "WCAS Group" shall mean WCAS VII, WCAS CP II, any general partners thereof and any other investment limited partnerships or other investment entities under common control therewith. 6 7 7. Special Mandatory Prepayments. (a) Subject to any applicable restrictions contained in the Credit Agreement, within 5 days after the consummation of: (i) any sale, transfer, lease, sale and leaseback or other disposition by the Company to any person of all or any part of its property or assets, in any case in a single transaction or a series of related transactions (other than any of the foregoing for fair value of property that (x) is of inventory in the ordinary course of business or (y) is of worn-out or obsolete assets); or (ii) the issuance (other than by dividend) of any capital stock or other ownership interest of the Company pursuant to offerings registered under the Securities Act of 1933, as amended (the "Securities Act"); the Company shall be required to prepay the indebtedness outstanding under the Notes in an amount equal to 100% of the gross cash proceeds received by the Company from such transaction less all legal expenses, customary commissions and other fees and expenses incurred and all federal, state, local and foreign taxes assessed in connection therewith. (b) Subject to any applicable restrictions contained in the Credit Agreement, if there shall exist any Excess Cash Flow (as defined in paragraph (c) hereof) for any fiscal year, a mandatory prepayment (an "Excess Cash Flow Prepayment") of the indebtedness outstanding under the Notes shall be made on the date (the "Excess Cash Flow Prepayment Date") which is 105 days after the end of such fiscal year, in an amount equal to one hundred percent (100%) of such Excess Cash Flow. (c) "Excess Cash Flow" means, for any fiscal period of the Company, an amount which, on a combined basis in conformity with GAAP, is equal to: (i) the excess of the sum (without duplication) of the following amounts: (A) net income for such fiscal period; (B) expenses for such fiscal period for depreciation, amortization and other similar non- cash charges, to the extent that the same are deducted from net revenues in determining net income for such fiscal period; (C) the difference between (1) the amount of taxes imposed on the Company deducted from net revenues to 7 8 determine net income for such fiscal period and (2) the amount of taxes actually paid by the Company during such fiscal period; and (D) the difference between (1) any extraordinary or non-recurring items of expense deducted from net revenues to determine net income for such fiscal period and (2) the aggregate amount of all cash payments made by the Company during such period on account of extraordinary or non- recurring items of expense, whether or not accrued in such period; over the sum (without duplication) of the following amounts: (1) the aggregate amount during such fiscal period of scheduled payments of principal on (x) the Notes, (y) the indebtedness under the Credit Agreement and (z) any indebtedness permitted under the Credit Agreement; (2) the amount of actual payments by the Company in cash during such fiscal period for capital expenditures; and (3) the difference between (1) any extraordinary or non-recurring items of income added to net revenues to determine net income and (2) the aggregate amount of all cash receipts received by the Company during such period on account of extraordinary or non-recurring items of income, whether or not accrued in such period; (ii) plus (in the case of a decrease) or minus (in the case of an increase) the change in the amount of working capital as at the end of such fiscal period as compared with the amount of working capital as at the end of the immediately preceding fiscal period. Each of the foregoing items shall be computed in accordance with GAAP consistently applied. 8. Covenants Relating to the Notes. Unless approved by its Board of Directors including the affirmative vote of a director designated by WCAS VII, the Company covenants and agrees that so long as the Notes shall be outstanding and, in the case of paragraphs (k) through (n) below, so long as five million dollars ($5,000,000) of aggregate principal amount of the Notes is outstanding: (a) Maintenance of Office. The Company will maintain an office or agency in such place in the United States of America as 8 9 the Company may designate in writing to the registered holder of this Note, where this Note may be presented for registration of transfer and for exchange as herein provided, where notices and demands to or upon the Company in respect of this Note may be served and where this Note may be presented for payment. Until the Company otherwise notifies the holder hereof, said office shall be the principal office of the Company located at 9477 Waples Street, San Diego, California 92121. (b) Payment of Taxes. The Company will promptly pay and discharge or cause to be paid and discharged, before the same shall become in default, all material lawful taxes and assessments imposed upon the Company or any of its subsidiaries or upon the income and profits of the Company or any of its subsidiaries, or upon any property, real, personal or mixed, belonging to the Company or any of its subsidiaries, or upon any part thereof by the United States or any State thereof, as well as all material lawful claims for labor, materials and supplies which, if unpaid, would become a lien or charge upon such property or any part thereof; provided, however, that neither the Company nor any of its subsidiaries shall be required to pay and discharge or to cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as both (x) the Company has established adequate reserves for such tax, assessment, charge, levy or claim and (y)(i) the Company or a subsidiary shall be contesting the validity thereof in good faith by appropriate proceedings or (ii) the Company shall, in its good faith judgment, deem the validity thereof to be questionable and the party to whom such tax, assessment, charge, levy or claim is allegedly owed shall not have made written demand for the payment thereof. (c) Corporate Existence. The Company will do or cause to be done all things necessary and lawful to preserve and keep in full force and effect (i) its corporate existence and the corporate existence of each of its subsidiaries and (ii) the material rights and franchises of the Company and each of its subsidiaries under the laws of the United States or any state thereof, or, in the case of subsidiaries organized and existing outside the United States, under the laws of the applicable jurisdiction; provided, however, that nothing in this paragraph (c) shall prevent the abandonment or termination of any rights or franchises of the Company, or the liquidation or dissolution of, or a sale, transfer or disposition (whether through merger, consolidation, sale or otherwise) of all or any substantial part of the property and assets of, any subsidiary or the abandonment or termination of the corporate existence, rights and franchises of any subsidiary if such abandonment, termination, liquidation, dissolution, sale, transfer or disposition is, in the good faith business judgment of the Company, in the best interests of the Company and not disadvantageous to the holder of this Note. 9 10 (d) Maintenance of Property. The Company will at all times maintain and keep, or cause to be maintained and kept, in good repair, working order and condition (reasonable wear and tear excepted) all significant properties of the Company and its subsidiaries used in the conduct of the Business, and will from time to time make or cause to be made all needful and proper repairs, renewals, replacements, betterments and improvements thereto, so that the Business may be conducted at all times in the ordinary course consistent with past practice. (e) Insurance. The Company will, and will cause each of its subsidiaries to, (i) keep adequately insured, by financially sound and reputable insurers, all property of a character usually insured by corporations engaged in the same or a similar business similarly situated against loss or damage of the kinds customarily insured against by such corporations and (ii) carry, with financially sound and reputable insurers, such other insurance (including without limitation liability insurance) in such amounts as are available at reasonable expense and to the extent believed advisable in the good faith business judgment of the Company. (f) Keeping of Books. The Company will at all times keep, and cause each of its subsidiaries to keep, proper books of record and account in which proper entries will be made of its transactions in accordance with generally accepted accounting principles consistently applied. (g) Transactions with Affiliates. The Company shall not enter into, or permit any of its subsidiaries to enter into, any transaction with any of its or any subsidiary's officers, directors, employees or any person related by blood or marriage to any such person or any entity in which any such person owns any beneficial interest, except for (i) normal employment arrangements, benefit programs and employee incentive option programs on reasonable terms, (ii) any transaction approved by the Board of Directors of the Company in accordance with the provisions of Section 144 of the Delaware General Corporation Law, or otherwise permitted by such Section, (iii) customer transactions in the ordinary course of business and on arm's length terms and (iv) the transactions contemplated by the Purchase Agreement. (h) Notice of Certain Events. The Company shall, immediately after it becomes aware of the occurrence of (i) any Event of Default (as hereinafter defined) or any event which, upon notice or lapse of time or both, would constitute such an Event of Default, or (ii) any action, suit or proceeding at law or in equity or by or before any governmental instrumentality or agency which, if adversely determined, would materially impair the right of the Company to carry on its business substantially as now or then conducted, or would have a material adverse effect on the properties, assets, financial condition, prospects, operating results or business of the Company and its subsidiaries taken as a whole, give 10 11 notice to the holder of this Note, specifying the nature of such event. (i) Payment of Principal and Interest on the Note. The Company will use its best efforts, subject to the provisions of applicable credit arrangements (including the Credit Agreement), contractual obligations of the Company and/or its subsidiaries and any applicable law restricting the same, to provide funds from its subsidiaries to the Company, by dividend, advance or otherwise, sufficient to permit payment by the Company of the principal of and interest on this Note in accordance with its terms. Subject to any applicable provisions in the Credit Agreement and documents executed and delivered in connection therewith, the Company will not, and will not permit any subsidiary to, directly or indirectly create or otherwise cause to exist any encumbrance or restriction on the ability of any subsidiary to pay dividends or make any other distributions to the Company or any wholly-owned subsidiary of the Company in respect of its capital stock. (j) Consolidation, Merger and Sale. The Company will not consolidate or merge with or into, or sell or otherwise dispose of all or substantially all of its property in one or more related transactions to, any other corporation or other entity, unless: (i) the Company is the surviving corporation or the entity formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale or other disposition shall have been made is a corporation organized or existing under the laws of the United States of any state thereof or the District of Columbia; (ii) the surviving corporation or other entity (if other than the Company) shall expressly and effectively assume in writing the due and punctual payment of the principal of and interest on this Note, according to its tenor, and the due and punctual performance and observance of all the terms, covenants, agreements and conditions of this Note to be performed or observed by the Company to the same extent as if such surviving corporation had been the original maker of this Note; (iii) the Company or such other corporation or other entity shall not otherwise be in default in the performance or observance of any covenant, agreement or condition of this Note or the Purchase Agreement; and (iv) the holder of this Note shall have received, in connection therewith, an opinion of counsel for the Company (or other counsel satisfactory to the holder), in form and substance satisfactory to the holder, to the effect that any such consolidation, merger, sale or conveyance and any such assumption complies with the provisions of this paragraph (j). 11 12 Notwithstanding anything to the contrary herein, in no event shall a foreclosure on any collateral pledged by the Company in respect of obligations arising under or in connection with the Credit Agreement be deemed to constitute a violation of the Company's obligations pursuant to this paragraph (j). (k) Limitation on Indebtedness and Disqualified Stock. The Company will not, and will not permit any of its subsidiaries to, (i) incur or permit to remain outstanding any indebtedness for money borrowed ("Indebtedness"), except (A) Senior Indebtedness (as defined in Section 14), (B) Indebtedness existing on the date of original issuance of this Note, (C) Indebtedness permitted to be incurred under the Credit Agreement as in effect from time to time after the original issuance of this Note (other than Indebtedness that is subordinate or junior in right of payment (to any extent) to any Senior Indebtedness and senior or pari passu in right of payment (to any extent) to the Notes), or (D) in the event that the Credit Agreement has terminated, Indebtedness permitted to be incurred under any successor credit agreement of the Company with respect to Senior Indebtedness, or if there exists no such credit agreement, such Indebtedness as may be mutually agreed upon by the Company and the holders of a majority of the aggregate principal amount of the Notes then outstanding, or (ii) issue any capital stock ("Disqualified Stock") of the Company or any of its subsidiaries (other than the Convertible Preferred Stock (as hereinafter defined)) which by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures, or is mandatorily redeemable, whether pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to December 31, 2005. (l) Restricted Payments. The Company will not, and will not permit any of its subsidiaries to: (i) declare or pay any dividends on, or make any other distribution or payment on account of, or redeem, retire, purchase or otherwise acquire, directly or indirectly, any shares of any class of stock of the Company, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash, property or in obligations of the Company or any of its subsidiaries, except for (X) distributions of shares of the same class or of a different class of stock pro rata to all holders of shares of a class of stock, (Y) the payment of cash dividends on account of the Company's 7% Senior Cumulative Convertible Preferred Stock, $.01 par value (the "Convertible Preferred Stock"), or (Z) dividends, distributions or payments by any subsidiary to the Company or to any wholly-owned subsidiary of the Company, or (ii), except as permitted under the Credit Agreement, make any payments of principal of, or retire, redeem, purchase or otherwise acquire any Indebtedness other than any Senior Indebtedness or the Notes (such declarations, payments, purchases, redemptions, retirements, 12 13 acquisitions or distributions being herein called "Restricted Payments"). (m) Limitation on Liens. The Company shall not, and shall not permit any of its subsidiaries to, directly or indirectly, create, incur, assume or otherwise cause or suffer to exist any lien, pledge , charge, security interest or encumbrance (collectively, "Liens") on any asset now owned or hereafter acquired, or on any income or profits therefrom or assign or convey any right to receive income therefrom, except for (i) Liens permitted under the Credit Agreement, (ii) liens for current taxes not yet due, (iii) landlord's liens, (iv) purchase money liens and (v) workman's, materialman's, warehouseman's and similar liens arising by law or statute. (n) Inspection of Property. The Company will permit the holder hereof to visit and inspect any of the properties of the Company and any other subsidiaries and their books and records and to discuss the affairs, finances and accounts of any of such corporations with the principal officers of the Company and such subsidiaries and their independent public accountants, all at such reasonable times and as often as such holders may reasonably request. 9. Modification by Holders; Waiver. The Company may, with the written consent of the holders of not less than a majority in principal amount of the Notes then outstanding, modify the terms and provisions of this Note or the rights of the holders of this Note or the obligations of the Company hereunder, and the observance by the Company of any term or provision of this Note may be waived with the written consent of the holders of not less than a majority in principal amount of the Notes then outstanding. Any such modification or waiver shall apply equally to each holder of the Notes and shall be binding upon them, upon each future holder of any Note and upon the Company, whether or not such Note shall have been marked to indicate such modification or waiver, but any Note issued thereafter shall bear a notation referring to any such modification or waiver. Promptly after obtaining the written consent of the holders as herein provided, the Company shall transmit a copy of such modification or waiver to the holders of the Notes at the time outstanding. 10. Events of Default. If any one or more of the following events, herein called "Events of Default," shall occur (for any reason whatsoever, and whether such occurrence shall, on the part of the Company or any of its subsidiaries, be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of a court of competent jurisdiction or any order, rule or regulation of any administrative or other governmental authority) and such Event of Default shall be continuing: 13 14 (i) default shall be made in the payment of the principal of this Note when and as the same shall become due and payable, whether on demand (to the extent demand is permitted to be made under Section 14 hereof) or at a date fixed for prepayment or repurchase (including default of any optional prepayment in accordance with the requirements of Section 5, any Change of Control Payment in accordance with the requirements of Section 6 or any special mandatory prepayment in accordance with the requirements of Section 7, as the case may be) or by acceleration or otherwise; or (ii) default shall be made in the payment of any installment of interest on this Note according to its terms when and as the same shall become due and payable; or (iii) default shall be made in the due observance or performance of any covenant, condition or agreement on the part of the Company contained herein in Section 8(j); or (iv) default shall be made in the due observance or performance of any other covenant, condition or agreement on the part of the Company to be observed or performed pursuant to the terms hereof or of the Purchase Agreement, and such default shall continue for 10 days after written notice thereof, specifying such default and requesting that the same be remedied; or (v) any representation or warranty made by or on behalf of the Company herein or in the Purchase Agreement shall prove to have been false or incorrect in any material respect on the date on or as of which made; or (vi) the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of the Company or any of its subsidiaries in any involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar laws, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or any of its subsidiaries for any substantial part of any of their property or ordering the winding-up or liquidation of any of their affairs and the continuance of any such decree or order unstayed and in effect for a period of 30 consecutive days; or (vii) the commencement by the Company or any of its subsidiaries of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar laws, or the consent by any of them to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) 14 15 of the Company or any of its subsidiaries for any substantial part of any of their property, or the making by any of them of any general assignment for the benefit of creditors, or the failure of the Company or of any of its subsidiaries generally to pay its debts as such debts become due, or the taking of corporate action by the Company or any of its subsidiaries in furtherance of or which might reasonably be expected to result in any of the foregoing; or (viii) a default or an event of default as defined in any instrument evidencing or under which the Company or any of its subsidiaries has outstanding at the time any Indebtedness in excess of $500,000 in aggregate principal amount shall occur and as a result thereof the maturity of any such Indebtedness shall have been accelerated so that the same shall have become due and payable prior to the date on which the same would otherwise have become due and payable and such acceleration shall not have been rescinded or annulled within 20 days; or (ix) final judgment (not reimbursed by insurance policies of the Company or any of its subsidiaries) for the payment of money in excess of $500,000 shall be rendered against the Company or any of its subsidiaries and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed; then the holders of at least 33-1/3% in aggregate principal amount of the Notes at the time outstanding may, at their option, by a notice in writing to the Company declare this Note to be, and this Note shall thereupon be and become immediately due and payable together with interest accrued thereon, without diligence, presentment, demand, protest or further notice of any kind, all of which are expressly waived by the Company to the extent permitted by law. At any time after any declaration of acceleration has been made as provided in this Section 10, the holders of a majority in principal amount of the Notes then outstanding may, by notice to the Company, rescind such declaration and its consequences, provided, however, that no such rescission shall extend to or affect any subsequent default or Event of Default or impair any right consequent thereon. Without limiting the foregoing, the Company hereby waives any right to trial by jury in any legal proceeding related in any way to this Note and agrees that any such proceeding may, if the holder so elects, be brought and enforced in the Supreme Court of the State of New York for New York County or the United States District Court for the Southern District of New York and the Company hereby waives any objection to jurisdiction or venue in any such proceeding commenced in such court. The Company further agrees that any process required to be served on it for purposes of 15 16 any such proceeding may be served on it, with the same effect as personal service on it within the State of New York, by registered mail addressed to it at its office or agency set forth in paragraph (a) of Section 8 for purposes of notices hereunder. 11. Suits for Enforcement. Subject to the provisions of Section 14 of this Note, in case any one or more of the Events of Default specified in Section 10 of this Note shall happen and be continuing (subject to any applicable cure period expressly set forth herein), the holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law and/or by other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note, or may proceed to enforce the payment of this Note or to enforce any other legal or equitable right of the holder of this Note. In case of any default under this Note, the Company will pay to the holder hereof reasonable collection costs and reasonable attorneys' fees, to the extent actually incurred. 12. Remedies Cumulative. No remedy herein conferred upon the holder of this Note is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. 13. Remedies Not Waived. No course of dealing between the Company and the holder of this Note or any delay on the part of the holder hereof in exercising any rights hereunder shall operate as a waiver of any right of the holder of this Note. 14. Subordination. (a) Anything contained in this Note to the contrary notwithstanding, the indebtedness evidenced by the Notes shall be subordinate and junior, to the extent set forth in the following paragraphs (A), (B), (C) and (D), to all Senior Indebtedness of the Company. "Senior Indebtedness" shall mean the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all reasonable fees, reimbursement and indemnity obligations, and all other obligations arising in connection with, any indebtedness for borrowed money of the Company, contingent or otherwise, now outstanding or created, incurred, issued, assumed or guaranteed in the future, for which, in the case of any particular indebtedness, the instrument creating or evidencing the same or pursuant to which the same is outstanding expressly provides that such indebtedness shall not be subordinate in right of payment to any other indebtedness of the Company. Without limiting the generality of the foregoing, Senior Indebtedness shall include all 16 17 Obligations (under and as defined in the Credit Agreement); notwithstanding the foregoing, Senior Indebtedness shall include only such Obligations until such time as the same are paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated. For purposes of this Note, "Credit Agreement" shall mean, collectively, (i) the Credit Agreement, dated as of March 29, 1996, as amended or otherwise modified, among the Company and other Guarantors named therein, the Lenders named therein and The Chase Manhattan Bank N.A., as Agent (the "Agent"), and (ii) the senior credit facility contemplated by Section 4.01(c) of the Purchase Agreement, together with any agreement entered into in connection with the restatement, renewal, extension, restructuring, refunding or refinancing of the obligations under such credit agreements. (A) In the event of any insolvency, bankruptcy, liquidation, reorganization or other similar proceedings, or any receivership proceedings in connection therewith, relative to the Company or its creditors or its property, and in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy proceedings, then all Senior Indebtedness shall first be paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated, before any payment, whether on account of principal, interest or otherwise, is made upon the Notes. (B) In any of the proceedings referred to in paragraph (A) above, any payment or distribution of any kind or character, whether in cash, property, stock or obligations which may be payable or deliverable in respect of the Notes shall be paid or delivered directly to the holders of Senior Indebtedness for application in payment thereof, unless and until all Senior Indebtedness shall have been paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated. (C) No payment shall be made, directly or indirectly, on account of the Notes (i) upon maturity of any Senior Indebtedness obligation, by lapse of time, acceleration (unless waived), or otherwise, unless and until all principal thereof and interest thereon and all other obligations in respect thereof shall first be paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated, or (ii) upon the happening of any default in payment of any principal of, premium, if any, or interest on or any other amounts payable in respect of Senior Indebtedness when the same becomes due and payable whether at maturity or at a date fixed for prepayment or by declaration or otherwise (a "Senior Payment Default"), unless and until 17 18 such Senior Payment Default shall have been cured or waived or shall have ceased to exist. (D) Upon the happening of an event of default with respect to any Senior Indebtedness permitting (after notice or lapse of time or both) one or more holders of such Senior Indebtedness (or, in the case of the Credit Agreement, the Agent) to declare such Senior Indebtedness due and payable prior to the date on which it is otherwise due and payable (a "Nonmonetary Default"), upon the occurrence of (i) receipt by the holders of the Notes of written notice from the holders of said Senior Indebtedness (or, in the case of the Credit Agreement, the Agent) of a Nonmonetary Default (any such notice, a "Blockage Notice"), or (ii) if such Nonmone- tary Default results from the acceleration of the Notes, the date of such acceleration; then (x) the Company will not make, directly or indirectly, to the holder of the Notes any payment of any kind of or on account of all or any part of the Notes; (y) the holders of the Notes will not accept from the Company any payment of any kind of or on account of all or any part of the Notes and (z) the holders of the Notes may not take, demand, receive, sue for, accelerate or commence any remedial proceedings with respect to any amount payable under the Notes, unless and until in each case described in clauses (x), (y) and (z) all such Senior Indebtedness shall have been paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated; provided, however, that if such Nonmonetary Default shall have occurred and be continuing for a period (a "Blockage Period") commencing on the earlier of the date of receipt of such Blockage Notice or the date of the acceleration of the Notes and ending 179 days thereafter (it being understood that not more than one Blockage Period may be commenced with respect to the Notes during any period of 360 consecutive days), and during such Blockage Period (i) such Nonmonetary Default shall not have been cured or waived, (ii) the holder of such Senior Indebtedness (or, in the case of the Credit Agreement, the Agent) shall not have made a demand for payment and commenced an action, suit or other proceeding against the Company and (iii) none of the events described in subsection (A) above shall have occurred, then (to the extent not otherwise prohibited by subsections (A), (B) or (C) above) the Company may, not less than 10 days after receipt by the holders of such Senior Indebtedness or the Agent, as the case may be, of written notice to such effect from the holders of the Notes, make and the holders of the Notes may accept from the Company all past due and current payments of any kind of or on account of the Notes, and such holder may demand, receive, retain, sue for or otherwise seek enforcement or collection of all amounts payable on account of principal of or interest on the Notes. 18 19 (b) Subject to the payment in full in cash of all Senior Indebtedness as aforesaid and the termination of all obligations to provide financial accommodations under the Credit Agreement, the holders of the Notes shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of any kind or character, whether in cash, property, stock or obligations, which may be payable or deliverable to the holders of Senior Indebtedness, until the principal of, and interest on, the Notes shall be paid in full in cash, and, as between the Company, its creditors other than the holders of Senior Indebtedness, and the holders of the Notes, no such payment or distribution made to the holders of Senior Indebtedness by virtue of this Section 14 which otherwise would have been made to the holder of the Notes shall be deemed a payment by the Company on account of the Senior Indebtedness, it being understood that the provisions of this Section 14 are and are intended solely for the purposes of defining the relative rights of the holders of the Notes, on the one hand, and the holder of the Senior Indebtedness, on the other hand. Subject to the rights, if any, under this Section 14 of holders of Senior Indebtedness to receive cash, property, stock or obligations otherwise payable or deliverable to the holders of the Notes, nothing herein shall either impair, as between the Company and the holder of the Notes, the obligation of the Company, which is unconditional and absolute, to pay to the holder thereof the principal thereof and interest thereon in accordance with its terms or prevent (except as otherwise specified therein) the holders of the Notes from exercising all remedies otherwise permitted by applicable law or hereunder upon default hereunder. (c) If any payment or distribution of any character or any security, whether in cash, securities or other property, shall be received by any holders of the Notes in contravention of any of the terms hereof or before all the Senior Indebtedness obligations have been paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated, such payment or distribution or security shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the holders of the Senior Indebtedness at the time outstanding in accordance with the priorities then existing among such holders for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all such Senior Indebtedness in full in cash. In the event of the failure of any such holder to endorse or assign any such payment, distribution or security, each holder of any Senior Indebtedness is hereby irrevocably authorized to endorse or assign the name. (d) The rights under these subordination provisions of the holders of any Senior Indebtedness as against any holders of the Notes shall remain in full force and effect without regard to, and shall not be impaired or affected by: 19 20 (i) any act or failure to act on the part of the Company; or (ii) any extension or indulgence in respect of any payment or prepayment of any Senior Indebtedness or any part thereof or in respect of any other amount payable to any holder of any Senior Indebtedness; or (iii) any amendment, modification or waiver of, or addition or supplement to, or deletion from, or compromise, release, consent or other action in respect of, any of the terms of any Senior Indebtedness or any other agreement which may be made relating to any Senior Indebtedness; or (iv) any exercise or non-exercise by the holder of any Senior Indebtedness of any right, power, privilege or remedy under or in respect of such Senior Indebtedness or these subordination provisions or any waiver of any such right, power, privilege or remedy or of any default in respect of such Senior Indebtedness or these subordination provisions or any receipt by the holder of any Senior Indebtedness of any security, or any failure by such holder to perfect a security interest in, or any release by such holder of, any security for the payment of such Senior Indebtedness; or (v) any merger or consolidation of the Company or any of its subsidiaries into or with any other person, or any sale, lease or transfer of any or all of the assets of the Company or any of its subsidiaries to any other person; or (vi) absence of any notice to, or knowledge by, any holder of any claim hereunder of the existence or occurrence of any of the matters or events set forth in the foregoing clauses (i) through (v); or (vii) any other circumstance. (e) The holders of the Notes unconditionally waive (i) notice of any of the matters referred to in Section 14(d); (ii) all notices which may be required, whether by statute, rule of law or otherwise, to preserve intact any rights of any holder of any Senior Indebtedness, including, without limitation, any demand, presentment and protest, proof of notice of nonpayment under any Senior Indebtedness or the Credit Agreement, and notice of any failure on the part of the Company to perform and comply with any covenant, agreement, term or condition of any Senior Indebtedness, (iii) any right to the enforcement, assertion or exercise by any holder of any Senior Indebtedness of any right, power, privilege or remedy conferred in such Senior Indebtedness or otherwise, (iv) any requirements of diligence on the part of any holder of any of the Senior Indebtedness, (v) any requirement on the part of any holder of any Senior Indebtedness to mitigate damages resulting from any 20 21 default under such Senior Indebtedness and (vi) any notice of any sale, transfer or other disposition of any Senior Indebtedness by any holder thereof. (f) The obligations of the holder under these subordination provisions shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Indebtedness, or any other payment to any holder of any Senior Indebtedness in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Indebtedness upon the occurrence of any proceeding referred to in paragraph 14(a)(A) or upon or as a result of the appoint of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any substantial part of its property or otherwise, all as though such payment had not been made. (g) Notwithstanding anything to the contrary herein, the Company shall not at any time offer (and the holder hereof shall not at any time accept) (i) any pledge of collateral or (ii) any guaranty by any parent or subsidiary of the Company, in each case with respect to the obligations of the Company under this Note. 15. Covenants Bind Successors and Assigns. All the covenants, stipulations, promises and agreements in this Note contained by or on behalf of the Company shall bind its successors and assigns, whether so expressed or not. 16. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York. 17. Headings. The headings of the sections and paragraphs of this Note are inserted for convenience only and do not constitute a part of this Note. 18. Third Party Beneficiaries. The provisions of Section 14 are intended to be for the benefit of, and shall be enforceable directly by each holder of, the Senior Indebtedness. 21 22 IN WITNESS WHEREOF, Aurora Electronics, Inc. has caused this Note to be signed in its corporate name by one of its officers thereunto duly authorized and to be dated as of the day and year first above written. AURORA ELECTRONICS, INC. By: /s/ JIM C. COWART ---------------------- Name: Jim C. Cowart Title: Chairman EX-99.13 15 CERPLEX NOTE PURCHASE AGREEMENT 1 EXHIBIT 99.13 CERPLEX NOTE PURCHASE AGREEMENT NOTE PURCHASE AGREEMENT, dated as of January 30, 1998, between THE CERPLEX GROUP, INC., a Delaware corporation (the "Company"), and AURORA ELECTRONICS, INC., a Delaware corporation (the "Purchaser"). WHEREAS, pursuant to an Agreement and Plan of Merger of even date herewith (the "Merger Agreement"), among the Company, the Purchaser and Holly Acquisition Corp., a newly organized wholly-owned Delaware subsidiary of the Purchaser ("Sub"), the Purchaser desires to acquire the Company through the merger of Sub with and into the Company; and WHEREAS, in connection with the transactions contemplated by the Merger Agreement, the Purchaser and certain stockholders of the Purchaser have entered into a Securities Purchase and Exchange Agreement, dated the date hereof (the "Securities Purchase and Exchange Agreement"), pursuant to which the Purchaser has agreed, among other things, to sell to such stockholders, and such stockholders have agreed to purchase from the Purchaser, up to $15,000,000 aggregate principal amount of Senior Subordinated Notes of the Purchaser (the "Purchaser Notes"), on the terms and subject to the conditions set forth in the Securities Purchase and Exchange Agreement; and WHEREAS the Company desires to issue and sell to the Purchaser, and the Purchaser desires to purchase from the Company, a 10% Subordinated Note due June 30, 1998 of the Company, in the aggregate principal amount of $2,000,000, on the terms and subject to the conditions hereinafter set forth; and WHEREAS, pursuant to the Securities Purchase and Exchange Agreement, it is understood and agreed that a portion of the proceeds of the sale of the Purchaser Notes shall be used by the Purchaser to purchase the Note (as hereinafter defined) from the Company; and WHEREAS, as an inducement to the Purchaser to enter into this Agreement and to purchase the Note on the Closing Date (as hereinafter defined), the Purchaser has granted to the Company an option to repurchase the Note, on the terms and subject to the conditions set forth in a Stockholders Agreement, dated the date hereof (the "Stockholders Agreement"), among the Purchaser, the Company and Welsh, Carson, Anderson & Stowe VII, L.P.; 2 NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, the parties hereto agree as follows: ARTICLE I. PURCHASE AND SALE OF THE NOTE SECTION 1.001 Purchase and Sale of the Note. Subject to the terms and conditions set forth herein, on the Closing Date: (i) the Company shall execute, sell and deliver to the Purchaser, and the Purchaser shall purchase from the Company, a 10% Subordinated Note of the Company, substantially in the form attached hereto as Exhibit A, dated the Closing Date, issued in the name of the Purchaser and in the original principal amount of $2,000,000 (said note, together with any notes issued in exchange or substitution therefor, being hereinafter collectively called the "Note"); and (ii) as payment in full for the Note being purchased by it hereunder as aforesaid, the Purchaser shall pay to the Company the sum of $2,000,000 by wire transfer of immediately available funds to an account designated by the Company. SECTION 1.002 Closing Date. The closing of the purchase and sale of the Note shall take place at the offices of Reboul, MacMurray, Hewitt, Maynard & Kristol, 45 Rockefeller Plaza, New York, New York 10111, on January 30, 1998, or on such other date and at such time as may be mutually agreed upon between the Purchaser and the Company (such date and time of the closing being herein called the "Closing Date"). ARTICLE II. REPRESENTATIONS AND WARRANTIES SECTION 2.001 Representations and Warranties of the Company. The Company hereby represents and warrants to the Purchaser as follows: (a) Organization and Corporate Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company has the corporate power and authority (i) to own and hold its properties and carry on its business as currently conducted and (ii) to execute, deliver and perform this Agreement and the Note. (b) Authorization of Agreements, Etc. The execution and delivery by the Company of this Agreement and the Note and 2 3 the performance by the Company of its respective obligations hereunder and thereunder have been duly authorized by all requisite corporate action and will not violate any provision of law, any order of any court or other agency of government, the Certificate of Incorporation or By-laws of the Company, or any provision of any indenture, agreement or other instrument to which the Company or any of its properties or assets is bound, or conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company. (c) Validity. This Agreement has been duly executed and delivered by the Company and constitutes, and the Note when executed and delivered by the Company against payment therefor as provided in this Agreement will constitute, legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, subject, as to enforcement of remedies, to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws from time to time in effect affecting the enforcement of creditors' rights generally and to general principles of equity. (d) Governmental Approvals. Subject to the accuracy of the representations and warranties of the Purchaser set forth in Section 2.02, no registration or filing with, or consent or approval of, or other action by, any Federal, state or other governmental agency or instrumentality is or will be necessary for the valid execution, delivery and performance of this Agreement and the Note. SECTION 2.002 Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company as follows: (i) the Purchaser is acquiring the Note, for its own account, for investment, and not with a view toward the resale or distribution thereof; (ii) the Purchaser understands that it must bear the economic risk of its investment for an indefinite period of time because the Note is not registered under the Securities Act of 1933, as amended (the "Securities Act") or any applicable state securities laws, and may not be resold unless subsequently registered under the Securities Act and such other laws or unless an exemption from such registration is available; (iii) the Purchaser is able to fend for itself in the transactions contemplated by this Agreement and has the 3 4 ability to bear the economic risks of its investment in the Note for an indefinite period of time; and (iv) the Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of its investment in the Note, that it is an "accredited investor" as such term is defined in Rule 501 of Regulation D of the Securities and Exchange Commission under the Securities Act and that it has not been formed solely for the purpose of acquiring the Note being purchased by it hereunder. ARTICLE III. CONDITIONS PRECEDENT SECTION 3.001. Conditions Precedent to the Obligations of the Purchaser. The obligation of the Purchaser to purchase the Note hereunder is, at its option, subject to the satisfaction, on or before the Closing Date, of each of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though made at and as of that date, and, if the Closing Date is other than the date of this Agreement, the Company shall have delivered to the Purchaser a certificate to that effect. (b) All Proceedings To Be Satisfactory. All proceedings to be taken by the Company in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Purchaser and its counsel, and the Purchaser and its counsel shall have received all such counterpart originals or certified or other copies of such documents as it or they may reasonably request. (c) Stockholders Agreement. The Company shall have executed and delivered the Stockholders Agreement. SECTION 3.002. Conditions Precedent to the Obligations of the Company. The obligations of the Company hereunder are, at its option, subject to the satisfaction, on or before the Closing Date, of the following conditions: (a) Accuracy of Representations and Warranties. The representations and warranties of the Purchaser contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date as though made at and 4 5 as of that date, and, if the Closing Date is other than the date of this Agreement, the Purchaser shall have delivered to the Company a certificate to that effect. (b) All Proceedings To Be Satisfactory. All proceedings to be taken by the Purchaser in connection with the transactions contemplated hereby and all documents incident thereto shall be reasonably satisfactory in form and substance to the Company and its counsel, and the Company and its counsel shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request. ARTICLE IV. MISCELLANEOUS SECTION 4.001. Expenses, Etc. Each party hereto will pay its own expenses in connection with the transactions contemplated hereby, including the fees and expenses of legal counsel. SECTION 4.002 Survival of Agreements. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the execution, sale and delivery of the Note. SECTION 4.003. Execution in Counterparts. For the convenience of the parties, this Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. SECTION 4.004. Notices. Any notice or other communications required or permitted hereunder shall be deemed to be sufficient if contained in a written instrument delivered in person or duly sent by national overnight courier service, by first class certified mail, postage prepaid, or by facsimile addressed to such party at the address or facsimile number set forth below: If to the Company, to: The Cerplex Group, Inc. 1382 Bell Avenue Tustin, California 92780 Facsimile: (714) 258-0730 Attention: Mr. William A. Klein 5 6 with a copy to: Brobeck, Phleger & Harrison, LLP 4675 MacArthur Court Suite 1000 Newport Beach, California 92660-1846 Facsimile: (714) 752-7522 Attention: Frederic A. Randall, Jr., Esq. If to the Purchaser, to: Aurora Electronics, Inc. 9477 Waples Street San Diego, California 92121 Facsimile: (619) 552-1213 Attention: Mr. Wayne Withers with copies to: Welsh, Carson, Anderson & Stowe 320 Park Avenue Suite 2500 New York, New York 10022 Facsimile: (212) 893-9575 Attention: Mr. Thomas E. McInerney and: Reboul, MacMurray, Hewitt Maynard & Kristol 45 Rockefeller Plaza New York, New York 10111 Facsimile: (212) 841-5725 Attention: William J. Hewitt, Esq. or to such other address or facsimile number as each party hereto shall have designated by notice in writing to the other party hereto. SECTION 4.005. Entire Agreement. This Agreement and the Note constitute the entire agreement between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings, oral and written, between the parties hereto with respect to the subject matter hereof. No representation, warranty, promise, inducement or statement of intention has been made by either party which is not embodied in this Agreement or the Note, and neither party shall be bound by, or be liable for, any alleged representation, warranty, promise, inducement or statement of intention not embodied herein. 6 7 SECTION 4.006. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 4.007. Binding Effect; Benefits. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective successors and assigns. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement. SECTION 4.008. Assignability. Neither this Agreement nor any of the parties' rights or obligations hereunder shall be assignable by either party hereto without the prior written consent of the other party hereto. 7 8 IN WITNESS WHEREOF, the Company and the Purchaser have executed this Agreement as of the day and year first above written. THE CERPLEX GROUP, INC. By: /s/ WILLIAM A. KLEIN ------------------------------- Name: William A. Klein Title: Chairman AURORA ELECTRONICS, INC. By: /s/ JIM C. COWART ------------------------------- Name: Jim C. Cowart Title: Chairman EX-99.14 16 10% SUBORDINATED NOTE DUE 6/20/98 1 EXHIBIT 99.14 THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS EITHER REGISTERED UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE. THE CERPLEX GROUP, INC. 10% Subordinated Note Due June 30, 1998 Registered Tustin, California R-001 January 30, 1998 $2,000,000 THE CERPLEX GROUP, INC., a Delaware corporation (hereinafter called the "Company"), for value received, hereby promises to pay to AURORA ELECTRONICS, INC., a Delaware corporation, or its registered assigns, the principal sum of TWO MILLION DOLLARS ($2,000,000) on June 30, 1998 (the "Maturity Date"), and to pay interest (computed on the basis of a 360-day year consisting of twelve 30-day months) from the date hereof on the unpaid stated principal sum hereof at the rate of 10% per annum, payable on the Maturity Date, and thereafter at the rate of 12% per annum on any overdue principal amount and (to the extent permitted by applicable law) on any overdue interest until paid. All payments of principal and interest on this Note shall be in such coin or currency of the United States of America as at the time of payment shall be legal tender for payment of public and private debts, and shall be made at the offices of the person deemed the holder hereof in accordance with Section 4 below. For purposes of this Note, "Business Day" shall mean any day other than a Saturday, Sunday or a legal holiday under the laws of the State of New York. 1. NOTES. This Note is issued pursuant to a Note Purchase Agreement, dated as of January 30, 1998 (the "Note Purchase Agreement"), between the Company and Aurora Electronics, Inc. As used herein, the term "Note" or "Notes" includes the 10% Subordinated Note of the Company originally so issued and any 10% Subordinated Note or Notes subsequently issued upon exchange or transfer thereof. 2 2. TRANSFER, ETC. OF NOTE. The Company shall keep at its office or agency maintained as provided in Section 8(a) a register in which the Company shall provide for the registration of this Note and for the registration of transfer and exchange of this Note. The holder of this Note may, at its option, and either in person or by duly authorized attorney, surrender the same for registration of transfer or exchange at the office or agency of the Company maintained as provided in Section 8(a), and, without expense to such holder (except for taxes or governmental charges imposed in connection therewith), receive in exchange therefor a Note or Notes each in such denomination or denominations as the holder hereof may request, dated as of the date to which interest has been paid on this Note so surrendered for transfer or exchange, for the same aggregate principal sum as the then unpaid principal sum of this Note so surrendered for transfer or exchange, and registered in the name of such person or persons as may be designated by the holder hereof. This Note, when presented or surrendered for registration of transfer or exchange, shall be duly endorsed, or shall be accompanied by a written instrument of transfer, satisfactory in form to the Company, duly executed by the holder of this Note or his attorney duly authorized in writing. Every Note so made and delivered in exchange for this Note shall in all other respects be in the same form and have the same terms as this Note. No transfer or exchange of this Note shall be valid unless made in the foregoing manner at such office or agency. 3. LOSS, THEFT, DESTRUCTION OR MUTILATION OF NOTE. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of any such loss, theft or destruction, upon receipt of an affidavit of loss and indemnity from the holder hereof reasonably satisfactory to the Company, or, in the case of any such mutilation, upon surrender and cancellation of this Note, the Company will make and deliver, in lieu of this Note, a new Note of like tenor and unpaid principal amount and dated as of the date to which interest has been paid on this Note. 4. PERSON DEEMED OWNER; HOLDER. The Company may deem and treat the person in whose name this Note is registered as the owner and holder of this Note for the purpose of receiving payment of principal of and interest on this Note and for all other purposes whatsoever, whether or not this Note shall be overdue. 5. OPTIONAL PREPAYMENTS. The Company may, at its option, prepay all or any portion of this Note, at the principal amount hereof so to be prepaid, together with interest accrued thereon to the date of such prepayment. 3 6. NOTICES. All notices to be given to the holder of this Note by the Company shall be given by registered or certified mail to the person in whose name this Note is registered at its address designated on the register maintained by the Company on the date of mailing such notice. 7. SURRENDER OF NOTE; NOTATION THEREON. Upon any prepayment of a portion of the principal amount of this Note, the holder hereof, at its option, may require the Company to execute and deliver at the expense of the Company (except for taxes or governmental charges imposed in connection therewith), upon surrender of this Note, a new Note registered in the name of such person or persons as may be designated by such holder for the principal amount of this Note then remaining unpaid, dated as of the date to which interest has been paid on the principal amount of this Note then remaining unpaid, or may present this Note to the Company for notation hereon of the payment of the portion of the principal amount of this Note so prepaid. 8. COVENANTS. The Company covenants and agrees that, so long as this Note shall be outstanding: (a) Maintenance of Office. The Company will maintain an office or agency in such place in the United States of America as the Company may designate in writing to the registered holder hereof, where this Note may be presented for registration of transfer and exchange as herein provided, where notices and demands to or upon the Company in respect of this Note may be served and where, at the option of the holder hereof, this Note may be presented for payment. Until the Company otherwise notifies the holder of this Note, said office shall be the principal office of the Company at 1382 Bell Avenue, Tustin, California 92870. (b) Corporate Existence. The Company will do or cause to be done all things necessary and lawful to preserve and keep in full force and effect its corporate existence, rights and franchises and the corporate existence, rights and franchises of each of its subsidiaries; provided, however, that nothing in this paragraph (b) shall prevent the abandonment or termination of any rights or franchises of the Company, or the liquidation or dissolution of, or a sale, transfer or disposition (whether through merger, consolidation, sale or otherwise) of all or any substantial part of the property and assets of, any subsidiary or the abandonment or termination of the corporate existence, rights and franchises of any subsidiary if such abandonment, termination, liquidation, dissolution, sale, transfer or disposition is, in the good faith business judgment of the Company, in the best interests of the Company and is not disadvantageous in any material respect to the holder of this Note. 3 4 (c) Notice of Default. If any one or more events which constitute, or which with notice or lapse of time or both would constitute, an Event of Default under Section 10 of this Note shall occur, the Company shall, immediately after it becomes aware that any such event has occurred, give notice to the holder of this Note, specifying the nature of such event. 9. AMENDMENTS, MODIFICATIONS AND WAIVERS. This Note may not be amended or modified nor any provision hereof waived except in a writing signed by the Company and the holder of this Note. 10. EVENTS OF DEFAULT. If any one or more of the following events, herein called Events of Default, shall occur, for any reason whatsoever, and whether such occurrence shall, on the part of the Company or any subsidiary, be voluntary or involuntary, or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of a court of competent jurisdiction or any order, rule or regulation of any administrative or other governmental authority, and such Event of Default shall be continuing: (a) the Company shall not pay any principal of this Note when and as the same shall become due and payable, whether at maturity or at a date fixed for prepayment or by acceleration or otherwise; or (b) the Company shall not pay all accrued interest on this Note on the Maturity Date, or shall not pay any interest when due in connection with any prepayment or repayment of principal of this Note, and such non-payment shall continue for a period of 10 Business Days; or (c) the Company shall fail to duly perform or observe any other covenant, condition or agreement to be observed or performed by it pursuant to the terms hereof and such failure shall continue for 30 days after written notice from the holder hereof specifying such failure and requesting that the same be remedied; or (d) any representation or warranty made by the Company in the Note Purchase Agreement shall prove to have been false or incorrect on the date on or as of which made in any respect material to the transactions contemplated by such Agreement; or (e) the entry of a decree or order for relief by a court having jurisdiction in the premises in respect of the Company or any subsidiary in an involuntary case under the federal bankruptcy laws, as now constituted or hereafter 4 5 amended, or any other applicable federal or state bankruptcy, insolvency or other similar laws, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of the Company or any subsidiary or for any substantial part of any of their property, or ordering the winding-up or liquidation of any of their affairs and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (f) the commencement by the Company or any subsidiary of a voluntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or any other applicable federal or state bankruptcy, insolvency or other similar laws, or the consent by any of them to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Company or any subsidiary or for any substantial part of their property, or the making by any of them of any assignment for the benefit of creditors, or the failure of the Company or any subsidiary generally to pay its debts as such debts become due; or (g) default as defined in any instrument evidencing or under which the Company or any subsidiary has outstanding at the time any indebtedness for money borrowed in excess of $2,000,000 in aggregate principal amount shall occur and as a result thereof the maturity of any such indebtedness shall have been accelerated so that the same shall have become due and payable prior to the date on which the same would otherwise have become due and payable and such acceleration shall not have been rescinded or annulled within 30 days; or (h) final judgment for the payment of money in excess of $200,000 shall be rendered against the Company or a subsidiary and the same shall remain undischarged for a period of 60 days during which execution shall not be effectively stayed; then, the holder of this Note may, at its option, by notice to the Company, declare this Note to be, and this Note shall thereupon be and become, forthwith due and payable together with interest accrued hereon without presentment, demand, protest or further notice of any kind, all of which are expressly waived to the extent permitted by law. At any time after any declaration of acceleration of this Note has been made as provided in this Section 10, the holder of this Note may, by notice to the Company, rescind such declaration and its consequences, if all other defaults and Events of Default (other than nonpayments of principal and interest that have become due solely by reason of acceleration) shall have been remedied or cured or shall have been waived pursuant to this paragraph; provided, however, that no such rescission shall extend to or affect any subsequent default or Event of Default or impair any right consequent thereon. 5 6 11. SUITS FOR ENFORCEMENT. In case any one or more of the Events of Default specified in Section 10 of this Note shall occur and be continuing, the holder of this Note may proceed to protect and enforce its rights by suit in equity, action at law and/or by other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in this Note or in aid of the exercise of any power granted in this Note, or may proceed to enforce the payment of this Note or to enforce any other legal or equitable right of the holder of this Note. In case of any default under this Note, the Company will pay to the holder hereof such amounts as shall be sufficient to cover the reasonable costs and expenses of the holder hereof due to said default, including, without limitation, collection costs and reasonable attorneys' fees, to the extent actually incurred. 12. REMEDIES CUMULATIVE. No remedy herein conferred upon the holder of this Note is intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. 13. REMEDIES NOT WAIVED. No course of dealing between the Company and the holder of this Note or any delay on the part of the holder hereof in exercising any rights hereunder shall operate as a waiver of any right of any holder of this Note. 14. SUBORDINATION. (a) Anything contained in this Note to the contrary notwithstanding, the indebtedness evidenced by this Note and any obligations arising in connection herewith shall be subordinate and junior, to the extent set forth in this Section 14, to all Senior Indebtedness of the Company. "Senior Indebtedness" shall mean the principal of, premium, if any, interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect thereto, whether or not such interest is an allowed claim under applicable law) on, and all fees, reimbursements, indemnity obligations (including any fees, reimbursements or indemnity obligations accruing subsequent to the filing of a petition of bankruptcy, whether or not such fees, reimbursements or indemnity obligations constitute an allowed claim under applicable law) and other obligations arising in connection with, the Credit Agreement (as defined below) and any other indebtedness for borrowed money of the Company, contingent or otherwise, now outstanding or created, incurred, issued, assumed or guaranteed in the future, other than indebtedness as to which the instrument creating or 6 7 evidencing the same or pursuant to which the same is outstanding expressly provides that such indebtedness is subordinate in right of payment to all other indebtedness of the Company. For purposes of this Note, "Credit Agreement" shall mean the Credit Agreement, dated as of October 12, 1994, as amended, among the Company, the Lenders named therein and Citibank, N.A., as successor to Wells Fargo Bank, National Association, as Administrative Agent (the "Agent"), together with any agreement entered into in connection with the restatement, renewal, extension, restructuring, refunding or refinancing of the Obligations. (A) In the event of any insolvency, bankruptcy, liquidation, reorganization, assignment for the benefit of creditors or other similar proceedings, or any receivership proceedings in connection therewith, relative to the Company or its creditors or its property, and in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Company, whether or not involving insolvency or bankruptcy proceedings, then all Senior Indebtedness shall first be paid in full in cash before any direct or indirect payment or distribution, whether on account of principal, interest or otherwise, is made upon this Note. (B) In any of the proceedings referred to in paragraph (A) above, any payment or distribution of any kind or character, whether in cash, property, stock or obligations which may be payable or deliverable in respect of this Note shall be paid or delivered directly to the holder of Senior Indebtedness for application in payment thereof, unless and until all Senior Indebtedness shall have been paid in full in cash. (C) No direct or indirect payments or distributions by or on behalf of the Company on or with respect to this Note (whether pursuant to the terms of this Note or upon acceleration or otherwise, or the payment of principal of or interest on this Note) shall be made until all Senior Indebtedness has been paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement. (b) Until and unless the Senior Indebtedness is indefeasibly paid in full in cash, the holder of this Note shall not be subrogated to any rights or claims of the holders of the Senior Indebtedness. Subject to the indefeasible payment in full in cash of all Senior Indebtedness as aforesaid, the holder of this Note shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of any kind or character, whether in cash, property, stock or obligations, which may be payable or deliverable to the holders of Senior Indebtedness, until the principal of, and interest on, this Note shall be paid in full in cash, and, as between the Company, its creditors other than the holders of Senior Indebtedness, and the holder of this Note, no such payment or distribution made to the holders of Senior Indebtedness by virtue of 7 8 this Section 14 which otherwise would have been made to the holder of this Note shall be deemed a payment by the Company on account of the Senior Indebtedness, it being understood that the provisions of this Section 14 are and are intended solely for the purposes of defining the relative rights of the holder of this Note, on the one hand, and the holders of Senior Indebtedness, on the other hand. Subject to the rights, if any, under this Section 14 of holders of Senior Indebtedness to receive cash, property, stock or obligations otherwise payable or deliverable to the holder of this Note, nothing herein shall either impair, as between the Company and the holder of this Note, the obligation of the Company, which is unconditional and absolute, to pay to the holder of this Note the principal hereof and interest hereon in accordance with the terms hereof or prevent (except as otherwise specified therein) the holder of this Note from exercising all remedies otherwise permitted by applicable law or hereunder upon default hereunder. (c) If any payment or distribution of any character, whether in cash, property, stock or obligations, shall be received by the holder of this Note in contravention of any of the terms hereof or before the Senior Indebtedness has been indefeasibly paid in full in cash and all obligations to provide financial accommodations under the Credit Agreement have terminated, such payment or distribution shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the holders of the Senior Indebtedness at the time outstanding in accordance with the priorities then existing among such holders for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all such Senior Indebtedness in full in cash. In the event of the failure of any such holder to endorse or assign any such payment or distribution, each holder of any Senior Indebtedness is hereby irrevocably authorized to endorse or assign the name. (d) The rights under these subordination provisions of the holders of any Senior Indebtedness as against the holder of this Note shall remain in full force and effect without regard to, and shall not be impaired or affected by: (i) any act or failure to act on the part of the Company; or (ii) any extension or indulgence in respect of any payment or prepayment of any Senior Indebtedness or any part thereof or in respect of any other amount payable to any holder of any Senior Indebtedness; or (iii) any amendment, modification or waiver of, or addition or supplement to, or deletion from, or compromise, release, consent or other action in respect of, any of the terms of any Senior Indebtedness or any other agreement which may be made relating to any Senior Indebtedness; or 8 9 (iv) any exercise or non-exercise by the holder of any Senior Indebtedness of any right, power, privilege or remedy under or in respect of such Senior Indebtedness or these subordination provisions or any waiver of any such right, power, privilege or remedy or of any default in respect of such Senior Indebtedness or these subordination provisions or any receipt by the holder of any Senior Indebtedness of any security, or any failure by such holder to perfect a security interest in, or any release by such holder of, any security for the payment of such Senior Indebtedness; or (v) any merger or consolidation of the Company or any of its subsidiaries into or with any other person, or any sale, lease or transfer of any or all of the assets of the Company or any of its subsidiaries to any other person; or (vi) absence of any notice to, or knowledge by, any holder of any claim hereunder of the existence or occurrence of any of the matters or events set forth in the foregoing clauses (i) through (v); or (vii) any other circumstance. (e) The holder of this Note unconditionally waives (i) notice of any of the matters referred to in Section 14(d), (ii) all notices which may be required, whether by statute, rule of law or otherwise, to preserve intact any rights of any holder of any Senior Indebtedness, including, without limitation, any demand, presentment and protest, proof of notice of nonpayment under any Senior Indebtedness or the Credit Agreement, and notice of any failure on the part of the Company to perform and comply with any covenant, agreement, term or condition of any Senior Indebtedness, (iii) any right to the enforcement, assertion or exercise by any holder of any Senior Indebtedness of any right, power, privilege or remedy conferred in such Senior Indebtedness or otherwise, (iv) any requirements of diligence on the part of any holder of any of the Senior Indebtedness, (v) any requirement on the part of any holder of any Senior Indebtedness to mitigate damages resulting from any default under such Senior Indebtedness, (vi) any marshalling by the holders of the Senior Indebtedness and (vii) any notice of any sale, transfer or other disposition of any Senior Indebtedness by any holder thereof. (f) The obligations of the holder of this Note under these subordination provisions shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Indebtedness, or any other payment to any holder of any Senior Indebtedness in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Indebtedness upon the occurrence of any proceeding referred to in paragraph (a)(A) hereof or upon or as a result of the appoint of a receiver, intervenor or conservator of, or trustee or similar officer for, the Company or any substantial 9 10 part of its property or otherwise, all as though such payment had not been made. (g) Notwithstanding anything to the contrary herein, the Company shall not at any time offer (and the holder hereof shall not at any time accept) (i) any pledge of collateral or (ii) any guaranty by any parent or subsidiary of the Company, in each case with respect to the obligations of the Company under this Note. (h) If payment of this Note is accelerated by the holder hereof pursuant to Section 10 because of an Event of Default, then the Company shall promptly notify the Agent under the Credit Agreement of such acceleration. 15. COVENANTS BIND SUCCESSORS AND ASSIGNS. All the covenants, stipulations, promises and agreements in this Note contained by or on behalf of the Company shall bind its successors and assigns, whether so expressed or not. 16. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 17. HEADINGS. The headings of the Sections and paragraphs of this Note are inserted for convenience only and do not constitute a part of this Note. 10 11 IN WITNESS WHEREOF, THE CERPLEX GROUP, INC. has caused this Note to be signed in its corporate name by one of its officers thereunto duly authorized and to be dated as of the day and year first above written. THE CERPLEX GROUP, INC. By: ------------------------------- Name: Title: EX-99.15 17 FORBEARANCE AND REPAYMENT AGREEMENT 1 EXHIBIT 99.15 FORBEARANCE AND REPAYMENT AGREEMENT FORBEARANCE AND REPAYMENT AGREEMENT, dated as of January 30, 1998 (the "Forbearance Agreement"), by and among The Cerplex Group, Inc., a Delaware corporation ("Company"), Aurora Electronics, Inc. ("Purchaser") and Citibank, N.A. (the "Holder"). Capitalized terms used and not otherwise defined herein shall have the meaning given such terms in that certain Credit Agreement dated as of October 12, 1994, by and among Company, as Borrower, the lenders listed therein, as Lenders, and Wells Fargo Bank, National Association, as Administrative Agent, as amended to date (as so amended, the "Credit Agreement"). WHEREAS, pursuant to the Credit Agreement, the Lenders (and their successors in interest, from time to time) made loans (the "Loans") to Company and the Holder has succeeded to all right, title and interest in the Loans, the outstanding principal amount of and accrued and unpaid interest on which, as of the date hereof, are set forth in Exhibit A hereto; WHEREAS, as of the date hereof, the Holder also holds warrants ("Warrants") to purchase Company Common Stock, the number of which are set forth on Exhibit A hereto; WHEREAS, Company and Purchaser and certain affiliates of Purchaser are negotiating an Agreement and Plan of Merger (the "Merger Agreement") which contemplates, among other things, a merger of Company and a wholly-owned subsidiary of Purchaser (the "Merger"), a loan by Purchaser to Company of not less than $2,000,000 (which loan shall be evidenced by a Note Purchase Agreement of even date with the Merger Agreement (the "Note Purchase Agreement")) and a recapitalization of Company, including the repayment of the Loans and cancellation of the Warrants pursuant to the terms hereof; and WHEREAS, as a condition to the Purchaser and Company continuing to negotiate the Merger Agreement and entering into the Merger Agreement, Company and the Purchaser desire that the Holder agree, and in order to induce the Purchaser and Company to continue such negotiations and so enter into the Merger Agreement, the Holder has agreed, to enter into this Agreement. NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows: ARTICLE I REPAYMENT OF LOAN; CANCELLATION OF WARRANTS 1.1 Repayment of Loans. Subject to the terms and conditions of this Agreement, in the event that the Merger Agreement and the Note Purchase Agreement are executed by the respective parties to such agreements on or prior to January 31, 1998, Company shall have 2 received cash proceeds in an amount equal to at least $2,000,000 on or prior to February 2, 1998 ("Step 1"), funds in an amount not less than $2,000,000 are transferred on or prior to February 2, 1998 by Purchaser to Company pursuant to the Note Purchase Agreement and payment of the Purchase Price (as defined below) is made on or prior to April 30, 1998, Company agrees to pay, and the Holder agrees to accept, as full repayment of the outstanding principal amount of the Loans under the Credit Agreement and as full consideration for cancellation of the Warrants an amount equal to the sum of (i) 98.5% of the outstanding principal amount of the Loans as of the Closing Date, plus (ii) all accrued and unpaid interest thereon as of the Closing Date, plus (iii) all accrued and unpaid fees, expenses and other amounts payable under the Credit Agreement as of the Closing Date, including, without limitation, the $62,500 final installment of the restructure fee and the $200,000 amendment fee (the "Purchase Price"). In the event that Step 1 does not occur on or prior to January 31, 1998 or in the event the Purchase Price is not paid on or prior to April 30, 1998, this Agreement shall be of no further force and effect. The Purchase Price shall be payable in cash in immediately available funds. 1.2 Effect of Purchase. Upon payment of the Purchase Price, all commitments to lend under the Credit Agreement shall terminate and all of the Holder's Warrants shall be cancelled. In addition, all other rights of the Holder with respect to Company, other than those rights that by their express terms survive the termination of the commitments under the Credit Agreement, shall be terminated, including but not limited to, the Holder's rights under (i) that certain Registration Rights Agreement dated as of November 19, 1993, by and among Company, the investors listed on Schedule A thereto and the security holders of Company listed on Schedule B thereto, as amended to date (as so amended, the "Registration Rights Agreement"); and (ii) the Credit Agreement. 1.3 Time and Place of Closing. The closing of the transactions contemplated hereunder (the "Closing") shall take place at the offices of Brobeck, Phleger & Harrison LLP in Newport Beach, California on April 30, 1998 (the "Closing Date"), or at such other time and place as the parties shall mutually agree upon. 1.4 Conditions Precedent. The obligations of Holder hereunder are subject to the satisfaction of the following conditions: (a) The Merger Agreement shall be in form and substance reasonably satisfactory to Holder. Holder shall have received a fully executed or conformed copy of the Merger Agreement and the Merger Agreement shall be in full force and effect and no provision thereof shall have been modified or waived in any respect determined by Holder to be material. (b) The Purchaser and Company shall have executed the Note Purchase Agreement providing for a loan to Company of an amount equal to at least $2,000,000 on or prior to January 31, 1998, and Company shall have received cash proceeds in an amount equal to at least $2,000,000 on or prior to February 2, 1998, from the issuance of subordinated indebtedness to the Purchaser, in either case pursuant to documentation in form and substance reasonably satisfactory to Holder. 2 3 ARTICLE II REPRESENTATIONS AND WARRANTIES Except where specifically indicated that a representation and/or warranty is being given by a specific party, each of the parties represents and warrants to the other parties that as to itself: 2.1 Organization and Standing. In the case of each of Purchaser and Company, (a) it is a corporation, duly organized and existing under, and by virtue of, the laws of the state of its incorporation and is in good standing under such laws and (b) it has the requisite corporate power to own and operate its properties and assets, and to carry on its business as presently conducted and as proposed to be conducted, and (c) it is duly qualified to do business and is in good standing in each jurisdiction in which the character of the business conducted by it or the location of the properties owned or leased by it make such qualification necessary, except for jurisdictions in which the failure to so qualify would not have a material adverse effect on its business. In the case of the Holder, (a) it is a national banking association, duly organized under the laws of the United States, and (b) it has the requisite power and authority to own its properties and assets, and to carry on its business as presently conducted. 2.2 Power. In the case of Purchaser and Company, it has all requisite legal and corporate power and authority to execute and deliver this Agreement and to carry out and perform its obligations under the terms of this Agreement. In the case of Holder, it has all requisite legal power and authority to execute and deliver this Agreement and to carry out and perform its obligations under the terms of this Agreement. 2.3 Title. In the case of the Holder, it has all right, title and interest in the Loans and the Warrants, free and clear of all encumbrances. 2.4 All Obligations and Securities. In the case of the Holder, (a) other than the Warrants, the Holder does not own, either directly or indirectly, any securities issued by Company, (b) as of the date hereof, the Loans, accrued interest thereon, fees in an aggregate amount of $200,000 and reimbursement for outstanding attorneys' fees and other amounts (in an aggregate amount equal to approximately $100,000) constitute all amounts owed by Company under the Credit Agreement, and (c) Company has no obligations to the Holder other than obligations arising pursuant to the Registration Rights Agreement, the Warrant Agreement, the Warrants and the Credit Agreement. 2.5 Absence of Default. (a) As of the date hereof and after giving effect to that certain Seventh Amendment to Credit Agreement and Limited Waiver by and between Company and Holder, there exists no Event of Default or Potential Event of Default under the Credit Agreement. 3 4 (b) Except with respect to the matters disclosed to Holder prior to the date hereof, all representations and warranties contained in the Credit Agreement and the other Loan Documents are true, correct and complete in all material respects on and as of the date hereof 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. ARTICLE III COVENANTS OF THE PARTIES 3.1 Restriction on Exercise. Until and unless this Agreement has been terminated, the Holder shall not exercise any of its Warrants. 3.2 Restriction on Transfer. Until and unless this Agreement has been terminated, the Holder shall not, without the prior written consent of Company, offer to sell, sell, contract to sell, or otherwise dispose of any Warrants until and unless the transferee of such Warrants has agreed in writing to be bound by the terms of this Forbearance Agreement, and Company has consented in writing to such transfer (which consent shall not be unreasonably withheld). 3.3 Confidentiality. The Holder agrees to keep confidential the existence and the terms of this Agreement and any information it obtains, from time to time, regarding the Merger Agreement and the transactions contemplated thereby. 3.4 Further Assurances. Subject to the conditions to consummation of the Merger set forth in the Merger Agreement, each party agrees to use its commercially reasonable efforts to take, or cause to be taken, all appropriate action, and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective the transactions contemplated by this Agreement. If any further action is necessary or desirable to carry out the purposes of this Agreement, each party shall use its commercially reasonable efforts to take, or cause to be taken, all such action as promptly as practicable. 3.5 Legal Fees. If, upon payment of the Purchase Price and after payment of any outstanding legal fees to counsel for Holder in connection with this Forbearance Agreement and the transactions contemplated hereby, there is any amount remaining of the funds on deposit with counsel for Holder as required by Section 6.20 of the Credit Agreement, Holder shall cause counsel to Holder to promptly refund to Company the balance of any such amount. ARTICLE IV MISCELLANEOUS 4.1 Counterparts. This Agreement may be executed and delivered (including by facsimile transmission) in one or more counterparts, and by the different parties hereto in separate 4 5 counterparts, each of which when executed and delivered shall be deemed to be an original but all of which taken together shall constitute one and the same instrument. 4.2 Termination. This Agreement shall terminate if the Closing does not occur on or before April 30, 1998 and shall be of no further force or effect thereafter. 4.3 Assignment. Except as set forth in Section 3.2 hereof, this Agreement shall not be assigned by any party by operation of law or otherwise without the prior written consent of each of the other parties hereto. 4.4 Specific Performance. Each of the parties hereto acknowledges that a breach by it of any agreement contained in this Agreement will cause the other party to sustain damage for which it would not have an adequate remedy at law for money damages, and therefore each of the parties hereto agrees that in the event of any such breach the aggrieved party shall be entitled to the remedy of specific performance of such agreement and injunctive and other equitable relief in addition to any other remedy to which it may be entitled, at law or in equity. 4.5 Binding Upon Successors. This Agreement is binding upon and will inure to the benefit of the parties hereto and their respective successors and permitted assigns. 4.6 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of California, without giving effect to the principles of conflicts of law. 5 6 IN WITNESS WHEREOF, Company, the Purchaser and the Holder have caused this Agreement to be duly executed as of the date first above written. THE CERPLEX GROUP, INC. By: ____________________________________ Name: Title: AURORA ELECTRONICS, INC. By: ____________________________________ Name: Title: CITIBANK, N.A. By: ____________________________________ Name: Title: 6 7 EXHIBIT A Credit Agreement Loans 1. Term Loan (as of 1/30/98): Principal Outstanding: 25,320,602.21 Interest Outstanding: 340,685.19 2. Revolver Loans (as of 1/30/98): Principal Outstanding: 4,886,984.14 Interest Outstanding: 68,769.42
Warrants: WR-9 Issued on August 20, 1997 for 2,137,188 shares of Common Stock A-1 EX-99.16 18 SEVENTH AMENDMENT TO CREDIT AGREEMENT 1 EXHIBIT 99.16 E X E C U T I O N C O P Y THE CERPLEX GROUP, INC. SEVENTH AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER This SEVENTH AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER (this "AMENDMENT") is dated as of January 30, 1998 and entered into by and among THE CERPLEX GROUP, INC., a Delaware corporation ("COMPANY"), the FINANCIAL INSTITUTION LISTED ON THE SIGNATURE PAGES HEREOF ("LENDER") and CITIBANK, N.A., as successor to Wells Fargo Bank, National Association, 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. and Modcomp Joint Venture, Inc. (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, that certain Second Amendment to Credit Agreement and Limited Waiver dated as of November 30, 1996, that certain Third Amendment to Credit Agreement dated as of April 9, 1997, that certain Fourth Amendment to Credit Agreement and Limited Waiver dated as of May 30, 1997, that certain Fifth Amendment to Credit Agreement and Limited Waiver dated as of June 30, 1997 and that certain Sixth Amendment to Credit Agreement and Consent dated as of August 6, 1997 (as so amended, the "CREDIT AGREEMENT"), by and among Company, Lender and Administrative Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Company and Lender have agreed to amend certain provisions of the Credit Agreement. NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: 1 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 adding the following definition in appropriate alphabetical order: "'CONSOLIDATED ADJUSTED EBITDA' means, for any period, the sum of the amounts for such period of (i) Consolidated Net Income, (ii) Consolidated Interest Expense, (iii) the provision for taxes based on income, (iv) total depreciation expense, and (v) total amortization expense, all of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP." SECTION 1.2 AMENDMENTS TO SECTION 7: COMPANY'S NEGATIVE COVENANTS. A. Subsection 7.5 of the Credit Agreement is hereby amended to read in its entirety as follows: "Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Junior Payment; provided that Subsidiaries of Company may declare and pay dividends to Company." B. Subsection 7.6 of the Credit Agreement is hereby amended by adding the following as new subsection 7.6G thereof: "G. MINIMUM EBITDA. Company shall not permit Consolidated Adjusted EBITDA for any period set forth below to be less than the correlative amount indicated:
Minimum Consolidated Month Adjusted EBITDA ----- --------------- January 1, 1998 through January 31, 1998 $ 300,000 January 1, 1998 through February 28, 1998 $ 900,000 January 1, 1998 through March 31, 1998 $1,900,000"
2 3 SECTION 1.3 AMENDMENTS TO SECTION 8: EVENTS OF DEFAULT. A. Section 8 of the Credit Agreement is hereby amended by adding the word "or" at the end of subsection 8.14 thereof and adding the following as new subsection 8.15 thereof: "8.15 MERGER. (i) Company shall fail to file preliminary proxy materials with the Securities and Exchange Commission regarding the proposed merger with Holly Acquisition Corp., a Delaware corporation ("HOLLY"), on or prior to April 1, 1998, (ii) Company shall fail to mail definitive proxy materials to its stockholders regarding the proposed merger with Holly or prior to April 20, 1998, (iii) Company, Holly or Aurora Electronics, Inc., a Delaware corporation, shall terminate the agreement with respect to the proposed merger or (iv) Company shall fail to make the required Hart Scott Rodino filing on or prior to April 1, 1998; or" SECTION 1.4 AMENDMENTS TO EXHIBITS AND SCHEDULES. A. Exhibit V of the Credit Agreement is hereby amended by adding the following thereto: "K. CONSOLIDATED ADJUSTED EBITDA 1. Consolidated Net Income: $_________ 2. Consolidated Interest Expense: $_________ 3. The provision for taxes based on income: $_________ 4. Total depreciation expense: $_________ 5. Total amortization expense: $_________ 6. Consolidated Adjusted EBITDA (1+2+3+4+5): $_________ 7. Minimum Consolidated Adjusted EBITDA required under subsection 7.6G: $_________" 3 4 SECTION 2. WAIVER Subject to the terms and conditions set forth herein and in reliance on the representations of Company herein contained: (i) Lender hereby waives compliance with the provisions of subsection 7.1 of the Credit Agreement to the extent necessary to permit Company to incur unsecured Subordinated Indebtedness to Aurora Electronics, Inc., a Delaware corporation ("Aurora"), in an amount not to exceed $10,000,000; provided such Subordinated Indebtedness provides for no current cash payments of interest, principal or any other amounts and is subordinated in right of payment to the Obligations in full in cash pursuant to documentation containing maturities, subordination provisions and other terms in form and substance satisfactory to Administrative Agent and Lender. (ii) Lender hereby waives compliance with the provisions of subsections 7.6A, 7.6B, 7.6D, 7.6E and 7.6F of the Credit Agreement for the fiscal quarter of Company ended December 31, 1997 and subsection 7.6C of the Credit Agreement for the period from and including December 31, 1997 to and excluding April 30, 1998; provided, however, that such waiver shall be of no further force and effect in the event that (a) the Merger Agreement is terminated, (b) the holders of any Subordinated Indebtedness of Company or any of its Subsidiaries demand payment of any amount in respect of such Subordinated Indebtedness or (c) any payment of principal, interest or any other amount is made by Company in respect of any Subordinated Indebtedness of Company or any of its Subsidiaries. (iii) Lender hereby waives compliance with the provisions of subsection 7.7 of the Credit Agreement to the extent necessary to (a) permit Company to execute an Agreement and Plan of Merger among Company, Aurora and Holly Acquisition Corp. in form and substance satisfactory to Lender (the "MERGER AGREEMENT") and (b) permit Company to consummate the merger contemplated thereby provided that simultaneously with the consummation of such merger all principal, interest, fees, expenses and other amounts owing to Lender are paid in full in accordance with the terms of the Credit Agreement or that certain Repayment Agreement dated as of January 30, 1998 among Company, Aurora and Citibank, N.A., as the case may be. SECTION 3. 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 "SEVENTH AMENDMENT EFFECTIVE DATE"): A. On or before the Seventh Amendment Effective Date, Administrative Agent shall have received for Lender counterparts hereof duly executed on behalf of Company, Administrative Agent, Lender and each Guarantor. 4 5 B. Administrative Agent shall have received: 1. Resolutions of Company's Board of Directors approving and authorizing the execution, delivery, and performance of this Amendment, certified as of the Seventh Amendment Effective Date by its corporate secretary or an assistant secretary as being in full force and effect without modification or amendment; and 2. Signature and incumbency certificates of the officers of Company executing this Amendment. C. On or before the Seventh Amendment Effective Date, Lender and its counsel shall have received duly executed copies of an agreement, in form and substance reasonably satisfactory to Lender, providing that no interest on the Subordinated Notes shall be made in cash until all principal, interest, fees, expenses and other amounts are paid under the Credit Agreement. SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lender to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company represents and warrants to 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 Lender), 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. 5 6 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, other than subsection 5.14, are and will be true, correct and complete in all material respects on and as of the Seventh 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. H. SUBORDINATED NOTES. As of the date hereof, the Subordinated Notes are owned beneficially and of record by Welsh, Carson, Anderson & Stowe VII, L.P. SECTION 5. ACKNOWLEDGEMENT AND CONSENT Company is a party to the Company Collateral Documents, in each case as amended through the Seventh 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 6 7 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 Seventh 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 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 the Seventh 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. Without limiting the generality of the provisions of subsection 10.6 of the Credit Agreement, the waiver set forth herein shall be limited precisely as written and relates solely to the noncompliance by Company with the provisions of subsections 7.1, 7.6A, 7.6B, 7.6C, 7.6D, 7.6E, 7.6F and 7.7 of the Credit 7 8 Agreement in the manner and to the extent described above. Nothing in this Amendment shall be deemed to: (a) constitute a waiver of compliance by Company with respect to (i) subsection 7.1, 7.6A, 7.6B, 7.6C, 7.6D, 7.6E, 7.6F or 7.7 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 (b) 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 Amendment) or may have in the future under or in connection with the Credit Agreement or any other instrument or agreement referred to therein. 3. 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. 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. 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. 8 9 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:_____________________________________ CITIBANK, N.A., INDIVIDUALLY AND AS ADMINISTRATIVE AGENT By:________________________________________ Title:_____________________________________ S-1 -----END PRIVACY-ENHANCED MESSAGE-----